TMI Blog2020 (2) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... at the dividend income of ₹ 51,250/- stated to be earned by the assessee has been found to be taxable and Ld. AO has been directed to include the same while computing taxable income. Therefore, there would be no exempt income earned by the assessee and hence, no disallowance u/s 14A would be warranted as held by Hon ble Madras High Court in Chettinad Logistics P. Ltd. [ 2017 (4) TMI 298 - MADRAS HIGH COURT ] as relied upon by Ld. CIT(A). Therefore, finding no fault in the adjudication of Ld. CIT(A), we dismiss this ground of appeal. Disallowance u/s 36(1)(iii) - AO was directed by CIT-A to exclude interest on letter of credit interest on car loan while computing the disallowance and consider only the balance interest component while computing the proportionate disallowance. HELD THAT:- We find that Ld. CIT(A) has clinched the issue in correct perspective and met the assessee s submissions with due application of mind. No fault could be found in the directions of Ld. CIT(A) for exclusion of interest on letter of credit and interest on car loan since the same did not have any nexus with interest free loans advanced by the assessee. Resultantly, this ground stand dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GP shown by the assessee. 2. Same as Ground No.1 3 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance u/s 14A of the IT Act r.w.r. 8D of ₹ 2,89,114 relying upon the decision in the case of Chettinad Logistics (P) Ltd. (80 taxmann.com 221) where the Hon'ble Supreme Court has dismissed the SLP of the department. However, vide CBDT Circular No. 5/2014 dated 11.02.2014 it is clarified that rule 8D read with Section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 4. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the disallowance u/s 36(1)(iii) of the IT Act, 1961 where assessee failed to prove that interest paid have been utilized wholly and exclusively for the business purpose. 5. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the disallowance u/s 40(a)(ia) of the IT Act, 1961 where assessee failed to deduct tax at source on the reimbursement as per Circular No. 715 dated 08.08.2015. 1.4 We have carefull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order, took note of the fact that during the course of survey action, soft copy of the books of accounts were impounded which also had quantitative details of corresponding sales booked against the purchases so made. It was further observed that the assessee had booked back to back sales against the purchases made from various suppliers including purchases made from 4 suspicious dealers. Therefore, since there was one-to-one correlation between the purchases and sales, the entire tainted purchases could not be added to the income of the assessee but only the profit element embedded in such transactions could be added keeping in view settled legal proposition that tax could be levied only on real income. Reliance was placed on the decision of Hon ble Bombay High Court in Hariram Bhambhani (ITA No. 313 of 2013) for the conclusion that only profit attributable to the unaccounted sales could be brought to tax. Similar reliance was placed on the decision of Hon ble Gujarat High Court in Bholanath Polyfab Pvt. Ltd. (355 ITR 290), Simit P.Sheth (38 Taxmann.com 385) and Sanjay Oil Cake Ind. (316 ITR 274). Applying the ratio of these decisions, Ld. CIT(A) estimated additions @1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Resultantly, the assessee s appeal stand partly allowed whereas Ground Nos. 1 2 of revenue s appeal stand dismissed. Disallowance u/s 14A 6.1 During assessment proceedings, it transpired that the assessee had closing investment of ₹ 435.28 Lacs as compared to opening investment of ₹ 4.62 Lacs. The assessee earned exempt dividend income of ₹ 51,250/- but did not offer any suo-moto disallowance u/s 14A by submitting that no expenditure was incurred to earn the exempt income. However, not satisfied, Ld. AO applying Rule 8D, computed aggregated disallowance of ₹ 2.89 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for ₹ 1.79 Lacs and expense disallowance u/r 8D(2)(iii) for ₹ 1.09 Lacs. 6.2 Before Ld. CIT(A), the assessee pointed out that the dividend income of ₹ 51,250/- was not exempt income but a taxable income. Accordingly, Ld. CIT(A) directed Ld. AO to include this income as taxable income but directed for deletion of disallowance u/s 14A since no exempt income was earned by the assessee during the year, relying upon the decision of Hon ble Madras High Court rendered in Chettinad Logistics P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free advances of ₹ 620.42 Lacs were more than own capital of ₹ 609.09 Lacs. However, Ld.AO was directed to exclude interest on letter of credit interest on car loan aggregating to ₹ 6.01 Lacs while computing the disallowance and consider only the balance interest component of ₹ 5.65 Lacs while computing the proportionate disallowance. 7.4 Upon due consideration, we find that Ld. CIT(A) has clinched the issue in correct perspective and met the assessee s submissions with due application of mind. No fault could be found in the directions of Ld. CIT(A) for exclusion of interest on letter of credit and interest on car loan since the same did not have any nexus with interest free loans advanced by the assessee. Resultantly, this ground stand dismissed. Disallowance u/s 40(a)(ia) 8.1 It was observed that the assessee did not deduct tax at source (TDS) on certain expenses aggregating to ₹ 17.44 Lacs stated to be paid to various parties. The same are tabulated in para-19 of the quantum assessment order. These expenses were stated to be incurred in the course of import of material. In defense, the assessee submitted that these exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely due to low tax effect and therefore, it could not be said that the matter has attained finality. 8.5 Upon due consideration, we concur with the submissions of Ld. DR that the matter could not be said to have attained finality since the appeal was dismissed only due to low tax effect. However, the undisputed position that emerges is that the assessee has duly deducted tax at source against service charges whereas no tax has been deducted against mere reimbursements. These reimbursements were supported by the supporting bills of the agents and there was no profit element in it. All these expenses were pure reimbursement in nature. This being the case, no TDS was required on such reimbursements. The decision of this Tribunal in Utility Powertech Ltd. V/s ACIT (ITA No. 2561/Mum/2009) also supports the same view. This decision has been rendered after considering the decision of Hon ble Bombay High Court in CIT V/s Siemens Aktiongesellschaft (310 ITR 320). Therefore, we find no fault in the action of Ld. CIT(A) in deleting the same by relying upon the order for AY 2012-13. This ground stands dismissed. Conclusion 9. The assessee s appeal st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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