TMI Blog2020 (6) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of investment in the present case. In this connection, we find support and guidance from the judgment in the case of Reliance Utilities [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] wherein held if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments - Thus we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above under the provision of section 14A r.w.r. 8D - Decided in favour of assessee. Addition of administrative expenses - HELD THAT:- AR at the time of hearing has not advanced any argument about the disallowance made by the authorities below. Accordingly we confirm the disallowance for the administrative expenses made by the authorities below. Hence the ground of appeal of the assessee is partly allowed. MAT computation - Working out the book profit under the provisions of section 115 JB for disallowance u/s 14A - HELD THAT:- We hold that the disallowances made under the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the Assessee is directed against the order of the Ld. CIT(A)-2, Ahmedabad dated 24.09.2015 pertaining to A.Y. 2012-13. 2. The 1st issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO for ₹ 17,44,117/- on account of interest expenses paid to the related parties being excessive. 3. The facts in brief are that the assessee is a private limited company and engaged in the business of distribution of pharmaceutical product, C F agent, and consignee agent and rental income. The AO during the assessment proceedings found that the assessee had paid interest on the borrowed fund at different rates ranging from 12% to 24% per annum. Accordingly, the AO worked out the reasonable rate of interest being 18% on the fund borrowed from the relatives. As such the AO disallowed the amount of interest expenses with respect to 7 parties which was in excess of 18% being ₹ 17,44,117/- and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to the learned CIT (A). 5. The assessee before the learned CIT (A) submitted that it has borrowed fund from the relatives without furnishing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate .'of interest payable to the relatives. . 3.5. The appellant has not submitted any justifiable reasons of making the payment of interest at higher rates at 24%, while similarly it was paying the interest @ 12% to the outside parties. Since the prevailing interest rate in the market was obviously 12% which was paid to the outsiders. Even though the AO granted the interest @ 18% p.a. in place of 24% which is fair and reasonable and accordingly, the differential interest rate of 6% was worked out in respect of seven parties amounting to ₹ 17,44,117/- as per the table provided on Page 3 of the assessment order and the same was disallowed. The AOs observations are found reasonable, considering the fair interest rate prevalent on the time and the disallowance was correctly made by the AO. In other words, the AO has granted even the interest @18% to the related parties even though the appellant himself was paying the interest @ 12% to the outside parties. Therefore, the AOs approach in this regard is was correct and reasonable, and hence, the disallowance made by the AO is confirmed. The ground of the appeal is dismissed. 8. Being aggrieved by the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no disallowance has been made in respect of interest paid on borrowed funds in earlier years, then in subsequent years, wherein interest has been paid on opening balances of such loans, interest expenses cannot be disallowed. Reliance is placed on: CIT vs. Sridev Enterprise - 192 ITR 165 (Kar) Virendra R. Gandhi vs. ACIT (Guj HC) (Annexure D ); In light of the above, interest on opening balances deserves to be allowed. 10. On the other hand the learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 11. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates to the disallowance of the interest expenses paid on the money borrowed from the related parties as specified under section 40A(2)(b) of the Act. The assessee has paid interest at the rate of 24% whereas the Revenue was of the view that the rate of interest at 18% is reasonably enough. Accordingly the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account maintained by the assessee so that the basis of a concluded assessment would not be ignored without actually reopening the assessment. The principle is similar to the cases where it has been held that a debt which had been treated by the revenue as a good debt in a particular year cannot subsequently be held by it to have become bad prior to that year. The Tribunal was, therefore, justified in holding that since no additions had been made in earlier years, the opening debit balance could not be considered during the current year and the enquiry had to be limited to the increase in the current year only. 14. In view of the above, we hold that there cannot be any disallowance on account of interest expenses being excessive paid to the related parties under section 40A of the Act. Hence we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 15. The 2nd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO in part amounting to ₹ 70695/- only. 16. The assessee in the year under consideration has earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproducedbelow:- Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A. 24. Similarly, we also find support from the judgment of Hon ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A . 25. In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above under the provision of section 14A r.w.r. 8D of Income Tax Rules. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him on account of the interest expenses. 26. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: 35. The ratio laid down by the Hon ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) of explanation 1 to section 115JB of the Act. 36. However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.2014 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- In view of above discussion, the computation under clause (f) of Explanation 1 to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees Provident fund and ESIC is not eligible for deduction by virtue of the decision of Hon ble Gujarat High Court in the case of CIT vs. GSRTC reported in 366 ITR 170 wherein it was held as under: In view of the above and considering section 36(1)(va), read with sub-clause (x) of clause (24) of section 2, it is to be held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies, the assessee shall has erred in deleting respective disallowances being employees' contribution to PF Account/ESI be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees account in the relevant fund or funds on or before the 'due date' mentioned in Explanation to section 36(1)(va). Consequently, it is held that the Tribunal Account made by the Assessing Officer as, as such, such sums were not credited by the respective assessee to the employees 'accounts in the relevant fund or funds on or before the due date as per the Explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown . Hon ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly , and also observed that arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020 . It has been an unprecedented situation not only in India but all over the world. Government of India has, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod during which the normal time limits are to remain in force. In our considered view, even without the words ordinarily , in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case. 11. To sum up, the appeal of the assessee is allowed, and appeal of the Assessing Officer is dismissed. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board. Considering the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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