TMI Blog2020 (9) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... irety. Therefore, it will be appropriate to remand back this issue to the file of the AO for proper adjudication. Ground Nos. 1 and 2 are partly allowed for statistical purpose. Disallowance u/s 14A r.w.s. Rule 8D - proximate cause between exempt income and expenses incurred to earn such income - HELD THAT:- AR submitted that the assessee has earned exempt income to the tune of ₹ 2,86,370/- whereas the Assessing Officer has made disallowance amounting to ₹ 10,58,926/-. The CIT(A) as well as Assessing Officer has not looked into the aspect of actual exempt income and the investment at large. Therefore, this issue also needs to be verified in its entirety. Addition on account of deemed dividend u/s 2(22)(e) - HELD THAT:- Section 2(22)(e) of the Act is not applicable in cases of companies in which public are substantially interested and the assessee company is a Public Limited Company and therefore, provisions of Section 2(22)(e) cannot be applied. Admittedly, the assessee company is registered with stock exchange and fulfill all the conditions of Section 2(18) which is definition of company in which public is substantially interested. Thus, the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket value of land is higher and stamp duty has been paid on the higher value which proves the rate of land in that are at the relevant period. But from the perusal of the Assessment order it cannot be seen that the Assessing Officer has brought out any evidence to substantiate that any amount more than what has been recorded in the sale deed was paid by the assessee and in the absence of any such evidence, no addition can be made merely on the basis of presumption. CIT(A) rightly deleted this addition and there is no need to interfere with the findings of the CIT(A). - ITA No. 2428/DEL/2014, ITA No. 2652/DEL/2014, ITA No. 2429/DEL/2014 - - - Dated:- 11-9-2020 - Shri R. K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. Salil Kapoor, Adv For the Respondent : Sh. Saras Kumar, Sr. DR ORDER PER SUCHITRA KAMBLE, JM These three appeal are filed by the Revenue and the assessee against the orders dated 21/2/2014 for Assessment Year 2008-09 2009-10 respectively passed by CIT(A) s-XI, New Delhi. 2. The grounds of appeal are as under:- ITA No. 2428/Del/2014 (A.Y. 2008-09) 1. That the Ld. CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts of the case in deleting the disallowance of interest to ₹ 12,87,839/-. 5. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting the addition of ₹ 28,44,800/- made by A.O. on a/c of unexplained investment in land u/s 69 of the I.T. Act. 6. (a) The order of the CIT (A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/ all of the grounds of appeal before or during the course of the hearing of the appeal. ITA No. 2429/Del/2014 (2009-10) 1. That the Ld. AO has erred in law in making addition of ₹ 9.97 Lac u/s 14A r.w.s. Rule 8D without establishing the proximate cause between exempt income and expenses incurred to earn such income. 2. That the Ld. CIT(A) has erred on facts and in law in confirming the disallowance made by the AO of ₹ 3.60 lac representing 18% notional interest calculation on Advance of Rs. Lac given against property in the Real Estate business of Appellant Company holding that the same is not earning any interest income without appreciating that the Assessee Company is available with In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. 5. As regards to Ground Nos. 1 and 2 of the Assessee s appeal relating to sustaining disallowance of interest on advance made towards purchase of property to the extent of ₹ 12,87,839/-, the Ld. AR submitted that the assessee company had advanced ₹ 6.37 Cr. towards purchase of property out of which ₹ 17 lacs had been paid in A.Y. 2007-08. These advances were received back in subsequent assessment years (A.Y. 2009-10 and A.Y. 2010- 11) as the deal could not materialize and hence the amount advanced towards it was received back. The Assessing Officer disallowed interest amounting to ₹ 1,14,66,000/- calculated at the rate of 18%, observing that the aforesaid amount was not advanced by the Assessee during the ordinary course of its business. In appeal before the CIT(A), the CIT(A) rejected the contention of the Assessee that the aforesaid sum was advanced towards the purchase of property during its ordinary course of business, however it restricted the disallowance to ₹ 12,87,839/- by computing the proportionate interest as per the number of days for which the said amount was advanced to the parties. The Ld. AR submitted that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. As is evident from the assessee s submissions before the CIT(A), the assessee failed to substantiate its claim that the loan/advance was meant for real estate business i.e. for purchasing the property. Neither any agreement to purchase nor any receipt showing that the advance was meant for buying the property, has been furnished by the assessee. Even at the end of such a loan, in none of the cases, the purchase of property got materialized. The CIT(A) observed that the money advanced to four persons but in none of the cases, a single deal could materialize and the entire amount (except ₹ 20 lac in the case of Shri Shiv Dayal) was got refunded to the assessee. Therefore, the Assessing Officer s action in holding that the advance was not meant for business purpose was justified. As regards having sufficient interest free funds, the assessee was making investments from common pool of funds from where it has already made huge investments in its NBFC business, in its acquiring of fixed assets and giving share application money. Therefore, the presumption of the assessee that such advance of ₹ 6.37 crores was out of available interest free funds. The Ld. DR further relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AR relied upon the following decisions: a. Godrej Boyce Manufacturing Company vs. DCIT 2017 (394) ITR 449 (SC) b. Pr. CIT vs. M/s Hindustan Clean Energy Ltd. ITA 268/2018 (Del. HC) There is no proximate nexus between the expenditure incurred and the exempt income earned and therefore, the Assessing Officer has wrongly applied and computed disallowance u/s 14A of the Act. Even otherwise the disallowance is wrongly computed as for the purpose of making disallowance u/s 14A, only those investments from which exempt income is derived are to be considered. The investment in the present case from which the exempt income is derived is only ₹ 36,77,947/- whereas while making the disallowance u/s 14A, the Assessing Officer has taken the amount of total investments. The Ld. AR relied upon the following decisions: a. ACB India Ltd. vs. ACIT (2015) 374 ITR 108 (Del. HC) b. ACIT vs. Vireet Investment (P.) Ltd. (2017) 58 ITR (T) 313 (Del. Tri.)(SB) c. PCIT vs. Caraf Builders Construction (P.) Ltd. (2019) 414 ITR 122 (Del.) d. PCIT vs. Caraf Builders Construction (P.) Ltd. (2019) 112 taxamann.com 322 (SC) Furthermore, the Assessing Officer as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself was at ₹ 1,99,71,495/- while the closing investment was to the tune of ₹ 4,24,71,495/-. Therefore, the assessee s claim that investment attributable to dividend was from small portion of total shareholder fund is misconceived and rightly rejected by the Assessing Officer as well as by the CIT(A). The assessee failed to establish that no interest bearing funds was ever invested in investments which yielded or shall yield tax free dividend income. Since the statute have provided a scientific method of making disallowance under Rule 8D of the Income Tax Rule, 1962. Thus, the Assessing Officer was right in making a disallowance under Rule 8D(2)(ii) and 8D(2)(iii) of the Rules. 10. We have heard both the parties and perused the material available on record. The Ld. AR submitted that the assessee has earned exempt income to the tune of ₹ 2,86,370/- whereas the Assessing Officer has made disallowance amounting to ₹ 10,58,926/-. The CIT(A) as well as Assessing Officer has not looked into the aspect of actual exempt income and the investment at large. Therefore, this issue also needs to be verified in its entirety. Needless to say, the assessee be given o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable in its hand. This onus of the assessee company has not been discharged. The assessee company was also put on notice that in case of failure of which ₹ 77,00,000/- and ₹ 80,01,866/- will become taxable within the scope of section 2(22)(e) of the Act. Thus, the Assessing Officer rightly observed that the assessee company has diverted its taxable income / profit to its Group Associates company and to the extent of ₹ 77 lakhs and ₹ 80,01,866/- totaling ₹ 1,57,01,866/- and this diversion of profit is in the nature of loans and advances to Shanra India Pvt. Ltd. and Garuda Resorts Pvt. Ltd. 12. The Ld. AR submitted in respect of Ground No. 1 of the Revenue s appeal relating to deletion of addition on account of deemed dividend u/s 2(22)(e) of the Act amounting to ₹ 1,57,01,866/- that the assessee company had given share application money amounting to ₹ 1,57,01,866/- to two companies namely M/s Shanara India Pvt. Ltd. (₹ 77Lac) and M/s Garuda Resorts Pvt. Ltd. (₹ 80.01 Lac), who happened to be the associate companies of the assessee. The Assessing Officer issued a show cause notice to the assessee to state as to why additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /advance received by the assessee company. The assessee is a NBFC and is as such covered by the exclusion clause provided under provision of Section 2(22)(e) of the Act. The amounts in question have not been paid during the year under consideration. The assessee company had given the share application money in years prior to assessment year 2008-09. The case of the assessee is covered in its favour by the following decisions: a. DCIT vs. Sindhu Realtors Pvt. Ltd. b. DCIT vs. Sindhu Holdings Ltd. 13. We have heard both the parties and perused all the relevant material available on record. From the perusal of records it can be seen that the assessee has given the money in question and not received the share application money, therefore provisions of Section 2(22)(e) cannot be applied. Section 2(22)(e) of the Act is attracted only when a shareholder having shares not less than 10% receives any advance or loan from a company or any concern, any advance or loan from that company in which such shareholder has substantial interest, i.e. 20% shareholding. The assessee is the payer in the present case and not holding any shares in the companies to which it has given share applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the P L account the assessee has debited an amount of ₹ 1,46,26,217/- as interest on loans and ₹ 1,25,682/- as bank charges. The fact that assessee has taken interest bearing loan, itself is testimony that the assessee had no surplus fund in so far as giving of non-interest bearing fund to other company / persons. Thus, the Assessing Officer has rightly disallowed the interest @ 18% per annum amounting to ₹ 3,60,000/-. 15. The Ld. AR submitted that the assessee company had given share application money amounting to ₹ 20,00,000/- to M/s Global Estate Developers Pvt. Ltd. The Assessing Officer issued a show cause notice to the assessee to state as to why proportionate interest should not be disallowed in the case of share application money paid to non associate companies. In response thereto the Assessee submitted that in view of sufficient interest free funds, no disallowance of interest should be made, however, the contention of the assessee was rejected by the Assessing Officer and the Assessing Officer disallowed proportionate interest amounting to ₹ 3,60,000/- alleging that the assessee had given interest free loan/advance to the said company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was not for business purposes. Furthermore, it was observed by the CIT(A) that given share application money to the same company in A.Y. 2006-07 also, but no notional disallowance was made by the Assessing Officer in that assessment year. The CIT(A) was right in deleting the said addition as similar share application money was given in earlier assessment year and no such disallowance of interest has been made therein. The Revenue cannot without any reasonable cause change its stand for the present assessment year. Therefore, when there is no change in the facts of the present case, then no disallowance in the present assessment year can be made. Ground No. 2 of the Revenue s appeal is dismissed. 17. As regards to Ground No. 3 of the Revenue s appeal relating to deletion of interest income on accrual basis amounting to ₹ 25,84,841/-, the Ld. DR submitted that the assessee was given a show cause in respect of certain advances amounting to ₹ 11,09,14,347/- out of which certain amounts were reduced. The same are as under: a) Un-matured interest charges ₹ 24,22,575/- b) Un-matured interest charges NPA ₹ 1,62,266/- The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR submitted that the contentions taken in assessee s appeal for Ground No. 1 and 2 be taken into account. The Ld. DR relied upon the Assessment Order. 22. We have heard both the parties and perused all the relevant material available on record. The Ground Nos. 1 and 2 of assessee s appeal is challenging the remaining amount which was confirmed by the CIT(A), hence the same reasoning which we have given for Ground Nos. 1 and 2 will apply herein. Hence Ground No. 4 of Revenue s appeal is partly allowed for statistical purpose. 23. As regards to Ground No. 5 of the Revenue s appeal relating to deletion of addition made on account of unexplained investment in property amounting to ₹ 28,44,800/-, the Ld. DR submitted that as per the observations of the Assessing Officer there are certain purchases of land /properties where in the assessee company have shown lesser amount of purchase consideration than the possible / probable market value of the land. In fact the amount has been shown much below the stamp duty amount. The Assessing Officer held that as per the registered documents the market value of land is higher and stamp duty has been paid on the higher value which prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties and perused all the relevant material available on record. It can be seen that the assessee company had purchased land at Tifra Bilaspur for ₹ 55,44,800/- including stamp duty and registration charges of ₹ 7,06,705/-. The Ld. DR submitted that as per the observations of the Assessing Officer there are certain purchases of land /properties where in the assessee company have shown lesser amount of purchase consideration than the possible / probable market value of the land. In fact the amount has been shown much below the stamp duty amount. The Assessing Officer held that as per the registered documents the market value of land is higher and stamp duty has been paid on the higher value which proves the rate of land in that are at the relevant period. But from the perusal of the Assessment order it cannot be seen that the Assessing Officer has brought out any evidence to substantiate that any amount more than what has been recorded in the sale deed was paid by the assessee and in the absence of any such evidence, no addition can be made merely on the basis of presumption. Thus, the CIT(A) rightly deleted this addition and there is no need to interfere wit ..... 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