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TMI Blog2015 (4) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... perly appreciating the facts of the case and the material brought on record by the A.O." 2.1 In Cross Objection No. 315/Ahd/2014 for A.Y. 2010-11, assessee has filed the Cross Objection on the following grounds: 1. The Learned CIT(A) erred in Law and on Facts in confirming the disallowance of Rs. 4,41, 963/- u/s. 14A without properly appreciating the Facts of the Case. 2. It is therefore prayed that, The Learned CIT ought to have deleted this disallowance of Rs. 4,41, 963/- also. 3. Assessing Officer made disallowance of interest u/s. 36(i)(iii) of Rs. 2,06,12,163/-. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee, who has allowed assessee's appeal by following ITAT, Ahmedabad 'B' Bench decision in ITA Nos. 414 to 417 & 1952/Ahd/2009 & 2461/Ahd/2010 dated 29.11.2013, wherein similar issue has been decided by ITAT by observing as under: ...9. We have heard the rival contentions and perused the material on record. The lessee has huge turnover during the years. It is true that there is a marginal increase in the borrowing from the specified persons either by way of the fresh loan or the credit of interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Assessing Officer had not properly examined the case. He has disallowed the interest expenses which were far in excess than the interest paid to the relatives and family members of the partners of the firm. The appellant has raised new funds of Rs. 4,87,53,200/- against which AO has disallowed interest of Rs. 315,09,824/-. The AO at best ought to have disallowed interest on new loans. Having said that there is no denying the fact that the appellant cannot claim interest u/s 36(1)(iii) in respect of any borrowed funds unless he is able to establish a clear nexus between such borrowed funds and their immediate deployment / utilisation for the purpose of business. Perusal of the details of bank accounts filed by the appellant however indicate that there were occasions when the appellant was having its own funds and was not in need of any borrowings. Consequently, the appellant cannot be allowed interest on those borrowed funds which were obtained at a time when the appellant was having its own funds. Accordingly an effort was made to identify the factual position of the receipt of funds, interest paid upon it which was not utilised by the appellant for its business with referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.11.2008 6000000 124 285370 Shree Jaylaxmi Transport Company Corp Bank 27.11.2008 4000000 124 190247 10000000 Bharatkumar P Patel Corp Bank 08.01.2009 70000 82 2202 70000 Prahladbhai Parbhudas HUF UBI 15.01.2009 900000 75 25890 900000 Jaswantlal Parbhudas UBI 1602.2009 950000 43 15668 HUF 950000 Pruhladbhai Parbhuiiaf HUF UBl 04.03.2009 550000 27 5696 Devaii g Jagdishbliai UBI 18.03.2009 200000 13 997 750000 Kalindiben Rajnikant Corp Bank 26.03.2009 5000000 5 9589 Kalindiben Rajnikant Corp Bunk 26.03.2009 5000000 5 9589 10000000 48753200 32314461 4.4 A perusal of the above shows that out of the total amount of Rs. 4,87,53,200/- borrowed by the appellant on different dates and paid interest, the inadmissible rate of interest which requires to be added to appellants income comes to Rs. 32,31,486/-. The hypothesis t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not certain as to exactly when such payment will be required to be made, and it may not be possible to secure such loans immediately when payment is required to be made, for smooth running of the business, the assessee has to borrow such funds in advance and keep the same ready at its disposal. Under the circumstances, instead of keeping such funds idle, the assessee parked the same in short term fixed deposits which in turn were used for making payment against purchase of bidis. Moreover, as noticed hereinabove, obtaining loans from banks is a cumbersome process and the interest rate is also high, hence, the assessee has obtained unsecured loans from relatives of partners at the rate of 18%. The Commissioner (Appeals) has held that to keep the funds in fixed deposits is part and parcel of the business expediency of the assessee. He has also held that interest payment to relatives of partners is an allowable expenditure but has disallowed the same to the extent the same exceeded the interest paid to transporters and against 'Goods deposits'. The Tribunal has noted that the amount has been borrowed in earlier years as well as during the years under consideration at a sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciating the facts of the case. In this regard, learned Authorized Representative pointed out that similar issue arose in case of assessee in ITA Nos. 414 to 417 & 1952/Ahd/2009 & 2461/Ahd/2010 dated 29.11.2013, wherein Tribunal has decided the issue in favour of assessee by placing reliance on the order of Co-ordinate Bench in case of Chudgar Ranchodlal Jethalal being Income Tax Act No. 245/Ahd/2013 for the proposition that disallowance u/s. 14A r.w. Rule 8D though is mandatory from A.Y. 2008-09 under no circumstances, should exceed quantum of exempt income as held in Chudgar Ranchodlal Jethalal (supra) as under: 12. We have heard the rival submissions and perused the material on record. On perusing the Balance sheet, we find that there is no change in investments at the year under as at 31st March, 2007 and as at 31st March 2008 meaning thereby that prima facie no new investments have been made by the Assessee during the year. Further on perusing the Balances sheet as at 31st March 2008 we find that the share holders fund comprising of Share capital and reserves and surplus were to the extent of Rs. 1.49 crores and during the year Assessee has also earned profit after lax of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the exempt income and considering the alternate submission of ld. A.R. to make a reasonable disallowance u/s.14A as deemed fit, we are of the view that disallowance of Rs. 5,000/- if made in the present case will meet the ends of justice. We thus direct accordingly." 5.1 In view of above, Assessing Officer is directed to restrict the disallowance u/s. 14A r.w. Rule 8D should not exceed quantum of exempt income. As far as disallowance of administrative expenses is concerned, in absence of details of investments made during the year, number of transactions in those investments etc, this issue needs to be re-looked by Assessing Officer. So, in the interest of justice, we restore this issue to him with direction to decide in view of above discussion and in accordance with law after providing due opportunity of hearing to the assessee. 6. In ITA No. 2662/Ahd/2014 for A.Y. 2011-12, Revenue has filed the appeal on the following grounds: 1. The Ld.CIT(A) has erred in law and on facts in allowing the appeal on the issue regarding the disallowance of interest of Rs. 2,59,61,548/- made by AO u/s 36(1)(iii) of the Act and thereby allowing relief to the amount of Rs. 2,59,61,548/- with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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