TMI Blog2019 (2) TMI 1996X X X X Extracts X X X X X X X X Extracts X X X X ..... n shares and securities as strategic investments or stock-in-trade. Assessee has its own interest free funds available with it which are in excess of investments made in shares/securities from which dividend income was received/receivable - We agree with the contentions of the assessee that presumption will apply that assessee invested its own interest free funds for making investments in shares and securities from which exempt income was received and no disallowance of interest expenditure u/s. 14A r.w.r. 8D2(ii) of the 1962 Rules can be made. We have also observed that the assessee has received dividend of ₹ 7,20,212/- which was claimed as an exempt income and admittedly these are mixed use funds which were utilised by the assessee for making investments in shares and securities which yielded exempt income and the Revenue has not brought on record any adverse/incriminating material to rebut the aforesaid presumption or the assessee had borrowed interest bearing funds specifically to make investments in the shares and securities and hence relying on the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Limited [ 2009 (1) TMI 4 - BOMBAY H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans were purportedly sanctioned in earlier years. The TDS certificates were also not produced before the authorities below and these TDS certificates are produced for the first time before us which have not stood the test of verification by lower authorities. In any case in our considered view merely production of TDS certificates is not sufficient justification to prove genuineness of the expense or to establish that the expenses were incurred wholly and exclusively for the purposes of the business of the assessee. No agreement entered into by the assessee with these two companies are brought on record neither any evidences has been brought on record to substantiate that the services were in fact rendered by these two companies to the assessee in connection with availing of loans by assessee from IIFL and ILFS - we are afraid that the assessee s contentions cannot be accepted. The assessee fails on this ground. - I.T.A. No. 7383/Mum/2016, I.T.A. No. 7241/Mum/2016 - - - Dated:- 28-2-2019 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For the Assessee : Shri. Devdatta Mainkar For the Revenue : Miss. Deepika Arora (DR) ORDER PE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule to compute the expenditure in relating to exempt income and shall be applied collectively. Therefore, the total disallowance under section 14A has to be the aggregate of the amounts determined so by applying three steps together and not in isolation as done by the Ld. CIT(a) ? ii) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of ₹ 79,52,228/- under section 14A without appreciating that the assessee could not establish that no part of interest bearing fund had found its way into investment in shares nor any documentary evidences have been produced and thus the funds and expenses needs to be considered mixed one ? iii) Whether on the facts and in the circumstances of he(sic. the) case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 56,25,000/- under section 36(1)(iii) without appreciating the fact that these advance were given to prospective customer without charging any interest and no evidence was brought on record to show as to whether prospective customers turned to regular customers ? iv) Whether on the facts and in the circumstances of the case and in law, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the AO by invoking Provisions of Section 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules were deleted by the Ld. CIT(A), by holding as under:- 6.1.4 Respectfully following the judgement of the Hon'ble jurisdictional High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities Power Ltd.(supra). The addition of ₹ 79,52,228/- u/r.8D(2)(ii) is deleted and appeal of the appellant on this ground is allowed. While, on the other hand the Ld. CIT(A) confirmed the additions of ₹ 2,28,396/- as were made by the AO by invoking provisions of Section 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules, by holding as under:- 6.1.7 I have considered the submission of the appellant. It is an undisputed fact that appellant had earned dividend income amounting to ₹ 7,20,212/- which was claimed as exempt. Since the appellant has earned exempt income it cannot be ruled out that some of the administrative expenses had been incurred by the appellant towards earning exempt income. It is unbelievable that no administrative expenditure is incurred for incurring exempt income. Therefore, the A.O. was correct in adopting the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed use funds and the assessee could not bring on record evidence of having used interest free funds for making investments in these shares/securities held as stock-in-trade to the tune of ₹ 4.12 crores. 6.3 The Ld. Counsel for the assessee on the other hand drew our attention to page no. 7 of the Paper Book filed with tribunal which is audited Balance Sheet of the assessee company as at 31st March 2012 and submitted that the assessee s Share Capital as at 31.03.2012 was ₹ 4.3 crores while Reserves and Surplus were to the tune of ₹ 13.93 crores, aggregating to ₹ 18.23 crores. It was submitted that investments in shares and securities held as stock-in-trade was only to the tune of ₹ 4.12 crores and since interest free funds available with the assessee were much higher than investments, presumption will apply that assessee utilised its own interest free funds in making investments in the securities/shares to the tune of ₹ 4.12 crores. The assessee relied upon judgment of Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) and also in the case of HDFC Bank Ltd.(supra) to contend that interest free own funds available w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt income is received, is irrelevant for the purpose of computing disallowance of expenditure incurred in relation to earning of an exempt income as is mandated u/s 14A of the 1961 Act and Section 14A of the 1961 Act will be applicable wherein expenditure is incurred in relation to earning of an exempt income and the same shall not be allowed while computing income even when investments are made in shares and securities as strategic investments or stock-in-trade. 6.5 Now coming to the next contention of the assessee that it has its own interest free funds available with it which are in excess of investments made in shares/securities from which dividend income was received/receivable, then presumption will apply that assessee has invested its own interest free funds for making investments in shares/securities which yielded exempt income in view of decision of Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) and also decision of Hon ble Bombay High Court in the case of HDFC Bank Ltd.(supra). We have observed that the assessee s share capital is ₹ 4.3 crores comprising equity shares as at 31.03.2012 while Reserves and Surplus are to the tune o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 Act, by holding vide judgment dated 02.01.2019 as under: 6. The appeals by the Revenue raise the following questions: 1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for short 'the Act1) when the interest would not have been payable to banks, if funds were not provided to subsidiaries; 2. *** 3. *** 4. *** 5. *** 7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. *** *** Thus, the appellate order passed by learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed to the tune of 15% of the said amount of ₹ 3.75 crores granted by the assessee as interest free loans and advances. The assessee submitted that the assessee is a Non-banking financial corporation It was submitted that these interest free loans and advances were granted to these four parties to convert them into prospective clients in the near future and earn income through financing as part of the business strategy to earn taxable income in near future. The AO brought to tax an amount of ₹ 56.25 lacs out of interest paid by the assessee by disallowing the same u/s. 36(1)(iii) of the Act and adding to the income of the assessee, vide assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act. 7.2. The assessee being aggrieved by assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act filed first appeal before learned CIT(A) who allowed the appeal of the assessee by relying on the decision of Hon ble Jurisdictional High Court in the case of Reliance Utilities Power Ltd.(supra), vide appellate order dated 20.09.2016, by holding as under:- 6.2.3 Since the own funds available with the appellant were many time more than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umulatively. The assessee relied upon judgment of Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) and also in the case of HDFC Bank Ltd.(supra) to contend that interest free own funds available with the assessee were sufficient to make investments in shares/securities as well interest free loans and advances taken cumulatively. The assessee also relied upon another judgment of Hon ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.).It was submitted that decision of Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra), dealt with provision of Section 36(1)(iii) of the Act, with which we are presently concerned with so far as this issue is concerned. 7.5. We have considered rival contentions and perused the material on record including cited case la ws. We have observed that the assessee is engaged in business of Trading in Shares and Securities, Investment and Finance activities. We have observed that the assessee has advanced interest free loans and advances to the tune of ₹ 3.75 crores to following parties on which no interest was charged, detailed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts as well loans and advances as detailed above, presumption will apply that assessee utilised its own interest free funds available with it in making investments in the securities/shares to the tune of ₹ 4.12 crores and granting interest free loans and advances to the tune of ₹ 3.75 crores, aggregating to ₹ 7.78 crores. The assessee has rightly relied upon judgment of Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) and also decision of Hon ble Bombay High Court in the case of HDFC Bank Ltd.(supra) and hence presumption shall apply that the assessee invested interest free funds available with it for making investments in shares and securities as well interest free loans and advances, aggregating to ₹ 7.78 crores The assessee also rightly relied upon another decision of Hon ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.). The decision of Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) dealt with provisions of Section 36(1)(iii) of the Act, with which we are presently concerned with so far as this issue is concerned. Nothing incriminating materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer that the assessee in its P L account had claimed to have paid Professional Fees to two Private Limited Companies namely, M/s. Moneshi Consultancy Private Ltd., and M/s. Niyosi Trading Investment P. Ltd. to the tune of ₹ 15 lacs in aggregate. The AO asked the assessee about the nature of the services rendered by these two companies to which the assessee submitted that these two companies had provided consultancy services for arranging loans to the tune of ₹ 25 crores for assessee from IIFL and IL FS. The Assessing Officer observed from the bills and vouchers submitted by these two companies, that both the bills are identical with common addresses of these two companies. It was also observed by the AO that with an intention to avoid paying service tax, the bills are just split to keep it below the threshold limits of ₹ 9 lacs as applicable for chargeability of service tax. It was observed by the AO from sanction letter of IIFL that the loan of ₹ 25 crores was sanctioned in the financial year 2010-11(AY 2011-12) on 14.01.2011. The AO observed that the assessee has obtained these invoices to boost its expenses and to reduce tax liability. The AO was of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee submitted that loans raised by the assessee were to the tune of ₹ 25 crores syndicated from IIFL and ILFS for which professional services were rendered by these two companies namely M/s Niyosi Trading Investment Private Limited and M/s Moneshi Consulatncy Private Limited for raising these loans. Our attention was drawn to page no. 17 to 19 of the paper book to contend that that invoices issued by these two companies on the assessee for raising loans for the assessee was submitted before the AO and the note was also submitted explaining that these professional expenses were paid for loan syndication done by these companies for assessee from IIFL and ILFS.. The assessee has now produced before the tribunal for the first time, TDS certificates issued to these two companies by the assessee w.r.t. income-tax deducted at source on professional fee charges incurred by the assessee. The said TDS certificates are placed in file. However, these TDS certificate were not produced before the authorities below. On being asked by the Bench, the learned counsel for the assessee expressed inability to produce any further evidences to substantiate that these professional fees paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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