TMI Blog2022 (4) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the assessee is not correct. Such is the mandate of the provisions of Section 14A(2) of the act. We find that the learned assessing officer has merely on the basis of the investment shown in the annual accounts of the assessee has invoked the provisions of Section 14A read with rule 8D and issued notice to the assessee. When assessee has categorically replied that it has not incurred any expenditure during the year the learned assessing officer is duty-bound to record a satisfaction that why the explanation furnished by the assessee is incorrect. Such satisfaction also has to be based on accounts of the assessee. If assessing officer merely says that as the investment decision are very complex the assessee should have incurred certain expenditure cannot satisfy the requirement of Section 14A (2) of the act. This shows that there is no reference to the accounts of the assessee. Accordingly, we find that assessing officer has failed to record any satisfaction prior to invoking of the provisions of rule 8D of income tax rules 1962 - Decided in favour of assessee. - ITA No. 2587/Mum/2019 - - - Dated:- 25-4-2022 - Shri Prashant Maharishi, AM And Shri Pavan Kumar Gadale, JM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance to average rate of interest on borrowings availed by the Appellant. 1.6. Without prejudice to Ground No. 1.1, 1.2, 1.3, 1.4 1.5 above and on the facts and circumstances of the case, the Ld. CIT(A) has erred in not restricting the disallowance of interest under section 36(1)(iii) of the Act on a proportionate basis i.e. in proportion of average loan advanced to four unrelated parties to the average value of total assets for AY 2015-16. 2. Disallowance under Section 14A of the Act 2.1 On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding disallowance of ₹ 1,92,395 under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962, without appreciating the fact that no exempt income has been earned by Appellant during the year under consideration. 02. The brief fact of the case shows that assessee is a company engaged in manufacturing of bulk drugs and trading of pharmaceutical products. It filed its return of income on 29.09.2015 at a loss of ₹ 137,37,370/-. The case of the assessee was picked up for scrutiny. 03. Assessment order u/s 143 (3) of the income tax act 1961 was passed on 15 Decembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,12,70,203 4,29,67,247 39,22,936 6.10 2 Anjay shares and securities private limited 12,44,69,957 nil 6,48,22,198 5,96,47,759 76,01,292 6.10 3 Akkadin trading private limited 1,41,78,059 Nil 1,41,78,059 Nil 8,65,844 6.10% 4 Beond Pharma Ltd 3,55,49,066 6,47,91,216 Nil 10,03,40,282 Nil Nil Therefore he found that the difference between the rates eight which interest is charged on the prevailing interest rate of 12% the amount of interest chargeable on these companies amounts to ₹ 2,39,97,017/-. Assessee submitted a reply on 23/1/2019 stating that loans and advances were given for the purposes of the business, notional income cannot be brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve available with the assessee. He therefore, submitted that presumption would be available in favour of the assessee that no interest bearing funds are used for advances to these parties. For this proposition, he referred to audited annual accounts of assessee wherein it has share capital of ₹1996.93 lakhs and reserve and surplus of 8912.85 lakhs totaling to ₹ 10,909.78 lakhs as on 31st of March 2014. He therefore submitted that if opening balance of which are listed by the learned and CIT A is considered it comes to only ₹ 23.84 crores, which is far less than the amount of interest free funds available with the assessee. He further submitted that assessee has only given a loan of ₹ 64,791,216 to beyond Pharma Ltd during the year which is also financed by the payment of loan from three other parties listed in table given by the learned CIT A. He submitted that recovery from all these three parties amounts to ₹ 100,270,466/ whereas the loan given to beyond Pharma Ltd is only ₹ 64,791,216/ therefore, the assessee has interest free funds available with the assessee more than the amount of lower interest-bearing funds advanced to these parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest free funds available with them. 012. Further, during the year assessee has given a fresh loan of ₹ 64,791,216 to beyond Pharma Ltd. As on 31st of March 2015, the fund position of the assessee has changed and share capital is amounting to ₹ 1996.93 lakhs whereas the reserve and surplus has turned negative to ₹ 18,821.69 lakhs. This has resulted because of the exceptional items written off in the profit and loss account as per note number 30 of ₹ 24,176.32 lakhs. Out of that ₹, 8941.48 Lacs are provision for doubtful debts and ₹ 15,234.84 lakhs are because of provision for diminution in value of investment. We find that accounting entry of ₹ 15,234.84 lakhs of writing of investment does not involve any cash outflow. Further the assessee has recovered a sum of ₹ 100,270,460/ out of loans and advances given to the first 3 parties which is also higher than the amount of fresh loan advanced to beyond Pharma of ₹ 64,791,216/ . In view of this we do not find that any interest bearing funds have been used for advancing loan is to these parties when enough in non-interest-bearing funds are available with the assessee for adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he act. We find that the learned assessing officer has merely on the basis of the investment shown in the annual accounts of the assessee has invoked the provisions of Section 14 a read with rule 8D and issued notice to the assessee. When assessee has categorically replied that it has not incurred any expenditure during the year the learned assessing officer is duty-bound to record a satisfaction that why the explanation furnished by the assessee is incorrect. Such satisfaction also has to be based on accounts of the assessee. If assessing officer merely says that as the investment decision are very complex the assessee should have incurred certain expenditure cannot satisfy the requirement of Section 14 A (2) of the act. This shows that there is no reference to the accounts of the assessee. Accordingly, we find that assessing officer has failed to record any satisfaction prior to invoking of the provisions of rule 8D of income tax rules 1962. Accordingly ground number 2 of the appeal of the assessee is allowed and disallowance made by the learned assessing officer u/s 14 A of the act of ₹ 192,395/ confirmed by the learned CIT A deserves to be deleted in view of absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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