9911796707
TMI Blog2022 (6) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance u/s. 14A r.w.r 8D has to be made even when the tax payer on a particular year has not earned any exempted income. 3. On facts of the case, the Ld. CIT(A) is not justified in deleting the 14A addition made under Rule 8D when the AO has rightly made the disallowance after analyzing the investment portfolio and the balance sheet given by the assessee. 4. On facts of the case, the Ld. CIT(A) has erred in deleting the addition merely based on his predecessor order of relief by a random figure without any justification. 5. On facts of the case, the Ld. CIT(A) has erred in deleting the disallowance made u/s. 40A(2), whereas the assessee has failed to established in furnishing the supporting evidences that the legal and professional fee incurred wholly and exclusively for the purpose of the business of the assessee for which the onus was on the assessee. 6. On facts of the case, the Ld. CIT(A) has erred in deleting the disallowance e by AO u/s. 36(1)(iii) by merely relying on his predecessor order in the assessee's own case for 2010-11 without any justification. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; of tax exempt investments 313,11,29,080 501,38,60,089 407,24,94,585 D. Average amount of total assets 1088,63,64,371 1145,61,65,374 1117,12,64,873 E. Proportionate indirect interest to be disallowed B x C 1,23,81,938 x 407,24,94,585 D 1117,12,64,873 = Rs. 42,13,847 F. 0.5 % of average amount of tax exempt investments 61,910 G. Total disallowance attracted u/s. 14A read with Rule 8D A + E + F Rs. 42,75,757 5. Finally, the amount disallowed under section 14A is as follows: "5.6 This amount of Rs. 42,75,757/- is held as attracted for disallowance u/s. 14A read with Rule 8D of the Income Tax Act. However, the assessee has already made a disallowance u/s. 14A of Rs. 8,28,302/-, the balance amount of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought out any evidence on record to show that the borrowed funds on the security of fixed deposits were in fact used for making investments that would yield tax free income. 8. The CIT(A) agreed with the submissions of the assessee that the assessee had sufficient interest free funds from and out of which it can be presumed that it made investments that would yield tax free exempt income. The CIT(A) therefore deleted the disallowance made by the AO at Rs. 42,13,847/- out of interest expenditure of Rs. 1,23,81,938/- under Sec. 14A read with Rule 8D(2)(ii) of the Rules The findings of the CIT(A) in this regard were as follows: "The assessee's contention in respect of the disallowance u/s.14A have been considered. The appellant is stated to be a registered NBFC, its main business activity being in the nature of money lending and investment in equities. It is seen that the assessee has earned interest in income of Rs. 31,12,19,202/- as against the interest expenditure incurred. A comparative analysis of the Balance Sheet for the period ending 31.03.2011 and 31.03.2010 reveals that, the reserves and surplus increased from 1000,63,63,826/- to Rs. 1801,99,18,452/- which works ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act r.w.r. 8D(2)(ii) of the Rules. We are of the view that the CIT(A) has rightly come to the conclusion that the disallowance under section 14A of the Act r.w.r. 8D(2)(ii) of the Rules deserves to be deleted. We find no infirmity in the order of the CIT(A) and accordingly dismiss ground No. 3 raised by the Revenue. 10. As far as ground No. 4 raised by the Revenue is concerned, the fact are that the AO found that the assessee owned a aircraft and in respect of which the following expenses had been incurred by the assessee: Expenses related to aircraft owned Sl. No. Particulars Amount in Rs. 1 Depreciation 33,60,13,642 2 Interest to Bank (paid to Yes Bank) 3,12,19,593 3 Aircraft operating expenses 4,77,09,360 Total 41,49,42,595 11. The AO also found that the assessee earned revenue of only Rs. 2,24,38,333/- from hiring aircraft to third parties. The AO, therefore, was of the view that out of expenses related to aircraft, a sum of 30,46,07,470/- should be disallowed and accordingly he added the aforesaid sum to the total income of the assessee. On appeal by the assessee, the CIT(A) came to the conclusion that depreciation on aircraft cannot be disallowed as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of the Tribunal: "5. As per ground No. 3, this is a grievance of the Revenue that learned CIT(A) has erred in restricting the disallowance of the net Aircraft expenditure to Rs. 45.60 lakhs. On this issue also, learned DR for the Revenue supported the assessment order whereas learned AR of the assessee supported the order of the CIT(A). In this regard, it is noted by the learned CIT(A) in para No. 4.2 of his order that the assessee has incurred total expenditure on account of Aircraft of Rs. 2253,23,695/- including Rs. 2100,08,528 being depreciation, Rs. 38,95,273/- being interest and Rs. 114,19,894/- being expenses. From this total amount of expenses, an amount of Rs. 269,80,969/- has been reduced being Aircraft Hire Charges received and net expenditure of Rs. 1983,42,726/- was claimed by the assessee. This claim of the assessee was disallowed by the AO by holding that the assessee company has not given the details of the passengers who flew in the Aircraft, details of loadings and the purpose for which the Aircraft was used. This disallowance was reduced by the learned CIT(A) to Rs. 45.60 lakhs. In para No. 4.6 of his order, this finding is given by the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax of Rs. 11,22,700/- making a total payment of Rs. 2,03,22,700/- under the head legal and professional charges. The legal and professional charges were paid by the assessee to its holding company M/s. Vectra Holdings Pvt. Ltd., (VHPL) for providing management services. It is not in dispute that VHPL was a person falling within the ambit of 40A(2)(a) of the Act that he was a related person and therefore as per the aforesaid provisions, the assessee has to justify the payment made to a related party keeping in mind the nature of services provided and the price at which such services are generally available in open market between unrelated parties. The AO called upon the assessee to substantiate the payments made to VHPL and also the nature of services provided by VHPL. 16. The assessee pointed out that assessee had entered into an agreement with VHPL on 01.04.2009 for rendering managerial services at Rs. 5 lacs per month. Another company by name Asia Net TV Holdings Pvt. Ltd., (ATHPL) entered into an agreement dated 01.04.2009 with VHPL whereby ATHPL agreed to pay VHPL management fee of Rs. 11 lakhs per month. The assessee also explained that VHPL was responsible for provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid by the assessee prior to the merger was a reasonable payment and he sustained the disallowance only in respect of a sum of Rs. 1.32 Crores (Rs. 1.92 Crores - Rs. 60 lakhs). 19. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal. Learned DR reiterated the stand of the AO. Learned Counsel for the assessee relied on the order of the CIT(A). 20. After considering the rival submissions, we are of the view that the AO gave no basis for disallowing the entire expense of Rs. 1.92 Crores claimed by the assessee as payment of management fee. As per the provisions of section 40A(2) of the Act, only payments which are excessive and unreasonable has to be disallowed. It is not disputed that services were rendered by the VHPL. In the circumstances, we are of the view that the approach adopted by the CIT(A) in allowing a sum of Rs. 60 lakhs as deduction on the ground that the services rendered by VHPL were one and the same even after the merger of the assessee with ATHPL is justified and calls for no interference. Accordingly, ground No. 5 raised by the Revenue is also dismissed. 21. As far as ground No. 6 raised by the Revenue is concerned, the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(ii) of the Rules. The total sum disallowed u/s. 14A of the Act, i.e., under Rule 8D(2)(ii) & Rule 8D(2)(iii) of the Rules was Rs. 42,13,847 + Rs. 61,910 = Rs. 42,75,757/-. The balance amount of Rs. 81,06,181/- (Rs. 1,23,81,938 - Rs. 42,75,757) was disallowed further from being claimed as revenue expenditure for the year. This amount was added to the income returned by the assessee for the year, 23. On appeal by the assessee, the CIT(A) deleted the addition made by the AO with the following observations: "7.3. The AO, while making the disallowance of interest, u/s. 36(1)(iii) has done so primarily on the premise that, borrowed funds were utilized for payments towards share-application money. There is also a presumption that, the entire interest expenses are utilized largely for making investments. The AO has not established a clear nexus between the interest on borrowed capital and payment made towards investment in share-application money. This disallowance therefore is rather tentative, as also, involves duplication, keeping in view, the AO's simultaneous working of interest disallowance u/s. 14A. The Addition is therefore an indirect way of attributing interest payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 36(1)(iii) stand deleted, in similar situation. In the facts and circumstances the disallowance of Rs. 81,06,181/- made u/s. 36(1)(iii) is deleted." 24. Aggrieved by the order of the CIT(A), the Revenue has raised ground No. 6. The learned DR relied on the order of the AO. The learned Counsel for the assessee relied on the order of the CIT(A). 25. We have already seen while deciding the issue under section 14A of the Act that interest expenditure of Rs. 1,23,81,938/- cannot be disallowed as interest paid on borrowings on the security on fixed deposit receipts were not used for the purpose of making investments that would yield tax free income because of availability of surplus interest free funds with the assessee. The aforesaid finding would equally apply to the disallowance under section 36(1)(iii) of the Act also and therefore on the same reasoning, the disallowance deserves to be deleted and was rightly deleted by the CIT(A). We find no ground to interfere in the order of the CIT(A). Accordingly, ground No. 6 raised by the Revenue is also dismissed. 26. In the result, the appeal of the Revenue is dismissed. ITA Nos. 601/Bang/2014, 1563/Bang/2014 27. ITA No. 601/Bang/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dated 02.07.2012 after recording the following reasons:- "The assessee company, M/s. Jupiter Capital Private Limited filed its return of income for the assessment year 2007-08 on 31/10/2007, declaring loss of Rs. 44,00,286. The case was selected for scrutiny and an assessment order u/s. 143(3) was passed on 30/12/2009 by making additions of Rs. 4,34,18,027 and assessing the taxable income at Rs. 3,90,17,741. It has been learnt that, during the financial year 2005-06, a company by name M/s Vectra Holdings Pvt. Ltd(now called as. M/s Vectra consultancy Services Pvt. ltd.) had purchased 26,400 shares of M/s. Jupiter Capital Pvt. Ltd. @ Rs. 10/- per share. No premium was paid by this company on these shares in that year. However, in the same year, i.e., financial year 2005-06, five other companies applied for 5,20,565 shares. The face value of the share was Rs. 10/- each and the premium was Rs. 4,990/- per share. The position of shareholding and share premium contributed, by all the shareholders in M/s. Jupiter Capital Pvt. Ltd., in the financial year 2005-06, is as under:- Details of equity shares share premium of Jupiter Capital Pvt. Ltd. issued by Period Names of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3400 Rs.25,500 M/s. Epsilon Advisors Pvt. Ltd. also transferred its holding of 2,36,000 shares of Jupiter Capital Pvt. Ltd. to M/s. Vectra Consultancy Services Pvt. Ltd. apparently at a paltry sum. Thus, M/s. Vectra Consultancy Services Pvt. Ltd. became the owner of 99.91% of the share, i.e., 5,46,965 shares of M/s. Jupiter Capital Pvt. Ltd. Based on the above, it is seen that, during F.Y. 2005-06, substantial amounts in crones were brought in by the four companies mentioned above as share premium in Jupiter Capital Pvt. Ltd. and they have foregone this amount in. the subsequent financial year and the shares were transferred to M/s. Vectra Consultancy Services Pvt. Ltd. The above mentioned four companies had applied for shares of Jupiter Capital Pvt. Ltd. and had paid 75 of the total amount. The face value of the shares was Rs. 10/- and the premium value was Rs. 4,990/- per share. It is learnt that the shares of M/s. Jupiter Capital Pvt. Ltd. were not valued at any point of time and the share premium had been fixed without any basis. The total amounts paid by these four companies are as follows: SI. No. Name of the share holder Total amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the nature of the transaction has not been disclosed anywhere in its financial statements and the whole procedure, wherein related concerns have paid a huge share capital and share premium of Rs. 4990 (on unvalued shares) and then forfeited the same, seems to be with the ulterior motive of parking funds in the company. The assessee seems to have made use of a colorable device to probably bring back its own funds and in the process, the other related concerns have also ended up claiming a huge revenue loss. The forfeited amount cannot be claimed as a capital receipt by the assessee company and exempt from tax." 30. The summarized reason recorded by the AO is that in previous year relevant to AY 2005-06, four companies viz., Tayana Consult Pvt. Ltd., Coimbatore Cable Net Pvt. Ltd., Larite Industries Ltd., and Nucent Technologies Ltd., purchased shares at substantial premium amount in the assessee company at Rs. 4990/- per share and retransferred those shares in the previous year relevant to AY 2007-08 at a price which was less than what they paid for acquiring shares in the previous year relevant to AY 2005-06. There was no valuation of shares at the time when these four companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the reopening of assessment was based on facts already on record of the AO, he held that initiation of reassessment proceedings was invalid. Although, the reopening of assessment u/s. 147 and issue of notice u/s. 148 of the Act was considered as invalid by the CIT(A), he however, proceeded the decide the various grounds of appeal raised by the assessee on merits as well for the reason that in case initiation of reopening of assessment vis-à-vis issue of notice u/s. 148 of the Act upheld by the higher forum, it would be appropriate to decide issues on merit. 33. Aggrieved by the order of the CIT(A), the revenue has raised grounds No. 2 to 4 in its appeal. The Learned DR reiterated the stand of the Revenue as contained in grounds 2 to 4 raised by the Revenue before us. Learned Counsel for the assessee, besides relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs. vs. Kelvinator India Ltd. 320 ITR 561 (SC) also relied on the decision of Hon'ble Karnataka High Court in the case of Dell International Pvt. Ltd., 432 ITR 212 (Karn.) (Full Bench). 34. We have given a very careful consideration to the rival submissions. A bare perusal of the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the very same material available at the time of conclusion of the proceedings under section 143(3) of the Act, the AO cannot be allowed to review his own order. The decision of the Hon'ble Supreme Court in the case of Kelvinator India Ltd. (supra) is directly on the point. The principle laid down by the Hon'ble Supreme Court has again been reiterated by the Hon'ble Karnataka High Court in the case of Dell International Ltd., (supra). In the given facts and circumstances of the case, we are of the view that there is no merit in grounds 2 to 4 raised by the Revenue in the appeal. Consequently, the said grounds are dismissed. In view of the conclusion, the reassessment proceedings were not validly initiated and the consequent quashing of the order under section 147 of the Act, we are of the view that the other issues raised by the assessee as well as Revenue in various grounds of appeal does not require any adjudication. In this regard, we find that the CIT(A), as a matter of abundant caution, has besides quashing the assessment under section 147 of the Act, has proceeded to decide the issue on merits also. As we have already stated, we do not wish to adopt such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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