TMI Blog2023 (11) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for the assessment year 2012-13, disallowance should be restricted at Rs. 8,79,583/- and for assessment year 2013-14, it should be restricted to the extent of amount already disallowed by the assessee at Rs. 36,12,589/-. Disallowance of interest claim - Claim disallowed on the ground of diversion of borrowed funds used for the purpose of non-business purposes - HELD THAT:- The assessee explained the nature of business of the assessee that includes sand mining and shipping business, which the subsidiary company is also doing. The assessee explained this fact from the copy of ledger account that the subsidiary incurred expenditure at harbor and other places on behalf of assessee company. Hence, the ld.counsel before us now stated that the assessee s advance free loan to subsidiaries is for the purpose of business and hence, the same should have been allowed. We noted that the assessee is able to prove that the assessee s subsidiaries namely Pradeep Shipping Pvt. Ltd., and Trimex Sands Pvt. Ltd., both are subsidiaries and engaged in the business as that of the assessee and it is called the expansion of business. Even in these subsidiaries and that of the assessee, there is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders dated 25.03.2013 20.12.2016 respectively. The appeal by the assessee for the assessment year 2012-13 in IT(TP)A No.77/CHNY/2022 is arising out of the order of the Commissioner of Income Tax (Appeals)-18, Chennai in ITBA/APL/M/250/2022-23/1046514079(1) dated 28.10.2022. The assessment was framed by the ACIT, Central Circle 1(3), Chennai u/s. 143(3) r.w.s. 92CA(3) of the Act dated 07.03.2016. Assessee s Appeals in IT(TP)A Nos. 77 78/CHNY/2022 2. The only common issue in these two appeals of assessee for the assessment years 2012-13 2013-14 is as regards to the order of CIT(A) confirming the action of the AO in disallowing expenses relatable to exempt income by invoking the provisions of section 14A of the Act r.w.rule 8D(2)(ii) 8D(2)(iii) of the Income Tax Rules, 1962 (hereinafter the Rules ) for interest disallowance and administrative expenses disallowance. For this, the assessee has raised various grounds in both the years, which are exhaustive and argumentative and hence, need not be reproduced. 3. The facts and circumstances are exactly identical in both the years and hence, by way of this common order these appeals are being disposed off. 4. Brief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores on the investment of Rs. 76.29 crores. The assessee also filed details of working capital term limit of Rs. 18,17,17,947/- which was available with the assessee and the same cannot be included while computing disallowance. The assessee has given revised working for making disallowance and added that only disallowance under Rule 8D(2)(ii) will be at Rs. 51,29,547/- and under Rule 8D(2)(iii) at Rs. 8,79,583/- , thereby total disallowance of expenditure should be restricted at Rs. 60,09,130/- as against computed by the AO at Rs. 5,14,38,221/-. When these revised working was provided to the Revenue, the ld.Senior DR could not controvert the above fact situation but only requested that matter can be referred back to the file of the AO for considering the availability of funds i.e, interest free funds available with the assessee on 31.03.2012. The relevant revised working is reproduced from the order of CIT(A) as under:- S.No. Particulars Amount i. Amount of expenditure directly attributable ii Amount calculated as per form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice of the CIT(A) by assessee. But the CIT(A) rejected the claim of assessee and observed similar findings which is part of para 7.1.1 and for the sake of clarity, it is being reproduced as under:- The appellant relied on the decision of the ITAT Chennai in the case of EIH Associated Hotels Limited vs. Deputy Commissioner of Income Tax (Chennai Tribunal) ITA No. 1624/Mds/2012 and the decision of the Bombay ITAT in the case of Gareware Wall Ropes Ltd vs. Additional Commissioner of Income Tax ITA No.5408, 4597/Mum/2012. The AO did not accept the explanation of the appellant. He found that during the year current assets have registered growth of Rs. 23.78 crores, fixed assets have registered growth Rs. 3.74 crores and long term loans and advances has shown an increase of Rs. 0.87 crores. Cumulatively, the other assets mentioned above have sh0wn an increase of Rs. 28.39 crores. The increase in profits could also have gone into these assets. The assessee has not maintained separate accounts and this is a case of mixed borrowed funds and hence it cannot be said that the investments were made out of cash profit of the year. According to the AO, the case laws relied on would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purposes. For this, assessee has raised various grounds i.e., ground Nos. 2 to 2.9, which are exhaustive, argumentative and factual and hence, need not be reproduced but will be considered while adjudicating the issue. 12. Briefly stated facts are that the AO on perusal of profit loss account and balance sheet of the assessee noted that there was substantial increase in quantum of secured loans and unsecured loans during the relevant financial year 2008-09 relevant to assessment year 2009-10. The AO noted the details of total loans including secured and unsecured loans as on 31.03.2008 were Rs. 55.47 crores, whereas the same have been increased to Rs. 109.02 crores as on 31.03.2009. Further, he noted from the Schedule of Financial Charges that assessee has paid interest on term loan of Rs. 2.01 crores and interest of working capital loan of Rs. 11.07 crores compared to last year s of Rs. 1.36 crores and Rs. 5.10 crores respectively. According to AO in view of the above, the assessee had made substantial borrowings and paid huge interest in respect of the same which has been claimed as business expenditure amounting to Rs. 3,30,08,590/-. Hence, he required the assessee to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant has submitted that it was made out of interest free funds available. But for the donation, the appellant would have reduced its borrowing by Rs. 5 cr. and avoided interest thereon. I therefore hold that the donation to Sri Sathya Sai Medical Trust was made out of borrowed funds only and the interest attributable to the said donation cannot be allowed as a deduction u/s 36(1)(i1) of the Act as capital employed in the business. I therefore sustain the addition of Rs. 41,39,113/- made by the AO in this regard and dismiss the grounds raised. 6.3.4 With regard to the investment of Rs. 57 cr. in M/s Trimax Sands Pvt. Ltd, the contention of the appellant is that the investment was made for the purpose of business. Trimex Sarnds Pvt. Ltd is a subsidiary company of the assessee incorporated for the purpose of setting up a beach sand project. Though the appellant is claiming that the investment in the subsidiary company was for the purpose of business, the appellant was not able to adduce any evidence as to how the investment in the subsidiary company setting up beach sand project would improve the appellant's business in processed minerals. Even otherwise it is an inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes sand mining and shipping business, which the subsidiary company is also doing. The assessee explained this fact from the copy of ledger account that the subsidiary incurred expenditure at harbor and other places on behalf of assessee company. Hence, the ld.counsel before us now stated that the assessee s advance free loan to subsidiaries is for the purpose of business and hence, the same should have been allowed. We noted that the assessee is able to prove that the assessee s subsidiaries namely Pradeep Shipping Pvt. Ltd., and Trimex Sands Pvt. Ltd., both are subsidiaries and engaged in the business as that of the assessee and it is called the expansion of business. Even in these subsidiaries and that of the assessee, there is common management and unity of control is there. Once this fact is there, the Revenue cannot disallow the interest expenditure because it is incurred for the purpose of business. Hence, we allow the interest and direct the AO accordingly. The appeal of the assessee is allowed. Revenue s Appeal in ITA No.1035/CHNY/2022, AY 2009-10 15. The first issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the addition made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it has given the complete details of price realized from its export to AE, which was in the range of US $ 48.50 to 52 in the first four shipments whereas the conversion rate is in the range of Rs. 39.80 to Rs. 45.38. The assessee submitted the details of exports to AE as under:- Shipment date 18.04.2008 08.06.2008 08.06.2008 09.08.2008 Quantity exported Rate in USD 50 48.5 49 52 Rupee Conversion 39.8 42.92 42.29 45.38 Sale price in Rs after conversion 1990 2081.62 2072.20 2359.76 The assessee also explained that the sale with uncontrolled entity realized was at Rs. 48.42, whereas none of the above 4 shipments to AE s realized even close to the same and the maximum was Rs. 45.38. It was conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet that the mark up cost for transaction with AE is 40.16% as against 41.93% with non-AE. This difference is within the range of +/- 5% variations allowed under the second proviso to sub-section (2) of section 92C of the Act. Once this is a fact, we find no infirmity in the order of CIT(A) and hence, we confirm the same. This issue of Revenue s appeal is dismissed. 19. The next issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the disallowance of expenses made by AO by invoking the provisions of section 40(a)(ia) of the Act for non-deduction of TDS on compensatory charges. For this, Revenue has raised following ground No.3:- 3. The learned CIT(A) erred in deleting the disallowance made u/s. 40(a) (ia) of the IT Act on the compensatory charges paid by the assessee without deduction of tax at source and without appreciating the fact that the compensatory charges were paid in lieu of the credit period availed from the suppliers, as per the agreement and as such the payments would partake the character of interest and requires deduction of tax u/s. 194A of the IT Act. 20. Brief facts are that the AO on perusal of tax audit report noted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the AY 2007-08, I delete the addition made by the AO. The grounds in this regard are allowed. Aggrieved, Revenue came in appeal before the Tribunal. 22. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the payments made to APMDC is clearly in the nature of compensatory and these cannot be called as interest which are contemplated in the provisions of section 194A of the Act, for the purpose of deduction of TDS. Hence, we find no infirmity in the order of CIT(A), who has rightly deleted the disallowance and we confirm the same. Accordingly, this appeal of the Revenue is dismissed. Revenue s Appeal in ITA No.1120/CHNY/2022, AY 2013-14 23. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO/TPO towards adjustment on account of transfer pricing relating to barite-lumps. For this, Revenue has raised the following grounds:- 2. On the facts and circumstances of the case. the learned CIT(A) has erred in deleting the addition of Rs. 2,18,07,420/- made towards adjustment on account of transfer pricing relating to barite-Lumps. 2.1 The Ld. CIT(A) has fail ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
