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2015 (3) TMI 398 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - CIT(A) deleted the addition - Held that - Since the own capital and free reserves of the assessee company is much more than the investment in shares and mutual funds the dividend income of which is exempt and since there is no categorical finding by the AO that borrowed funds have been utilized for investment in share and mutual funds therefore no disallowance under Rule 8D(2)(ii) is warranted in the instant case. Accordingly the order of CIT(A) deleting the disallowance of 57, 929/- under Rule 8D(2)(ii) is upheld.However as regards the disallowance of 8, 636/- under Rule 8D(2)(iii) is concerned the same relates to disallowance of administrative expenses. Nothing has been brought to our notice that administrative expenses is not required or has not been incurred for earning such exempt income. Therefore in absence of any such details the disallowance under Rule 8D(2)(iii) amounting to 8, 636/- has to be sustained. - Decided partly in favour of revenue. Disallowance by invoking provisions of sec. 36(1)(va) - Employees contribution to the Provident Fund paid beyond the due date prescribed in the Provident Fund Act - CIT(A) deleted the addition - Held that - Issue stands decided in favour of the assessee by the recent decision of CIT Vs. Ghatge Patil Transports 2014 (10) TMI 402 - BOMBAY HIGH COURT where it has been held that Employees contribution paid after the due date prescribed under the relevant Act but deposited on or before the due date of filing of the return prescribed u/s.139(1) is to be allowed as expenditure. We therefore do not find any infirmity in the order of the CIT(A) on this issue. - Decided in favour of assessee. Disallowance of write-off u/s 36(1)(vii) - CIT(A) allowed the claim of the assessee - Held that - In the instant case we find the Ld.CIT(A) allowed the claim of deduction as business loss considering the smallness of the items. It is an admitted fact that these are very old EMDs lying with various departments such as National Safety Council Indravai Hydro Power SBI Satpura Bhusawal Thermal etc. Although these are not bad debts but considering the smallness of the amounts lying with various departments under the head EMD the assessee has written off these items and the CIT(A) considering the rationale behind the provisions of section 36(1)(vii) has allowed the same as business loss in the year of write off. The Ld. Departmental Representative could not seriously challenge the finding of Ld.CIT(A). Considering the totality of the facts of the case and considering the smallness of the amounts vis- -vis number of entries we do not find any infirmity in the order of Ld.CIT(A) on this issue. - Decided in favour of assessee. Disallowance of interest calculated on interest free advances made by the assessee to group concerns - CIT(A) deleted dis allowances - Held that - The Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY) has held that if there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available. Since in the instant case the capital and free reserves as well as interest free funds are much more than the loans advanced to sister concerns and since the sale proceeds are deposited in the cash credit account from where the loans have advanced to the sister concerns therefore we find no infirmity in the order of the CIT(A) deleting the disallowance made by the AO - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Act, 1961. 2. Disallowance under Section 36(1)(va) for delayed payment of Employees' Provident Fund. 3. Disallowance under Section 36(1)(vii) for write-off of earnest money deposits (EMDs). 4. Disallowance of interest on interest-free advances to group concerns. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The Revenue contested the deletion of an addition of Rs. 66,565/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D. The AO observed that the assessee had investments in shares/mutual funds and had claimed exempt dividend income without apportioning any expenses towards earning this income. The AO disallowed Rs. 66,565/- comprising Rs. 57,929/- for interest and Rs. 8,636/- for administrative expenses. The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds and the AO failed to establish a proximate relationship between the expenses disallowed and the tax-exempt investments. The Tribunal upheld the deletion of Rs. 57,929/- under Rule 8D(2)(ii) but sustained the disallowance of Rs. 8,636/- under Rule 8D(2)(iii) for administrative expenses, as the necessity of such expenses for earning exempt income was not disproven. 2. Disallowance under Section 36(1)(va): The AO disallowed Rs. 1,83,450/- for Employees' Provident Fund contributions paid beyond the due date prescribed under the Provident Fund Act. The CIT(A) deleted the disallowance, relying on the decision of the Hon'ble Delhi High Court in the case of Aimil Ltd. and others, which allowed such contributions if paid before the due date of filing the return under Section 139(1). The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Bombay High Court's ruling in CIT Vs. Ghatge Patil Transports Ltd., which supported the same interpretation. 3. Disallowance under Section 36(1)(vii): The AO disallowed Rs. 48,228/- claimed by the assessee as a write-off for EMDs, arguing that these were not allowable as bad debts under Section 36(1)(vii) since they were never offered as income. The CIT(A) allowed the write-off as a business loss under Section 37(1), recognizing the business necessity of making EMDs and the smallness of the amounts involved. The Tribunal upheld the CIT(A)'s decision, acknowledging the business purpose of the EMDs and the rationale behind allowing such write-offs as business losses. 4. Disallowance of interest on interest-free advances: The AO disallowed Rs. 9,33,867/- as interest on interest-free advances made to group concerns, arguing that the assessee had borrowed interest-bearing funds. The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds to cover the advances and followed the principle established by the Hon'ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd., which presumes that interest-free funds are used for non-business advances if sufficient. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee's interest-free funds were significantly more than the advances made. Conclusion: The Tribunal partly allowed the Revenue's appeal, sustaining the disallowance of Rs. 8,636/- under Rule 8D(2)(iii) while upholding the CIT(A)'s decisions on the other issues. The judgment emphasized the importance of establishing a clear nexus between disallowed expenses and tax-exempt income and recognized the sufficiency of interest-free funds in determining the validity of disallowances.
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