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2018 (4) TMI 1280 - AT - Income TaxDisallowance of interest - diversion of funds from interest bearing borrowings and earning less interest than paid - Held that - As per assessee major borrowing were from LIC which was on the interest rate @9% p.a. and it is only at fag-end of the year in January 2009, the borrowings were made from Kotak Mahindra Bank Limited on the interest rate @10.5% p.a. which cannot be benchmarked in the manner done by the AO to disallow the differential interest @1.5% for the whole year on the total deposit advanced to the subsidiary company namely Whistling Woods International Limited. Secondly, it is the claim of the assessee that the amounts were advanced keeping in view commercial expediency and no disallowance is warranted. Thus contentions of the assessee requires verification by the AO as it required investigation of facts. In our considered view, the matter need to be set aside and restored to the file of the AO for fresh adjudication of the issue on merits in accordance with law. Disallowance of miscellaneous expenses - Held that - All these expenses were duly included while computing fringe benefit tax liability and due fringe benefit tax was separately paid by the assessee on these expenses. It is also not the grievance of the Revenue that these expenses were not incurred wholly and exclusively for the purposes of the business of the assessee. Under these situations it was incumbent on the Revenue to have come out with specific disallowance by going through each of the expenses to come to the conclusion that these expenses were not incurred wholly and exclusively for the purposes of the business or were bogus expenses which has not been done by the authorities below rather an adhoc disallowance has been made by the authorities below on certain assumptions which is not sufficient to fasten tax liability in the instant case. Thus disallowance as was made by the AO and as confirmed by learned CIT(A) is not sustainable and is hereby ordered to be deleted. Additions made owing to difference in AIR statement - Held that - The assessee has filed American Express Bank Credit Card statements in paper book filed with the tribunal. The assessee has filed an application for admission of additional evidence under Rule 29 of Income-Tax (Appellate Tribunal) Rules, 1963, wherein affidavit dated 20-11-2012 of Mr. Puneet Agarwal is filed wherein he has owned up these American Express Bank Credit Card attributable to his personal payments having no connection with the assessee. These additional evidences goes to the root of the matter and needs to be admitted in the interest of justice. CIT(A) ought to have admitted these additional evidences in the interest of substantial justice and thereafter adjudicated on merits. we are of the considered view, that this issue need to be restored to the file of the AO for de-novo adjudication of the issue on merits in accordance and admit evidences and explanations submitted by the assessee in its defence. Disallowance of foreign travelling expenses - Held that - The assessee could not establish by way of cogent evidences that these expenses claimed to be incurred towards foreign travel expenses for visiting foreign countries by Mr Subhash Ghai, Chairman and Director as well by Sh. Rahul Puri were incurred wholly and exclusively for the purposes of the business of the assessee and under these circumstances we hold that the assessee could not establish that all ingredients of provisions of Section 37(1) stood complied with. Addition to be confirmed Disallowance u/s 14A r.w.rule 8D - Held that - As assessee indeed utilised interest bearing borrowed funds for making investments in securities. Thus, this disallowance of interest expenses as was made by the AO and confirmed by learned CIT(A) u/s 14A r.w.rule 8D(2)(ii) to the tune of ₹ 9,04,440/- stood deleted. So far as disallowance of expenditure being 0.5% of the average investments by invoking Rule 8D(2)(iii) r.w.s. 14A we hold that the disallowance of expenditure in relation to the earning of exempt income is to be made by the AO u/s 14A r.w.r. 8D(2)(iii) as keeping in view decision in the case of Maxopp Investment Limited (2018 (3) TMI 805 - SUPREME COURT OF INDIA) as no justification is brought on record by learned counsel for not sustaining the additions on this ground. The assessee fails on this ground.
Issues Involved:
1. Disallowance of interest. 2. Disallowance of cash expenses. 3. AIR discrepancy. 4. Disallowance of foreign travel expenses. 5. Disallowance under Section 14A read with Rule 8D. Issue-wise Detailed Analysis: 1. Disallowance of Interest: The assessee contested the disallowance of ?4,14,548/- made by the AO, which was confirmed by the CIT(A), on the grounds that the interest paid on loans from Kotak Mahindra Bank at 10.5% p.a. exceeded the interest charged to its sister concern at 9% p.a. The assessee argued that the major borrowings were from LIC at 9% p.a., and the loan from Kotak Mahindra was only raised in January 2009. The Tribunal found merit in the assessee's contention that the differential interest required verification and set aside the matter to the AO for fresh adjudication. The ground was allowed for statistical purposes. 2. Disallowance of Cash Expenses: The AO disallowed 25% of the cash expenses (?4,42,767/- out of ?17,71,068/-) on the basis that they were self-vouched and could include personal elements. The CIT(A) upheld the disallowance. The Tribunal, however, noted that the assessee, being a company, could not incur personal expenses and that these expenses were subject to Fringe Benefit Tax (FBT). The Tribunal found the disallowance to be arbitrary and without specific incriminating evidence, and thus, ordered the deletion of the disallowance. The ground was decided in favor of the assessee. 3. AIR Discrepancy: The AO added ?2,49,162/- (later reduced to ?2,23,216/-) based on AIR information indicating payments to American Express Bank Credit Card, which the assessee denied. The CIT(A) did not admit additional evidence provided by the assessee. The Tribunal admitted the additional evidence, including an affidavit from an individual owning the credit card, and remanded the matter to the AO for fresh adjudication. The ground was allowed for statistical purposes. 4. Disallowance of Foreign Travel Expenses: The AO disallowed ?5,14,804/- of foreign travel expenses, stating that the trips were not wholly and exclusively for business purposes. The CIT(A) upheld the disallowance. The Tribunal found that the assessee failed to provide cogent evidence to justify the expenses as business-related and upheld the disallowance. The ground was dismissed. 5. Disallowance under Section 14A read with Rule 8D: The AO disallowed ?11,45,780/- (?9,04,440/- under Rule 8D(2)(ii) and ?2,41,340/- under Rule 8D(2)(iii)) related to exempt income. The CIT(A) confirmed the disallowance. The Tribunal, referring to the assessee's own funds exceeding the investments, deleted the disallowance under Rule 8D(2)(ii) but upheld the disallowance under Rule 8D(2)(iii), following the Supreme Court's decision in Maxopp Investment Limited. The ground was partly allowed. Conclusion: The appeals for both AY 2009-10 and AY 2010-11 were partly allowed, with the Tribunal providing detailed directions for each issue, including remanding certain matters for fresh adjudication by the AO. The order was pronounced on 23.04.2018.
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