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2015 (10) TMI 1278 - AT - Income TaxAddition on account of alleged perquisite on account of services rendered by CA Shri. Whora B.A. - Held that - There is no dispute to the fact that Shri B.A. Wohra is getting huge professional fess from Jain Irrigation System Ltd., (JISL). At the same time, there is also no dispute to the fact that Shri B.A. Wohra is attending to the individual tax matters of the assessee and various family members and have not charged anything separately from them. Further, there is also no material on record to suggest that the company has paid any sum to the consultant on behalf of the assessee for rendering professional services. We find merit in the above submission of the Ld. Counsel for the assessee. It is not mandatory or compulsory for any professional to charge for the professional services rendered to any director or relative of a director or close family members of directors when he is getting fees for rendering services to a company. He may do it voluntarily and free of cost also. Further, there is also no material on record to show that the company has paid any amount to the consultant on behalf of the assessee. In this view of the matter, we set-aside the order of the CIT(A) and direct the AO to delete the addition.- Decided in favour of assessee. Additional of notional interest u/s.2(24)(iv) - Held that - We find the Hon ble Supreme Court in the case of V.M. Salgaocar and Bros. Pvt. Ltd. vs. CIT (2000 (4) TMI 2 - SUPREME Court) has held that insertion of clause (vi) in sections 17(2) and 40A(5) by Taxation Laws (Amendment) Act, 1984 and its subsequent repeal by Finance Act, 1985 provide a clear direction to interpret the provisions of section 17(2) and 40A(5) before insertion of clause (vi). Therefore, when a company obtains loan by paying interest and advances the same to directors without charging any interest, the interest attributable to the amounts advanced to directors could not be treated as perquisite. We further find that the Ld. Departmental Representative could not controvert the submission of the Ld. Counsel for the assessee that no such disallowance was made in scrutiny assessments in the past and no 263 proceedings or 148 proceedings were initiated after completion of the assessment. In view of the above discussion, we are of the considered opinion that no addition on account of interest u/s.2(24)(iv) is required on interest free deposit advanced to the assessee.- Decided in favour of assessee. Disallowance u/s.14A - Held that - Since the assessee has neither paid any interest nor claimed any other expenditure, therefore, respectfully following the decision of the Coordinate Bench of the Tribunal in the case of Magarpatta Township Development and Construction Co. Pvt. Ltd. 2014 (9) TMI 351 - ITAT PUNE , we hold that no disallowance u/s.14A of the I.T. Act is called for in the instant case. We accordingly set-aside the order of the CIT(A) and direct the AO to delete the addition - Decided in favour of assessee. Disallowance u/s.14A - Shri Atul Bhavarlal Jain - Held that - Admittedly, the assessee has borrowed funds from different parties which was invested in fixed deposits with banks/companies and shares of a Cooperative Bank. As against the interest earned at ₹ 56,16,040/- the assessee has paid interest of ₹ 68,96,925/-. Since the interest expenditure was higher than the corresponding interest income, the assessee had restricted the deduction to ₹ 56,16,040/- thus excluding the excess interest of ₹ 12,80,885/-. Therefore, in our opinion, the disallowance u/s.14A r.w. Rule 8D should be recomputed by taking the interest expenditure at ₹ 56,16,040/- and not ₹ 68,96,925/- for working out the disallowance u/s.14A r.w. Rule 8D(1)(ii) since the assessee is not in appeal against the disallowance of the administrative expenses under rule 8D(1)(iii). We therefore restore this issue to the file of the Assessing Officer for recomputing the disallowance u/s.14A r.w. Rule 8D after giving due opportunity of hearing to the assessee as per law. This ground by the assessee is accordingly partly allowed for statistical purposes. Transaction of gift of shares to a private limited company - CIT(A) deleted the addition - Held that - There is nothing on record to prove that any consideration or benefit has been passed on to the assessee. We find no infirmity in the order of the CIT(A) on this issue. As per the provisions of section 28(iv), the value of any benefit or perquisite whether convertible into money or not arising from business or the exercise of a profession shall be chargeable to income-tax under the head Profits and gains of business or Profession . Here, the assessee is not carrying out any business or profession. Therefore, the provisions of section 28(iv) are not applicable to the facts of the present case. In this view of the matter and in view of the detailed reasoning given by the Ld.CIT(A), we find no infirmity in the same. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed - Decided in favour of assessee. Disallowance of interest from the interest expenditure - Held that - There is no dispute to the fact that both the borrowings as well as the investments were made in the past. According to the AO since the assessee has not given the details of utilisation of borrowed funds, therefore, he was of the opinion that such borrowed funds might have been utilised towards purchase of immovable properties, jewelleries etc., However, from the copies of the assessment orders for A.Yrs. 2006-07 to 2008-09, we find no such disallowance has been made. The AO has only restricted the interest expenditure to the extent of interest income. The assessee in the impugned assessment year has also restricted the claim of such interest payment to the extent of interest received. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) deleting the disallowance of interest to the extent of ₹ 56,16,040/- from the interest expenditure. - Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 10,000/- as alleged perquisite. 2. Addition of notional interest u/s 2(24)(iv). 3. Disallowance u/s 14A of the Act. 4. Addition of Rs. 4,80,09,600/- u/s 28(iv) related to gift of shares. 5. Treatment of Rs. 56,16,040/- as income from other sources. 6. Treatment of Rs. 6,17,270/- as income from house property. 7. Enhancement of income from house property by adding notional interest. Issue-wise Detailed Analysis: 1. Addition of Rs. 10,000/- as Alleged Perquisite: The assessee contested the addition of Rs. 10,000/- made by the Assessing Officer (AO) on account of services rendered by CA Shri B.A. Wohra. The AO considered part of the remuneration paid to the CA as perquisite in the hands of the assessee. The CIT(A) upheld this addition. However, the Tribunal found merit in the assessee's argument that there was no material on record to suggest that the company paid any sum to the CA on behalf of the assessee for rendering professional services. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition. 2. Addition of Notional Interest u/s 2(24)(iv): The AO added Rs. 16,48,208/- as notional interest on the security deposit received by the assessee from Jain Irrigation Systems Ltd. (JISL) and the CIT(A) enhanced this addition to Rs. 19,54,208/-. The Tribunal, relying on various judicial precedents, including the decision of the Punjab & Haryana High Court in the case of CIT vs. Madhu Gupta, held that interest-free loans or deposits do not constitute a benefit or perquisite u/s 2(24)(iv). The Tribunal directed the AO to delete the addition. 3. Disallowance u/s 14A of the Act: The CIT(A) enhanced the assessment by disallowing Rs. 88,921/- u/s 14A r.w. Rule 8D. The assessee argued that no expenditure was incurred in relation to earning the exempt income. The Tribunal, following its earlier decision in the case of Magarpatta Township Development and Construction Co. Pvt. Ltd., held that no disallowance u/s 14A is required when there is no direct or indirect expenditure incurred by the assessee in relation to earning exempt income. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition. 4. Addition of Rs. 4,80,09,600/- u/s 28(iv) Related to Gift of Shares: The AO added Rs. 4,80,09,600/- as business income u/s 28(iv) on account of the gift of shares by the assessee to a private limited company. The CIT(A) deleted the addition, holding that there was no evidence of the assessee deriving any benefit or perquisite from the gift. The Tribunal upheld the CIT(A)'s order, stating that the provisions of section 28(iv) do not apply as the assessee was not carrying out any business or profession and there was no benefit or perquisite derived by the assessee. 5. Treatment of Rs. 56,16,040/- as Income from Other Sources: The AO added Rs. 56,16,040/- as income from other sources, disallowing the interest expenditure claimed by the assessee. The CIT(A) deleted the addition, observing that the assessee had restricted the claim of deduction of interest to the extent of receipt of interest and that the department had accepted this in the past. The Tribunal upheld the CIT(A)'s order, noting that both borrowings and investments were made in the past and there was no justification for deviating from the settled principle. 6. Treatment of Rs. 6,17,270/- as Income from House Property: The AO added Rs. 6,17,270/- as notional interest on the interest-free deposit received by the assessee from JISL for letting out his premises. The CIT(A) treated this notional interest as income from house property and enhanced the income from house property to Rs. 13,17,685/-. The Tribunal, following its decision in the case of Bhavarlal Hiralal Jain, directed the AO to delete the addition of notional interest on interest-free advances. 7. Enhancement of Income from House Property by Adding Notional Interest: The CIT(A) enhanced the income from house property by adding notional interest on the unadjusted opening balance of interest-free deposit. The Tribunal, following its earlier decision, directed the AO to delete the addition of notional interest, stating that no addition is required on account of interest-free deposit advanced to the assessee. Conclusion: The Tribunal allowed the appeals filed by the assessee on most grounds, directing the deletion of various additions made by the AO and upheld by the CIT(A). The appeals filed by the Revenue were dismissed. The Tribunal's decisions were based on judicial precedents and the absence of evidence to support the additions made by the AO.
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