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TMI Blog2014 (8) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced to persons covered u/s.40A(2)(b) - there is no question of disallowance of interest on account of interest free advances given to related parties - It is a reverse case wherein the assessee has obtained the loan from related parties by paying exorbitant rate of interest for which the AO disallowed the excess interest paid to the related parties by invoking the provisions of section 40A(2)(b) - Since the assessee itself has agreed for the addition of ₹ 33,37,059/- to tax being excess interest paid to the related parties covered u/s.40A(2)(b), therefore, the CIT(A) was fully justified in upholding the addition made by the AO – Decided against Assessee. Expenses for earning exempt dividend income u/s 14A r.w. section 8D – Held that:- Similar disallowances were made in the assessment orders passed for earlier AYs of the assessee by the AO and nothing was brought to notice as to the outcome of disallowance made by the AO - the assessee itself had admitted that it has incurred certain expenses although the same is negligible which cannot be correctly ascertained and since certain additions were made during AY 2006-07 and 2008-09 by the AO u/s14A and nothing has been bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law and on perusing the balance sheet of the year it transpires that the assessee-company is having interest free funds far in excess of the loans advanced to 40A(2)(b) persons. The statutory presumption applies to the facts of this case that such loans were out of interest free available funds with the assessee. The Ld. CIT(A) was not justified in sustaining the addition of ₹ 33,37,059/- by passing a cryptic order which is not in consonance with the provisions of S. 250(6) of the Act. The addition be deleted. 2.1 Facts of the case, in brief, are that the assessee is a Private Limited Company engaged in the business of manufacturing of oil engines and DG sets. It filed its return of income on 01-10-2009 declaring total income at ₹ 3,00,26,240/-. During the course of assessment proceedings, the AO observed from the details furnished by the assessee that the assessee company had taken interest bearing loans and advances from State Bank of India, loan creditors who are mostly persons covered u/s.40A(2)(b) and other loan creditors pertaining to creditors for goods. 2.2 He noted that from the various details furnished by the assessee that the assessee has paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest individually for each respective depositor and a list of sum showing interest actually paid, the interest that should have been paid @15.60% and the difference that has been offered for taxation. Since the assessee company offered for taxation the differential amount of interest, the Assessing Officer disallowed the amount of ₹ 33,37,059/- being excess interest paid to the persons covered u/s.40A(2)(b) of the I.T. Act. 3. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer. He observed that although certain formalities are to be observed for obtaining loan from bank and institutions which are required for receiving loan from Directors and their relatives, however, this does not warrant payment of exorbitant rate which is 6.25% over and above the interest paid to the bank. The CIT(A) disallowed the amount on the ground that the assessee himself has offered the difference between 21% and 15.60% for taxation, therefore, raising the issue now before him which has been treated as closed by the assessee itself cannot be accepted. 3.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before. 4. The Ld. Counsel for the assessee strongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Tribunal in the said case has upheld the order of the CIT(A) who had deleted the addition of ₹ 22,50,000/- made by the Assessing Officer on account of rent paid u/s.40A(2)(b) of the I.T. Act. 4.3 Referring to the grounds of the assessee he submitted that the assessee was having sufficient interest free funds. He submitted that the order of the CIT(A) is not in accordance with law and cryptic, therefore, the same should be set-aside and the grounds raised by the assessee should be allowed. 5. The Ld. Departmental Representative on the other hand submitted that since the assessee has admitted before the Assessing Officer for disallowance of the excess interest paid, therefore, there is no justification on the part of the assessee to raise the issue again before the Tribunal. He submitted that the assessee has already given concession to the Assessing Officer for disallowance of about 6% excess interest paid to the Directors, Members and related parties. Therefore, the Assessing Officer was fully justified in making the addition and the grounds raised by the assessee should be dismissed. 6. We have considered the rival arguments made by both the sides, perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest to be paid to the Directors and related parties @15.60% and offered the balance amount for taxation. Therefore, under the facts and circumstances of the case, the various case decisions relied on by the Ld. Counsel for the assessee are not applicable. 6.3 We further find that the assessee in the grounds has mentioned that it has sufficient interest free funds available which are far in excess of the loans advanced to persons covered u/s.40A(2)(b). In the instant case, there is no question of disallowance of interest on account of interest free advances given to related parties. It is a reverse case wherein the assessee has obtained the loan from related parties by paying exorbitant rate of interest for which the Assessing Officer disallowed the excess interest paid to the related parties by invoking the provisions of section 40A(2)(b) of the I.T. Act. Since the assessee itself has agreed for the addition of ₹ 33,37,059/- to tax being excess interest paid to the related parties covered u/s.40A(2)(b), therefore, the CIT(A) in our opinion was fully justified in upholding the addition made by the Assessing Officer. The grounds raised by the assessee are accordingly dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Amritsar Bench of the Tribunal in the case of DCIT Vs. Jammu Kashmir Bank Ltd. reported in 83 ITR 187. 9. The Ld. Departmental Representative on the other hand heavily relied on the orders of the Assessing Officer and CIT(A). 10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. From the copy of the assessment order, we find on being questioned by the Assessing Officer to explain as to why proportionate disallowance should not be made for claiming the dividend income as exempt u/s.10(34), the assessee in its reply vide submission dated 17-08-2011 has replied as under : The company has earned a dividend of ₹ 1,60,976/- from Indian Companies which is claimed as exempt u/s 10(34) of the I. T. Act. However, the expenditure incurred regarding the same is negligible and cannot be correctly ascertained . 10.1 We further find similar disallowances were made in the assessment orders passed for A.Yrs. 2006-07 and 2008-09 by the Assessing Officer and nothing was brought to our notice as to the outcome of such disallowance made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of the present case. This ground by the assessee is accordingly dismissed. 11. Ground of appeal No.5 by the assessee reads as under : 5) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the ad-hoc disallowance of ₹ 1,24,257/- made by the A. 0. The ad-hoc disallowance be deleted. 11.1 After hearing both the sides, we find the Assessing Officer during the course of assessment proceedings noted that the assessee company has debited the following expenses : i. Postage Telephone : Rs.8,13,059/- ii. Furniture repair Maintenance : ₹ 87,925/- iii. Cartage : Rs.3,41,585/- Rs.12,42,569/- 11.2 From the bills and vouchers produced for his verification, he noted that certain expenses were supported by only self-made vouchers for which those were not fully verifiable as far as business nexus of the same were concerned. The Assessing Officer further noted that in the order for A.Y. 2008-09, similar disallowance were made by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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