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TMI Blog2015 (4) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative also could not bring any material before us to show that the finding of the CIT(A) in the case of the assessee in the Assessment Year 2005-06 was reversed in an appeal by any higher authority. In the above circumstances, we do not find any good reason to interfere with the order of the CIT(A) which is hereby confirmed and this ground of the appeal of the assessee is dismissed. Dis-allowance of expenditure u/s 14A - The Authorized Representative of the assessee has pointed out from page nos. 11 to 13 of the paper-book for Assessment Year 2007-08 that the assessee had not claimed any income as exempt from tax. He has also pointed out from page nos. 27 and 28 of the paper-book for Assessment Year 2008-09 that no income was claimed as exempt by the assessee in its Return of Income. The Authorized Representative of the assessee has relied on the decision of the Hon’ble Gujarat High Court in the case of Corrtech Energy (P) Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT], wherein it has been held that where the assessee has not made any claim for exemption of any income from payment of tax, no disallowance could be made u/s 14A of the Act. The Departmental Representative has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissed. - In net decided partly in favour of assessee. Addition u/s 41(1) of Income Tax Act, 1961 - The DR simply relied upon the order of the AO and could not point out any error in the order of the CIT(A). In the absence of any material to show that the liability in question ceased to exist during the year under consideration or any benefit was received by the assessee during the year under consideration, we find no error in the order of the CIT(A), which is confirmed, and the ground appeal of the Revenue is dismissed. - Decided against the revenue. - ITA No. 2315/Ahd/2010, ITA No.2663/Ahd/2010, ITA No.3235/Ahd/2011, CO No.305/Ahd/2010 - - - Dated:- 27-3-2015 - Shri Shailendra Kumar Yadav And Shri N.S. Saini JJ For the Appellant : Shri Anil R. Shah, AR For the Respondent : Shri B.L. Yadav, Sr. DR ORDER Per Shri N.S. Saini, ACCOUNTANT MEMBER: ITA Nos. 2315/Ahd/2010 and 2663/Ahd/2010 are the cross appeals filed by the assessee and Revenue respectively against the order of the Commissioner of Income-tax (Appeals)-XIV, Ahmedabad dated 14.06.2010 for Assessment Year 2007-08. ITA No. 3235/Ahd/2011 is the appeal filed by the assessee for Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 Meenaben A Gosalia 15,000 1,15,000 10 Redwood Holding Pvt Ltd 2,00,000 20,00,000 69,73,973 5,07,00,000 6. The assessee submitted before the Assessing Officer that on a similar background disallowance of interest was made by the Assessing Officer on such advances and the matter was pending in appeal before the CIT(A). The Assessing Officer observed that pending of appeal before the CIT(A) does not change the nature of interest free advance to various parties and accordingly made disallowance of interest of ₹ 69,73,973/-. 7. Before the CIT(A), it was argued that the Assessing Officer has not proved the nexus between the utilization of borrowed funds by the assessee for non-business purposes and therefore, the Assessing Officer was not justified in making estimated disallowance of interest @ 10% of the amount advanced as free of interest. 8. The CIT(A), considering the submissions of the assessee, observed that similar issue had come up for consideration in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest free advances given by the assessee were ₹ 5.07 crores, following the above decisions no disallowance of interest could be made. 10. On the other hand, the Departmental Representative supported the order of the CIT(A). 11. We find that in all the above three cases relied upon by the Authorized Representative of the assessee, the disallowance was made by the Assessing Officer without establishing nexus between the interest bearing borrowed funds and interest free advance given by the assessee. On the above facts, it was held by the courts that when the interest free funds available with the assessee was more than interest free advances given by the assessee, then it can be presumed that interest free advances were given out of the interest free funds available with the assessee and therefore, disallowance of interest expenditure cannot be made. However, in contradiction to the facts of the above cases, in the instant case the CIT(A) has recorded a finding to the effect that in the assessment of Assessment Year 2005-06 the Assessing Officer has established a direct nexus between the interest bearing loan taken by the assessee and the interest free advance giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt Ltd and others vide order dated 20.10.2008 has held that the Assessing Officer is bound to adopt Rule 8D for making disallowance u/s 14A, where he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the disallowance made by the Assessing Officer as per Rule 8D under section 14A was justified. Further, the CIT(A) observed that the contention of the assessee that as interest disallowance was made by the Assessing Officer on account of funds not used for business purpose and therefore, no disallowance should be made u/s 14A of the Act, he was not in agreement with the contention of the assessee as it was not mentioned in Rule 8D that such adjustment has to be made before computing the disallowance. 15. Before us, the Authorized Representative of the assessee contended that it will be seen from page No.11, 12 and 13 of the paper-book filed for the Assessment Year 2007-08 that the assessee had not claimed any income as exempt from tax. Further, referring to page nos. 27 and 28 of the paper-book, he pointed out that it will be seen from the computation of income and the copy of the Return of Income filed for the Assessment Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come filed. Therefore, respectfully following the decision of Hon ble Gujarat High Court in the case of Corrtech Energy (P) Ltd (supra), we delete the disallowance of expenditure made u/s 14A read with Rule 8D of ₹ 1,60,45,775/- in the Assessment Year 2007-08 and ₹ 2,04,30,869/- in the Assessment Year 2008-09. Thus, this ground of appeal of the assessee is allowed in both the years under appeal. 18. Ground No.3 of the assessee s appeal for Assessment Year 2007-08 is directed against the order of the CIT(A) upholding levy of interest u/s 234 of the Act. 19. At the time of hearing, no submissions were made by the Authorized Representative of the assessee on this ground of appeal taken in the appeal. Therefore, we hold that charging of interest is consequential and accordingly dispose of this ground of appeal of the assessee. 20. Ground No.2 of the assessee s appeal in Assessment Year 2008-09 is directed against the order of the CIT(A) in confirming addition of ₹ 30,46,655/- being income of prior period. 21. Ground No.3 of the assessee s appeal for Assessment Year 2008-09 is directed against the order of the CIT(A) on the ground that the disallowance made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer. 24. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that the assessee added ₹ 1,57,11,364/-as net prior period expenses debited in profit loss account in computing its total income. The AO observed that net prior period expenses of ₹ 1,57,11,364/- is comprised of two elements viz. prior expenses of ₹ 1,87,58,019/- and prior period income of ₹ 30,46,655/-. According to the AO, the entire prior period expenses of ₹ 1,87,58,019/- is not allowable to the assessee as deduction, as the assessee s system of accounting is mercantile. He, therefore, added the entire ₹ 1,87,58,019/- in place of ₹ 1,57,11,364/- added by the assessee, and thus enhanced the assessee s income by ₹ 30,46,655/-. 25. On appeal, the CIT(A) confirmed the action of the AO. 26. We find that it is not in dispute that ₹ 30,46,655/- was income of prior period. In our considered view, on the same analogy on which expenses of prior period is not allowable, the income of prior period also cannot be brought to tax for the year under consideration. The lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed the same by his predecessor. Therefore, following the same, he confirmed the addition made by the Assessing Officer. 30. Before us, the Authorized Representative of the assessee submitted that since these advances were made out of interest free own funds of the assessee, no disallowance was warranted. However, no material could be brought before us by the AR to substantiate the above addition. 31. We find that the CIT(A) has confirmed the disallowance by following order of his predecessor passed in the case of the assessee itself in the immediately preceding year. The AR brought no material to controvert the above findings of the CIT(A) or to show that this order of the CIT(A) passed in the immediately preceding year was reversed by any higher authority. Therefore, we do not find any good reason to interfere with the order of the CIT(A), which is confirmed and the ground of the appeal of the assessee is dismissed. 32. Now we take up Revenue s appeal 33. Ground No.1 of the Revenue s appeal for Assessment Year 2007-08 is directed against the order of the CIT(A) deleting the addition of ₹ 73,623/- made u/s 41(1) of the Act. 34. The brief facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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