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TMI Blog2016 (5) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has surplus funds and loans are advanced out of internal accruals and profits made from sale of shares and were reflected in the balance sheet. The Ld.D.R though accepted the contention, did not accept the notional interest, which has not arised to the assessee’s case. Therefore, the findings of Ld.CIT(A) in deleting the addition is proper and accordingly,we upheld the order of Ld.CIT(A) on this ground. - Decided in favour of assessee. - I.T.A.No.1855/Mds. /2014, C.O. No.96/Mds/2014 - - - Dated:- 22-4-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Mr.A.V.Sreekanth,JCIT,D.R For The Respondent : Mr.Shriram Sheshadri C.A and Mr.Ashik Shah C.A ORDER PER G.PAVAN KUMAR, JUDICIAL MEMBER: This appeal filed by the Revenue and Cross objections by the assessee are directed against the order of the Learned Commissioner of Income Tax(A)-I, Chennai in ITA No.266/12-13/A-1 dated 24.03.2014 pertaining to the assessment year 2010-11 passed u/s.143(3) of the Act. 2.1 The Revenue has raised the following grounds:- 1. The order of the Ld.CIT(A) is contrary to law and facts and circumstances of the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cross objections:- 1. Disallowance u/s.14A of the Act. 1.1. The learned Commissioner of Income tax (Appeals) [ CIT(A)] erred in upholding the disallowance under section 14A of the Act by applying Rule 8D of the Income-tax Rules, 1962 ( Rules ), without noting the fact that the Assessing officer ( AO ) has failed to record any satisfaction to the effect that the voluntary disallowance made by the Respondent is incorrect. 1.2. The learned CIT(A) has failed to appreciate the fact that the dividend earned by the Respondent were incidental to trade investments and out of investments in mutual funds which were bought and sold during the year amounting to ₹ 20,20,846/- and ₹ 30,21,718/- respectively. 1.3. The learned CIT (A) has erred in upholding the disallowance made under section 14A of the Act by applying Rule 8D(iii) of the Rules to the extent of ₹ 20,50,543, which is excessive, unreasonable and arbitrary, considering the fact that the dividend income earned from investments is only ₹ 30,21,718/-. 1.4. The learned CIT(A) has failed appreciate the amount of disallowance of ₹ 2,52,167 made under section 1 4A of the Act by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on the decision of M/s.Godrej Boyce Vs. DCIT [ 234 DTR 01 (Bom.) ] calculated the disallowance under Rule-8D(ii) of the I.T. Rules,1961 and made disallowance of ₹ 29,52,927/-. The ld.A.R has furnished detailed explanations about the dividend income and the investments, and also cited case laws in support of his submissions at pages 3 4 of assessment order where in ld. Assessing Officer calculated the disallowance under Rule-8D in tabulation at para 4.3 of his order are applicable effectively from the assessment year 2008-09 based on financial statements, calculated the disallowances under Rule-8D (i), (ii) (iii) of 32.05.094/- whereas the assessee has already disallowed ₹ 2,52,167/-. Hence, the net amount of ₹ 29,52,924/- was disallowed. 3.2. During the assessment proceedings, the ld.A.O found that the assessee has lent interest free advances of 21.50 crores to M/s.Hitech Housing Projects Ltd., and called for explanations why the interest was not accrued on advances to M/s.Hi-tech Housing Projects Ltd., as the company is following Mercantile System of Accounting. On perusal of P L A/c, 2,72,69,000/- was claimed and can be disallowed u/s.36(1)(iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged for daily outstanding balance. Ld.CIT(A) based on the balance sheet and interest debited to the P L A/c supported by the return submissions filed by the assessee, found that ₹ 96,01,132/- was directly related to the investments and balance ₹ 1,76,68,025/- was incurred towards the interest for trading purpose. Considering the loan aspect of JMF, balance sheet of the assessee wherein the assessee has sufficient own funds of ₹ 59.13 crores against the investment of ₹ 31.99 crores. The Ld.CIT(A) allowed the ground by observing as under:- 4.2.8 However, the disallowance made by the AO by invoking limb(iii) of Rule 8D(2) is in order in view of the fact that this scientific formula needs t be applied from A.Y 2008-09 onwards for disallowance u/s.14A r.w.Rule 8D as per the decision in the case of Godrej Boyce. Furhter, in the case of Escorts Ltd. 102 TTJ 522, the ITAT Delhi has clearly held that indirect management and administration expenses qualify for disallowance u/s.14A and there is no decision so far by any similar forum contradicting the above finding. In view of the above, I direct the AO to restrict the disallowance only to the extent of limb(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for setting aside the CIT(A) s order. 5.2. Contra, ld.A.R substantiate his arguments that in case of trading in shares only Rule 8D(2) shall apply and also referred to page-32 of the paper book explaining that M/s.J.M.Financial Products P. Ltd. (JMF) confirming the loan sanctioned only for the purpose of purchase and sale of shares , Rule 8D(2) shall apply in respect of interest component, which is directly attributable to the investments. By referring to the financial statements, the interest component pertains to the shares and securities and not with respect to investments, Ld.CIT(A) has restricted the disallowance to that extent, without considering the other two limbs. 6.1. We have heard the rival submissions, perused the material on record and judicial decision cited. The main contention of ld.D.R being the restriction of interest component as per Rule 8D(2) is not viable and supported with the arguments relying on the various decisions. The ld.A.R submitted that assessee being the NBFC and it is regular practice to make investments in the shares and securities and assessee also disallowed amount suo moto under Rule 8D, but the AO applied Rules 1 , 2 3 and made dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the material on record and judicial decision cited. The fact of the case is that assessee has provided interest free advances to its sister concern, which is not disputed by the lower authorities and during the assessment proceedings, the assessee provided the particulars of income of the assessee for giving interest free loan and on perusal of the statement revealed that the assessee has surplus funds and loans are advanced out of internal accruals and profits made from sale of shares and were reflected in the balance sheet. The Ld.D.R though accepted the contention, did not accept the notional interest, which has not arised to the assessee s case. Therefore,, the findings of Ld.CIT(A) in deleting the addition is proper and accordingly,we upheld the order of Ld.CIT(A) on this ground. Cross Objections by assessee 7.1 Disallowance u/s.14A of the Act to treat the entire disallowance by applying Rule 8D of the I.T.Rules as cost of acquisition of securities is to be held as investments. The ld. Assessing Officer made disallowance, subsequently the Ld.CIT(A) upheld the disallowance with a direction that it should be restricted disallowance only to the extent of limb( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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