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TMI Blog2017 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any material evidence regarding the service actually rendered by shri S.S. Mallikarjun the mere competence or qualification cannot be a criteria for allowing the payment made by the assessee on account of technical consultancy fee. - Decided against assessee Disallowance of interest u/s. 14A - contention of the assessee that the investment was made for the purpose of the business of the assessee - Held that:- Contention of the assessee is relevant in respect of the disallowance made u/s. 37(1) and not for the purpose of disallowance u/s. 14A. So long the assessee is showing the investment in the shares the said transaction clearly falls in the ambit of section 14A as a dividend income from the investment is exempt u/s. 10(38) of the IT Act. Further the assessee has raised the contention by pointing out that the increase in the overdraft limit during the year is only ₹ 2,79,00,000/- and there is much more corresponding increase in the current assets. However we note that neither the AO nor the CIT(A) has analysed these facts or given any finding on this issue. This aspect is relevant only when there is no direct nexus between the borrowed fund and investment. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kar, Advocate For The Revenue : Shri G.R. Reddy, CIT-DR(I) ORDER Per Shri Vijay Pal Rao, Judicial Member These cross appeals are directed against the order dated 29.01.2013 of CIT(A) for the assessment year 2007-08. First we take up the appeal filed by the assessee wherein the ld. AR of the assessee has raised various grounds however at time of hearing ld. AR of assessee submitted that the summarized effective ground is only ground no. 1 (a) to (e) which reads as under: 1. BECAUSE, the Learned Commissioner of Income Tax (Appeals) erred in law as well as on facts while confirming / making the additions / disallowances made by the assessing officer, a) Disallowance of Jowar Purchases U/S 37 of the Income Tax Act, 1961 amounting to ₹ 19,59,000/-. b) Disallowance of Husk Purchases U/S 37 of the Income Tax Act, 1961 amounting to ₹ 7,77,757/-. c) Additions of Sundry Creditors Disallowance of Liability U/S 41(1) of the Income Tax Act, 1961 amounting to ₹ 7,68,453/. d) Disallowance of Technical Consultancy Fees paid U/S 37(1) of the Income Tax Act, 1961 amounting to ₹ 10,50,000/-. e) Disallowance of Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause of his technical knowledge and service provided the assessee was able to increase its production and profitability since 1999-2000 till the year under consideration. She has referred to the production details and profits during the said period and submitted that production of the assessee company was increased manifold in this period and correspondingly the profits of the company are also increased. Thus the ld. AR has submitted that when the assessee has proved the technical knowledge and expertise of Shri S.S. Mallikarjun then no disallowance is called for in respect of technical / consultancy fee paid by the assessee. 5. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that the payment is made to the related person and assessee has failed to produce any evidence to show that any technical service was actually rendered by Sri S.S. Mallikarjun to the assessee. Therefore in the absence of any supporting material of actual service rendered to the assessee the payment is not allowable u/s. 37(1) being the expenditure not laid out wholly and exclusively for the purpose of business of the assessee. 6. We have considered the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders. The assessee has debited to Profit and Loss Account ₹ 79,53,780/- under head financial charges . The AO accordingly disallowed the interest of ₹ 79,53,780/- debited under the head financial charges by invoking the provisions of section 14A. The assessee challenged the action of the AO before the CIT(A) and contented that the investment in question have been made exclusively and only for the purpose of business and not for the purpose of earning dividend. An investment has been made in the companies which are in the same business of sugarcane processing unit where molasses is available. It was further contented that the investment was made in the shares of Indian Cane Power Ltd. to get the benefit of supply of molasses which is raw material for the assessee company. The said company was subsequently merged with the assessee company and therefore this was the reason for making the investment. Similar contention was raised in respect of Universal Bottles Pvt. Ltd. The CIT(A) was not impressed with the explanation and contention of the assessee and upheld the disallowance made by the AO. 8. Before us the ld. AR of the assessee has reiterated its contention a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant. Accordingly, we set aside this issue to the record of the AO for proper verification and adjudication after considering all the relevant facts as pointed out by the assessee. Revenue s appeal in ITA No. 552/Bang/2013:- 10. The revenue has raised the following grounds. 1.The order of the Commissioner of Income Tax (Appeals), Hubli, is opposed to law and not on the facts and circumstances of the case. 2. The order of the Commissioner of Income Tax (Appeals), Hubli, is not a speaking order. 3. The order of the CIT(A) is perverse with regard to reworking of grain price by adopting at the average rate at ₹ 950/- per quintal (including the expenses for conversion to flour) and allowing assessee s appeal partly on this issue. 4. The Commissioner of Income Tax (Appeals), Hubli, has not given any finding on the correctness or otherwise of the disallowances made based on detailed verification made by the Assessing Officer with regard to the issues of Payment made to husk suppliers, Sundry Creditors added u/s 41(1) of the Act Payment made to technical consultancy. 5. For these and other grounds that may be urged upon at the time of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore the rate prevailing at APMC of Bagalkot, Bijapur and other places are relevant. He has thus contented that the average price prevailing in the market of moderate good jowar is much more than the rate adopted by the CIT(A) and therefore no disallowance is called for. 14. We have considered the rival submissions as well as relevant material on record. There is no dispute that the AO while making the disallowance has adopted the rate of jowar as prevailing at APMC Davanagere at ₹ 600/- per quintal. The CIT(A) has taken into consideration the rates prevailing at three APMCs namely Bagalkot, Mahalingapur and Davanagere. However we find that the average rate computed by the CIT(A) is the maximum rates prevailing at these three APMCs. The assessee claimed before the CIT(A) that the AO should have considered the rates for moderate good jowar. Therefore the assessee itself has not claimed that it has purchased the best jowar available in the market. Accordingly, having considered the facts and circumstances of the case we are of the view that the mean rate which is minimum + maximum / 2 of all three APMCs to be considered for working out the average market price of jowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO allowed the purchase of husk to the extent of ₹ 3,10,000/- and disallowed the balance amount of ₹ 74,67,244/-. 16. Before the CIT(A) the assessee furnished the details of steam generated during the financial year relevant to the assessment year under consideration and also given the details of the required husk to generate the said amount of steam. After considering the relevant details the CIT(A) restricted the disallowance to 10% of the total purchases of ₹ 77,77,579/- amounting to ₹ 7,77,757/-. 17. Before us the ld. DR has submitted that there is a steep rise in the fuel consumption during the year under consideration in comparison to the earlier years. He has further submitted that there is no extra generation of power during the year under consideration in comparison to the earlier year and therefore the Assessing Officer has rightly pointed out this fact that the assessee has shown excess consumption of husk during the year in comparison to the earlier year when there is no increase of generation of power. He has relied upon the orders of the Assessing Officer. On the other hand, the ld. AR has submitted that the assessee furnished all the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the CIT(A) qua this issue when the revenue has not brought before us to counter the facts recorded by the CIT(A). 19. The AO has also disallowed the amount of ₹ 67,43,296/- on account of sundry creditors by invoking the provisions of section 41(1). The AO held that the amounts in the books of accounts are coming from earlier years and there is no transaction during the year. The CIT(A) has restricted this disallowance as under. I have gone through the facts of the case, contents of the assessment order and written submission of the assessee. Out of the outstanding creditors ₹ 67,43,296/- the assessee filed the details for all cases, except three cases ([i] M/s. Malvi Manufactured Power Association ₹ 12,626/- [ii] M/s. Nagenhalli Industries, Harihar ₹ 5,97,886/- [iii] M/s. Bem Seals ₹ 1,57,941/- total amount ₹ 7,68,453/- Hence out of the total disallowance of ₹ 67,43,296 and amount of ₹ 7,68,453 was upheld and remaining amount is allowed. As a result this ground of appeal is partly allowed. 20. Thus it is clear that the assessee filed the details of all the cases except the three cases for which the CIT(A) has conf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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