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TMI Blog2017 (12) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA - Held that:- We note that it is not a cash flow statement at all. Accounting Standard-3 issued by ICAI provides the method to draw the cash flow statement having operating investment and financing activities. Cash flow statement should explain on what account the cash is coming in the organization and on what account cash is going out side the organization. This statement shows ‘electricity sale’ in sources and ‘decrease in debtors’ in application which does not have any scene. What includes in ‘further debts’ of ₹ 14,13,885/- has not been explained. We also note that figures explained to assessing officer and figures mentioned in the above cited cash flow statement does not tally. Considering the factual position explain above, we are of the view that order passed by the ld CIT(A) does not have any infirmity and hence we confirm the order passed by ld CIT(A). - ITA No.1129/Kol/2015, CO No.47/Kol/2015 And ITA No.1129/Kol/2015 - - - Dated:- 22-12-2017 - SHRI A. T VARKEY, JM AND DR. A.L.SAINI, AM For The Assessee : Shri Sallong Yaden, Addl. CIT For The Respondent : ShriS.M. Surana, Advocate ORDER Per Dr. Arjun Lal Saini, AM: The captioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. Further, the assessee had incurred expense in purchase of advertisement materials like air bags, umbrella, dangler, diaries and note pads, etc on which TT was printed. The details of advertisement material are as under: Name of Party Amount paid (in Rs.) Nature of expense Cray Data Services Pvt. Ltd. 15,66,746 TT company tea brand posters, calendars and flex boards, Translight boards Tamanna Traders Pvt. Ltd. 30,74,721 Canvas bag and big umbrella, umbrella, air bag set and big umbrella, banners, banners and flex boards JSB Business Pvt. Ltd. 43,08,477 Banners, Non-woven bags, Canvas hawker bags, Woven carry bag, Calendars, Flex board and convas bag, Cloth banners Gojendra Sandesh 5,000 - Lal Bahadur Shastri Hockey Tournament Committee 18,200 Trophy Unique Plastic Industries 17,078 Shoulder Bag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Purchased and supplied bears the Logo TT . 4) The big companies like Bata always purchases and sell goods by providing therein Logo on all goods and they are in fact transactions of purchase and sale Section 194C cannot be applied for outright purchase of Materials. 5) That CIT(A) in appeal against Assessment Order, for A.Y. 2009-10 has held inter alia that no contracts exists between the parties concerned which can be said to be covered u/s 194(C) of the I.T. Act as the transaction between parties is purely in the nature of sale and purchase and provision u/s 194C is not attracted in such transaction of purchase of Advertising Material. 6) That parties concerned from whom Advertising Material have been purchased have fully paid the tax on their Income as per copies of I.T. Acknowledgement for the A.Y. 2011-12 7) In view of the above facts you may kindly allow the Advertising Expenses fully incurred for the purpose of business. However, the assessing officer did not accept the contention of the assessee. The AO observed that it is important to categorically look into the nature of expenses and how they are treated as job work and why TDS u/s 194C should be ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contract but were for purchase of various materials to be used in advertising activity. The same issue on almost identical facts came up in assessment year 2009-10 and 2010-11 also. The CIT(A) in these assessment years had decided the issue in favour of the assessee. Since the CIT(A) decided the issue in favour of assessee in preceding previous years, therefore he did not take a different view in the current assessment year 2011-12. Therefore, CIT(A) following the decision of the predecessor CIT(A) in the said two previous years, deleted the addition u/s 40a(ia) of the Act. 3.3 Not being satisfied with the order of CIT(A), the Revenue is in appeal before us.The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel for the assessee defended the order passed by the CIT(A). 3.4 We have given a careful consideration to the rival submissions. We note that the expenses were claimed, by the assessee for poster, calendar, flex board, umbrella, air bag, hawker bags, cloth banner, pad, jute bags and pens etc. The AO had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed a dividend income of ₹ 2,870/- which he claimed exempt income u/s 10(32) of the I.T. Act, 1961. In the light of above, during the course of assessment proceeding, the assessee was asked why disallowance u/s 14A read with Rule 8D should not be made.In response to the same, the assessee replied to the assessing officer that the assessee has controlling interest and is holding shares value of ₹ 16.12 crores therein and has income therefrom in form of Managerial Remuneration amounting to ₹ 38.40 lacs., Royalty income of ₹ 2.96 crores both assessed as business income. The assessee was running two Wind Mills as priority Industry Projects as its Proprietor and generates Electrical Energy sold wholly to Tamilnadu Electricity Board Ltd. which is also assessed as Business Income. The assessee has no Dividend income from T.T. Ltd., during the year. The dividend income ₹ 2,870/- has been received from Stock-in-trading of shares of ₹ 11.90 lacs,against which Capital Gain has been assessed and taxed separately. The assessee was holding shares as Controlling Interest amounting of ₹ 15.89 crores in M/s T.T. Ltd. as on 31.03.2010 and further investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges ₹ 1005338/- Total interest expenses ₹ 33515000/- 8D(ii) ₹ 33515000/- x ₹ 161064046/- = ₹ 18725340/- ₹ 288275753/- 8D(iii) 0.5% of average investment (Rs.161064046/-) ₹ 805320/- Total disallowance u/s 14A ₹ 19530660/- 4.2 Aggrieved by the order of Assessing Officer, the assessee filed an appeal before the CIT(A), who has deleted the addition made by AO. Aggrieved by the order of CIT(A), the Revenue is in appeal before us. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Whereas, the ld Counsel for the assessee has defended the order passed by the CIT(A). 4.3 We have given a careful consideration to the rival submissions. We note that the assessee had claimed that own capital of about ₹ 16 crore was utilized for acquisition of TT shares. Including the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss accounts and balance sheets of windmill units as well as one consolidated balance sheet. One set of accounts was reflected a consolidated picture of assessee's entire income and expenditure thereon. The other set of accounts depicted the exclusive picture of windmill account of Unit No. 1 and Unit No. 2. On perusal of windmill account of Unit No. 1, it was observed by the AO, that assessee had a profit of ₹ 32,62,326/- from the unit on which he claimed deducted u/s 80IA. Further, the assessee had booked only four expenses in the profit and loss account of the windmill the details of which is as under: Depreciation ₹ 2,38,099/- Interest on windmill loan Rs.2,20,722/- Insurance charges ₹ 36,792/- Windmill expenses Rs,11,76,080/- Total ₹ 16,71,693/- The interest on loan for windmill has been paid to State Bank of Mysore from which loan was taken for purchase of fixed asset for the windmill unit. The AO noted that to run a unit, capital is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 82.59 lacs), 2010-11 is suffice to cover the above expenses and Net result as per Profit and Loss Account is surplus of ₹ 32.62lacs (P.Y. ₹ 30.62Iacs) after providing Depreciation on the Wind Mill for the year. (v) That Balance Sheet of Wind Mill No. (1) clearly reflects, that there was Debit Balance of ₹ 1.10 Crores in Capital Account, which means Capital of Wind Mill Unit No.-1 amounting to ₹ 1.10 Crores is being used in other consolidated business of the assessee, and as such no other fund from consolidated business is used in the Wind Mill unit. (vi) That cash fund flow statement of Wind Mill for FY 2010-11, Asst. year 2011-12 (as on 31.03.2011) reflects the fact that total out flow of cash is covered by total cash inflow from the wind mill unit no. (1) and no other Loan and/or fund from consolidated Account has been used in Wind Mill business. Therefore, the assessee submitted that apportionment of interest expense to Wind Mill Unit no. (1) for AY 2011-12 cannot be made on above facts and apportionment of Interest expense made by ₹ 45.67 lacs in A.Y 2010-11 on similar facts was arbitrary, uncalled for. After getting the reply from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaining the application of loan showed that loan were applied in the windmill unit as working capital and for Tamil Nadu Electricity Board amounting to ₹ 39,12,871/-. Hence, a part of the loan reflected in consolidated account of the assessee has been used by the Windmill Unit No. 1 claiming 80-IA deduction. Current asset consists of the following: Closing stock ₹ 5302/- Stock-in-Trade ₹ 1189955/- Sundry Debtors ₹ 12691623/- Tamil Nadu Electricity Board ₹ 3912871/- Cash and Bank balance ₹ 3856103/- Loans and advances ₹ 35204017/- The AO noted that based on the above, it was clear that a part of the loan which is in the mixed fund has been utilized for running the windmill unit and also repayment of loan taken from State Bank of Mysore. The assessee has neither apportioned borrowed funds for running the windmill unit nor has debited any interest expense on loan used for running the windmill unit. Only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- This way the amount ₹ 29,04,452/- was added back to profits and gains from other businesses. 5.2 Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A) who has partly allowed the appeal of the assessee observing the followings: The AO has observed that the wind mill has been financed heavily by the borrowings.Interest expenditure of ₹ 3,35,15,000/- has been apportioned by the AO to wind mill unit on page 19 of the assessment order and the said sum apportioned has been arrived at ₹ 29,04,452/-. The AO has reduced the said disallowed interest from the profit of wind mill claimed as ₹ 32,62,326/- and has thus assessed the profit from the said unit at ₹ 3,57,874/-. This apportionment has resulted in the addition of ₹ 29,04,452/-. 4.1.1. The AO has depicted on page 17 of his order profit and various items in respect of five assessment years. The table sums up the account of the unit since inception as presented by the assessee. The AO has thus pointed out that even in assessment year 2011-12 the own fund is negative and a loan of ₹ 6.2 crore was taken from State Bank of Mysore to purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unit 1. On reading the two balance sheet for the said units it can be seen that about ₹ 2 crore of borrowings from common fund can be said to be in unit II but in unit I about ₹ 1.5 crore of loan can be said to find its way from the common fund. To elaborate it little more from ₹ 19 crore of consolidated cash flow as discussed hereinbefore on allowing about ₹ 16 crore of investment in TT about ₹ 3 crore of own fund or profit may be said to be available for allocation for asset or activities other than TT shares. The said ₹ 3 crore may be considered for allocation between unit I and II and keeping the un- depreciated value of wind mill assets in mind it can be seen that in unit I additional ₹ 1.5 crore of borrowings can be said to have been utilized from the common borrowings. The assessee cannot claim to have completely financed the unit I from indicated secured loan of ₹ 1.5 crore as common borrowings and common own fund along with profit and aggregate depreciation leave very little to explain or claim that unit I wind mill has utilized only indicated secured loan. Keeping in mind the fallacy or difficulty in the allocation formu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured loan from borrowed funds in consolidated account, the AO and CIT(A) presumed that part of the borrowed funds were used for such repayment and thereby disallowed part of the interest while calculating the deduction u/s 80IA. The ld Counsel pointed out before us that both the Ld. AO and CIT(A) have proceeded on presumption that the repayment was made out of consolidated or mixed fund and as such the borrowed funds were used for repayment of loan in Wind Mill No.1. The disallowance cannot be made on presumption. The Counsel submitted before us the cash flow statement. Wind Mill had debit in capital account and have received back such debit. The Counsel also submitted before us consolidated account. The payment from consociated fund was made out of receipt of Royalty Income and repayment of earlier loans which have been received back in the capital account. The entire amount is therefore out of the receipts other than the secured loan in consolidated fund. Therefore no part of the interest can be attributed to the secured loan and as such interest cannot be apportioned. Moreover, the loans in consolidated account were taken for business expediency and the entire interest was all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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