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TMI Blog2018 (1) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... UNTANT MEMBER) For The Assessee : Ms. Aarti Sathe, AR For The Revenue : Mr. T.A. Khan, DR ORDER PER N.K. PRADHAN, A.M. The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-40, Mumbai and arise out of the assessment order u/s 143(3) of the Income Tax Act 1961, (the Act ). As common issues are involved we are proceeding to dispose them off by this consolidated order for the sake of convenience. 2. Two issues are involved in these appeals. One is the disallowance made by the Assessing Officer (AO) u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962. The other one is the disallowance u/s 36(1)(iii)/ addition on account of notional income u/s 5 of the Act. 2.1 We begin with the first issue. ITA No. 1361/MUM/2013 Assessment Year: 2009-10 3. The AO observed that it had debited ₹ 25,60,30,000/- in its profit loss account as interest payment and finance charges against borrowed money claimed to be utilized for the purpose of business. At the same time, the investments as stated in the balance sheet were valued at ₹ 97,44,50,000/- as on 31.03.2009 as compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance u/s 14A r.w. Rule 8D and made a disallowance of ₹ 3,53,14,668/-. 8. During the course of appellate proceedings, the assessee filed submission before the Ld. CIT(A) as made for AY 2009-10 and AY 2010-11 as mentioned above. The Ld. CIT(A) confirmed the disallowance of ₹ 3,53,14,668/- on the same basis as for the AY 2009-10 and AY 2010-11. 9. Before us, the Ld. counsel of the assessee submits that the investments have been made from time to time out of the assessee s own surplus funds. So no disallowance u/s 14A is called for. Reliance is placed by her on the decision in Reliance Utilities Power Ltd. 313 ITR 340 (Bom). She files the following details: Name of the Company in which strategic Investments are made:- Status AY 2009-10 AY 2010-11 AY 2011-12 Nuance Group (India) Pvt. Ltd. Joint Venture 5.35 11.81 - Hypercity Retail (India) Ltd. Subsidiary 11.40 9.50 113.61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect ground of appeal in favour of the assessee. 12. In view of the reasons delineated at para 11 above, we delete the disallowance of ₹ 3,69,33,354/- (AY 2009-10), ₹ 3,79,86,618/- (2010-11) and ₹ 3,53,14,668/- (AY 2011-12) made by the AO u/s 14A r.w. Rule 8D. 13. Now we turn to the second issue which arises in the AY 2009-10 and AY 2010-11. ITA No. 1361/MUM/2013 Assessment Year: 2009-10 14. During the course of assessment proceedings, the AO found that the assessee-company had advanced loan of ₹ 24.87 crores to its subsidiary M/s Gateway Multichannel Retail (India) Ltd. and had charged interest on the same up to December 2008 only, since the Board of Directors of the subsidiary decided in January 2009 to discontinue the catalogue retailing operations. The AO observed that the assessee had paid interest @ 13.5% on the loans taken; that in the assessee s case there was no commercial expediency for not charging/providing interest on the outstanding inter-corporate deposit. Therefore, he worked out the proportionate disallowance and made an addition of ₹ 83,91,532/- u/s 36(1) (iii) of the Act. 15. Aggrieved by the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) has followed his order for the AY 2009-10 and confirmed the above addition made by the AO. 18. Before us, the Ld. counsel of the assessee submits that the AO s assumption that the funds were advanced to Gateway out of borrowed funds is incorrect. The assessee had advanced ₹ 9 crore in the AY 2009-10. It had shareholder s fund of ₹ 297 crores as on March 2008 and ₹ 245 crores as on March 2009. The assessee had also earned cash profit of ₹ 24 crores in the AY 2009-10. In the same way, the Ld. counsel presented the data for the AY 2010-11. Thus it is stated that the assessee had sufficient funds, both accumulated reserves and cash profit generated during the year to fund the loan to Gateway. Relying on the decision in Reliance Utilities Power Ltd. (supra), the Ld. counsel submits that no disallowance u/s 36(1)(iii) should have been made by the AO in the above two assessment years. 19. Per contra, the Ld. DR supports the order passed by the Ld. CIT(A). 20. We have heard the rival submissions and perused the relevant materials on record. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal. 20.2 In Excel Industries Ltd. 358 ITR 295 (SC), it has been held that to recognize income, it has to pass through three tests, namely, (a) whether the income accrued to the assessee is real or hypothetical; (b) whether there is a corresponding liability of the other party to pay the amount; and (c) probability or improbability of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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