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TMI Blog2018 (5) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Technically, the grounds stands dismissed, however, the assessee shall get consequential relief in AY 2004-05. Adjustment of interest on Income Tax demand with interest on Income Tax refund received by the assessee - Held that:- The claim of the assessee has been allowed on the premise that between two persons, there could only be one account and therefore, the benefit of netting was available to the assessee. See DIT Vs. Bank of America NT & SA [2014 (12) TMI 551 - BOMBAY HIGH COURT] Disallowance u/s 14A - Held that:- The bare perusal of the financials of the assessee reveal that Shareholders’ funds of more than ₹ 500 crores far exceeds the meager investment of ₹ 9.37 crore made by the assessee. Further the opening investments stood at ₹ 8.91 crores which demonstrate that fresh investment were marginal in the impugned AY and therefore, interest disallowance, in our opinion, is not justified. The expenses disallowance is estimated at 5% of exempt income earned by the assessee. AO is directed to re-compute the same Provision of leave encashment - Held that:- The same was initially suo-moto disallowed by the assessee u/s 43B(f) in computation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Disallowance u/s 14A 4 to 7 4 Provision for Leave Encashment 8 5 Transfer Pricing Adjustment 9 10 6 General in nature 11 12 2. Facts in brief are that assessee being resident corporate assessee engaged in manufacturing of pharmaceuticals, scientific research etc. was assessed u/s 143(3) at loss of ₹ 21.58 Crores under normal provisions after certain adjustments / disallowances as against revised returned loss of ₹ 24.36 filed by the assessee on 07/11/2006. As evident from grounds of appeal, the subject matter of the appeal is certain Transfer Pricing Adjustments [TP] as well as non-TP adjustments as confirmed by Ld. first appellate authority, which we shall deal in subsequent paragraphs. 3. Ground Numbers 1 2 are related with disallowance of prior-period royalty payments of ₹ 57.27 Lacs paid by the assessee to an entity namely Fujiwasa Pharmaceuticals Co. Ltd., Japan for use of trademark pursuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in Sandvik Asia [15 Taxmann.com 381]. Aggrieved, the assessee is in further appeal before us. 4.2 The Ld. AR has drawn our attention to the fact that similar issue stood against assessee for AY 2007-08 by the order of this Tribunal vide ITA No.4061 4338/Mum/2011 dated 17/02/2016. However, the order has subsequently been recalled vide MA No.49/Mum/2017 dated 16/04/2018, finding mistake in the same. The copies of the orders have been placed before us. On merits, Ld. AR has placed reliance on the judgment of Hon ble Bombay High Court rendered in DIT Vs. Bank of America NT SA [ITA 177 of 2012 dated 03/07/2014] order of Mumbai Tribunal rendered in Cynamid India Limited Vs. ITO [ITA No. 4561/Bom/1982 23/05/1984]. Per Contra, Ld. DR supported the stand taken by lower authorities. 4.3 Upon careful consideration, it is evident from the order of Ld. AO that the interest received by the assessee was assessable under the Head Income from other sources and the netting-off has been denied by the Ld. AO on the premise that the interest payment had no nexus with the interest earned by the assessee and the statute do not provided for such deduction. In our opinion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her and the interest paid by the assesee should be adjusted against the interest received by the assessee and only net interest so arrived at should be taxed in its hands. The ld. A.O relying upon appellate orders for the assessment year 1990-91, rejected the claim of the assessee. The ld. Advocate, however, placed reliance on the two Tribunal judgments in this regard. The two decisions are: ( a) Cyanamidi India v. ITO [ITA No. 4561(Bom.) of 1991-92, dated 23-5-1984]. ( b) R.M. Agarwal v. ITO 2 SOT 361 (Delhi) The case at (a) above is directly on the point. However, I must say that both the judgments do support the contention raised by the ld. Advocate. However, I tried with due respect, I could not persuade myself to follow those judgments on this point. The interest received from the department is assessable under the head Other Sources . There is no dispute on this. The ld. Advocate did agree that the only head of income under which this interest was assessable was the head other sources. If this is settled, then, the only deduction that could be allowed were the deductions as stated in section 57 of the Income-tax Act. Obviously, the deductions referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the facts of the case are taken into consideration it would appear that it is not the assessee's case that deduction for the interest paid should be allowed in the computation of income from business. It is also not seriously urged before us that deduction for the amount should be made in terms of section 57(iii). The case of the assessee merely is that only the net income from interest which is the real income should be assessed. To us this argument seems to be plausible. The assessee was to receive from the Government certain amount of refund obviously because excess tax had been paid. On that account the Government paid interest under section 244.On the other hand, the assessee retained the Government money by delaying payment of tax and accordingly interest became payable by the assessee to the Government. If the interest paid by the assessee on delayed payment of tax could not be treated as business expenditure, as held by the Punjab and Haryana High Court in Orient Carpets's case (supra), interest received from Government on delayed payment of refund for the same reasons could not be treated as income from business. In fact both, the interest received and the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance @0.5% of u/r 8D(2)(iii) for ₹ 1.3 Lacs. The same upon confirmation by Ld. CIT(A) has been contested before us. The Ld. AR submitted that own funds in the shape of Share Capital Reserves far exceeded the investment made by the assessee and therefore, the assumption was to be drawn in favor of the assessee that the investments were made out of own funds. At the same time, the Ld. AR pleaded for reasonable expenses disallowance since Rule 8D was not applicable in the impugned AY. The bare perusal of the financials of the assessee reveal that Shareholders funds of more than ₹ 500 crores far exceeds the meager investment of ₹ 9.37 crore made by the assessee. Further the opening investments stood at ₹ 8.91 crores which demonstrate that fresh investment were marginal in the impugned AY and therefore, interest disallowance, in our opinion, is not justified. The expenses disallowance is estimated at 5% of exempt income earned by the assessee. The Ld. AO is directed to re-compute the same in the light of our decision. 6. Ground No. 8 is related with provision of leave encashment for ₹ 79.55 Lacs made by the assessee during the impugned AY. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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