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TMI Blog2018 (8) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... st expenditure amounting to Rs. 2, 14, 27, 0617- is hit by the provisions of section 14A r. w. r. 8D of t the I. T. Rules. The facts of the issue speak for itself that the appellant was not in the possession of the shares of MIRC Electronics Ltd and therefore not eligible for earning any exempt income from the same. In fact, no investment was made in the shares of MIRC Electronics Ltd. The A. O. 's contention is therefore without any substance. The Ld. CIT(A) ought to have considered this issue on merit. The appellant prays that the issue may be considered in the light of the facts and accordingly, it may be held that the interest expenditure of Rs. 2, 14, 27, 6617- is not hit by the provisions of section 14A r. w. rule 8D of the I. T. Rules. 2. The brief facts of the case are that the assessee company is engaged in the business of stock and share brokers, filed its return of income for AY 2011-12 on 29-09-2011 declaring total loss of Rs. 1, 82, 32, 695. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and filed various details, as called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head advance for shares' in the balance-sheet. The assessee further claimed that since its main object is trading in shares, the assessee has borrowed funds for its business purpose and utilised the said amount for the purpose of its business activity, therefore, interest paid on such loans cannot be disallowed u/s 36(1)(iii) of the Income-tax Act, 1961. 4. The AO, after considering relevant submissions of the assessee held that although the assessee has claimed to have given loans for acquisition of shares, failed to prove that the said advance has been used for genuine business purpose. The AO further observed that the assessee has borrowed huge funds from Shyam Equity Pvt Ltd and advanced the same to the director of the company without any nexus between loan borrowed and advance given to the director. Although it claims to have paid loans for purchase of shares, the said transaction was not materialised, therefore, opined that the assessee has diverted interest bearing funds for non business purpose and accordingly, disallowed, interest expenses u/s 36(1)(iii) of the Income-tax Act, 1961. The AO also invoked the provisions of section 14A r. w. r. 8D(2)(i) to argue that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned expenditure is allowable as per the provisions of the Act or not. In this case, the AO has brought out clear facts to the effect that interest paid on loans is hit by the provisions of section 36(1)(iii) of the Act and hence, rightly disallowed interest paid on loans and his order should be upheld. 7. We have heard both the parties and perused the material available on record. The AO has disallowed interest paid on loans u/s 36(1)(iii) and u/s 14A r. w. r. 8D(2)(i) of Income-tax Rules, 1962. According to the AO, the assessee has availed loans from Shaym Equities Pvt Ltd and diverted the same for non business purposes. It is the contention of the assessee that loan borrowed from Shaym Equities Pvt Ltd has been given to director of the company for acquisition of shares of Mirc Electronics Ltd. The assessee further contended that the director of the company has acquired shares of Mirc Electronics Ltd at a higher price than at the prevailing market price of the shares and hence, the company has not accepted the offer to buy shares. Consequently, amount given to director of the company has been treated as advance given for shares. Since, the main object of the assessee is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding from Nalanda on the first day of the accounting year is the amount that stood outstanding on the last day of the previous accounting year and, therefore, its nature and status cannot be different on the first day of the current accounting year from its nature and status as on the last day of the previous accounting year. Regarding the past years, the assessee's claims for deduction were allowed in respect of the sums advanced during those years; this could be only on the assumption that those advances were not out of borrowed funds of the assessee. This finding during the previous years is the very basis of the deductions permitted during the past years, whether a specific finding was recorded or not. A departure from that finding in respect of the said amounts advanced during the previous year would result in a contradictory finding; it will not be equitable to permit the Revenue to take a different stand now in respect of the amounts which were the subject matter of previous years' assessments; consistency and definiteness of approach by the Revenue is necessary in the matter of recognising the nature of an account maintained by the ^assessee so that the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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