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TMI Blog2019 (4) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... st from 12% to 11% - HELD THAT:- The increase in interest rate from 10% to 12% without bringing and substantiated and bringing any evidence on record is not justified, notwithstanding the fact that the assessee has taken ICD loan on interest rate of 10% from M/s. TACL. Further no evidence has been adduced to substantiate the excessiveness of interest rate @12% asper provisions of section 36(1) (iii) of the Act as interest paid is for personal benefit and not for business purpose, when the assessee has been paying interest @11% for other persons. Therefore, the AO was quite justified in restricting the increase in interest rate to 11% with commensurate with other parties. In view of this matter, we find do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Disallowance of prior period expenses on account of rate and taxes - unascertainable liability - HELD THAT:- Though the liability pertained to arrears including the period up to 31.03.2009, but it has been crystallized and determined vide letter dated 30.07.2009.Thus, the liability has been determined and crystallized during the year under consideration and also paid during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules. Where the disallowance or nil disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. Disallowance u/s. 14A are restricted to ₹ 8,516 and balance disallowance is deleted subject to verification by the AO that the assessee has correctly taken the average value of investment after excluding of share capital and reserve surplus, and only considering exempt income yielding investment and excluding interest of ₹ 20,12,865, which is directly attributable to business income. - I.T.A. No. 6499/Del/2014 - - - Dated:- 7-2-2019 - Shri K. Narasimha Chary, Judicial Member And Shri O. P. Meena, Accountant Member For the Assessee : Shri V. K. Aggarwal, A.R. And Ms. Sweta Bansal, CA For the Revenue : Smt. Nain Soin Kapil, Sr. D.R. ORDER PER O. P. MEENA, AM 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-19,New Delhi (in short the CIT (A) ) dated 22.10.2014pertaining to Assessment Year 2010-11, which in turn ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrate that the facts of the case are same as held by Tribunal in its order for assessment year 2001-02. In view of this, the disallowance so made were confirmed. 6. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the business of the assessee is being dealer of motor vehicles in particular high end Model Cars of Mercedes Benz has to exhibit the said vehicle for attracting customers thereby improving the business of the assessee. Apart from this, the assessee also under takes servicing of vehicles. The Principal, Mercedes Benz India Pvt. Ltd. has specific norms and requirement with regard to appearance of showrooms/workshops worldwideand dealersto follow the norms and keeps changing year to year. The invoice placed at Paper Book Page No. 95 to 99 shows that expenditure incurred is to make workshops and showrooms attractive. The first two invoices are for fancy lamps along with their accessories, which were installed in the Gurgaon showrooms,and other three invoices give details regarding civil work done forflooring etc. at the workshops in Okhla Industrial Area. The expenditure did not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and o incurred on rented premises does not bring any new asset to the assessee as the same cannot be removed. 9. We have heard the rival submissions and perused the relevant material on record.We find that the assessee is a dealer in high-end vehicles of Mercedes Benz, whichhas to exhibit the said vehicle for attracting customers thereby improving the business of the assessee. Apart from this, the assessee also under takes servicing of vehicles.Further, the Principal, Mercedes Benz India Pvt. Ltd. has also specific norms and requirement with regard to appearance of showrooms/workshops worldwide and dealers to follow the norms and keeps changing year to year. The perusal of invoices placed at Paper Book Page No.95 to 99 demonstrate that these are for fancy lamps along with their accessories which were installed in the Gurgaon showrooms and other three invoices gives details regarding civil work done for flooring etc. at the workshops in Okhla Industrial Area. Therefore, we are of the view that the expenditure has been incurred on rented premises leased for two /three years as could be seen from lease agreement with the object to improve sales and creating image o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law in confirming the disallowance of ₹ 1,00,443 made on account of interest paid to M/s. Talbros Automotive Components Ltd. (herein after referred as TACL) on Inter Corporate Deposit (ICD)by reducing the rate of interest from 12% to 11%. 11. Facts apropos of this ground are that the assessee has paid interest @ 12% on loan taken from related concern i.e. M/s. TACL,whereas it has paid interest @ 11% to other three related concerns. It was noticed that the loan was taken in earlier year on which interest @10% was being paid. During the year under consideration, the assessee has increased interest rate to 12% due to market conditions. The AO observed that the assessee has not justified the burden of proof to establish reasonableness of expenses payment made to person specified under section 40A(2)(b). Therefore, the AO noted that interest paid is found to be excessive hence, hence, the AO has restricted the interest payment to 11% which has resulted in disallowance of interest of ₹ 1,00,443 and consequent addition to income. 12. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The CIT (A) observed that the assessee has fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding of lender company/ directors/ members is less than 20% . However, it is also fact that M/s. TACL is related person within the meaning of section 40A(2)(b) of the Act. We find that the ld. CIT (A) has upheld the disallowance on the ground that the assessee has made vague reference of market conditions but has failed to adduce any documentary evidence and substantiate the claim of increase in interest rate to 12%. The ld. CIT (A) has also observed that the assessee has not filed complete details of shareholding before the AO in support of its claim that provisions of section 40A(2)(b) are not attracted. We further notice that the assessee has been paying interest @10% to other related concerns/persons i.e. M/s. Gyan Enterprise Pvt. Ltd. as reflected in the table given at Page No. 9 of assessment order and interest @11% to M/s. AAB Enterprise and M/s. Beacon Sales Pvt. Ltd. as reflected at Page No. 10 of assessment order. In such circumstances, we are of the considered opinion that the increase in interest rate from 10% to 12% without bringing and substantiated and bringing any evidence on record is not justified, notwithstanding the fact that the assessee has taken ICD loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand note for the first time for this demand on account of contribution towards assessee`s share for operating and maintenance cost of CETP. The demand letter clearly states that demand was not notified earlier as there was no such reference in their letter. The charges are keep changing every year as indicated in the said letter. Therefore, the liability was crystallized and determined during the year under consideration, hence, the expenses incurred and paid during the year under consideration is allowable as business expenses for year under consideration. 20. On the other hand, the ld. Sr. D.R. relied on the orders of lower authorities. 21. We have heard the rival submissions and perused the relevant material on record. On careful consideration of facts and perusal of demand letter dtd. 30.07.2009, (PB-130) it is discernible that M/s. Okhla Industrial Area CETP Society has determined the amount of assessee`s contribution after reducing the charges for operation and maintenance cost of CETP during the year under consideration. Though the liability pertained to arrears including the period up to 31.03.2009, but it has been crystallized and dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apportionment of expenditure attributable to exempt income is applicable hence, disallowance of ₹ 21,21,381 were worked out by applying Rule 8D and same were disallowed. 24. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The ld. CIT (A) following the order and reasoning given in appellate order of his predecessor CIT (A) for the assessment year 2009-10 has confirmed the said disallowed made u/s. 14A of the Act. 25. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned Counsel submitted that disallowance of ₹ 21,21,381 included disallowance of ₹ 20,12,865 in respect of interest under Rule 8D(2)(ii) implies that the interest is directly relatable to business income. There is no interest expenditure has been incurred by the assessee for making investment as the investment are coming from earlier years which were also made out of interest-free funds. No investment has been made during the year under consideration except dividend income of ₹ 73,133 from mutual fund, which has been reinvested automatically. The assessee was having profit of ₹ 5.04 crores after tax and before depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has also contended by relying on the decision in the case of A C B India Ltd. v. ACIT TIOL-176-HC-2015-DEL that only those investment has to be considered which yielded tax exempt income. The learned counsel for the assessee further placed reliance in the case of ACIT vs. Vireet Investment (P.) Ltd (2017) 82 taxmann.com 415 (Delhi-Trib.)(SB). At last the learned counsel for the assessee submitted that at most worst scenario the average value of investment under Rule 8D(2)(iii) would be ₹ 17,03,220 i.e. [ 1,05,264+ 1,05,264+ 31,95,911/2]. Therefore, 0.05% of the average value of investment would be ₹ 8,516 , hence, disallowance u/s. 14A should be restricted to ₹ 8,516. It was also contended by relying in the case of Joint Investment Pvt. Ltd. v. CIT [2015] 59 taxmann.com 295 (Delhi) that disallowance u/s. 14A cannot be swallowed the whole exempt income. 26. We have heard the rival submissions and have gone through the orders of the lower authorities, and perused the material available on record. It is noticed that the assessee has earned dividend income of ₹ 73,639. However, the expenditure incurred in relation to earning such exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas onus lies on him as held by tribunal in the case of ACIT v. S I L Investment Ltd. 2012-TIOL-334-ITAT-DEL-as relied by the learned counsel for the assessee. The investment in dividend yielding investment made in with TACL in which investment is made in earlier year out of interest-free funds or own funds and second investment has been made in SBI mutual fund were also made in earlier year`s. We may observe that section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income, which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, he can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below). Therefore, the AO at the first instance must examine the disallowance made by the assessee or the claim of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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