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TMI Blog2019 (11) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... and HDFC Bank even though the assessee could not submit the fund flow to establish as to how the investments have been made from its own surplus funds because the assessee has also made investments in various assets out of its available funds." 3. "On the facts and circumstances of the case and in law, the Id CITfA) erred in directing the AO to not to add the disallowance u/s 14A of the IT Act to the book profit of the assessee within the provision of section 115JB of the IT Act when this issue is squarely covered in favour of revenue by the decision of 'F' bench of ITAT, Mumbai in the case of Viraj Profiles Ltd. (2016) 156 ITD 72, Mumbai" 2. At the time of hearing, Ld. Counsel for the assessee submitted that tax effect on the issues in the present appeal of the Revenue is Rs. 12,02,990/- which is below Rs. 50 Lacs and in view of the CBDT Circular No. 17/2019 dated 08.08.2019 in F.No.279/Misc.142/2007-ITJ (Pt), the appeal of the Revenue is not maintainable. A statement showing the calculation of tax on the issue in Revenue's appeal was furnished. 3. Ld. DR agreed with the above submission of the Ld. Counsel for the assessee. 4. We have heard the submissions, perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for disallowance. However, not convinced with the submissions of the assessee the Assessing Officer referring to various case laws disallowed proportionate interest on capital work in progress and long term loans and advances amounting to Rs. 103.15 Crores and worked out the disallowance of interest u/s. 36(1)(iii) of the Act at Rs. 4,64,90,714/. On appeal the Ld.CIT(A) sustained the disallowance. 7. Before us Ld. Counsel for the assessee submits that assessee has made advances from out of common pool of funds where both interest free funds as well as borrowals were in common pool of funds. Ld. Counsel for the assessee referring to Profit and Loss Account and balance sheet of the assessee company submitted that assessee was having Rs. 804.95 Crores towards share capital, reserves and surplus and money received against share warrant as against which the assessee has made investment i.e. capital work in progress of Rs. 48.11 crores and there was increase in long term loans of Rs. 31.03 Crores. Ld. Counsel for the assessee submitted that these investments in capital work in progress and long term loans were made out of assessee's common pool and surplus funds and therefore no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber's case (Supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft 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 over draft 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 C.I.T. (Appeals) and I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. DR vehemently supported the orders of the authorities below. 15. We observe that in the decision of the Hon'ble Supreme Court in the case of PCIT v. State Bank of Patiala (supra) the Special Leave Petition filed against the decision of the Hon'ble Punjab and Haryana High Court in the case of PCIT v. State Bank of Patiala has been dismissed by upholding the order of the Hon'ble High Court in holding that amount of disallowance u/s. 14A of the Act shall be restricted to amount of exempt income only and not a higher figure. We respectfully following the said decision direct the Assessing Officer to restrict the disallowance u/s. 14A r.w. Rule 8D of I.T. Rules only to the extent of exempt income earned by the assessee during the relevant Assessment Year. This ground is partly allowed. 16. Coming to the Ground No.3 of the grounds of cross objection relating to disallowance made u/s. 40(a)(ia) of the Act for non-deduction of tax at source in respect of professional fees and payments made towards advertisements u/s. 194H and u/s. 194C of the Act respectively, Ld. Counsel for the assessee submits that whether there can be any disallowance u/s. 40(a)(ia) of the Act when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verify the claim of the assessee. Further, in the additional ground of appeal No.10, the assessee is claiming that if the assessee has not been treated as an "assessee in default" u/s 201(1), no disallowance u/s 40a(ia) can be made. 9. We find that the Hon'ble Supreme Court in the case of Palam Gas Service vs. CIT reported in (2017) 81 Taxmann.com 43 (S.C) has held that irrespective of the amount being paid, the same is disallowable u/s 40a(ia) if no TDS has been made. Therefore, the decision of the CIT (A) on this point has to be set aside. In such circumstances, the alternate plea of the assessee assumes importance. 10. The learned Counsel for the assessee has placed reliance upon the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd vs. CIT, reported in (163 Taxmann.355) wherein the Hon'ble Supreme Court was considering the case of the assessee who was considered as an assessee in default u/s 201(1) and interest u/s 201(1A) was also made. The Hon'ble Supreme Court has held that the assessee therein, cannot be treated as "as assessee in default" u/s 201(1), if the recipient has offered the income and has paid the taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported the orders of the authorities below. 23. We have heard the rival submissions, perused the orders of the authorities below. Assessing Officer while completing the assessment disallowed interest on Service Tax and VAT treating them as penal in nature. It is the contention of the assessee that the said amounts are not penal in nature but only compensatory in nature and therefore the same is an allowable deduction. We find that identical issue came up before the Coordinate Bench in the case of M/s. BSR & Co. v. ACIT (supra) wherein it has been held as under: - 14. "Coming to Ground No.3, Ld. Counsel for the assessee submitted that Assessing Officer disallowed interest paid on service tax observing that the same is penal in nature and not an allowable expenditure and the same is upheld by the Ld.CIT(A). Ld. Counsel for the assessee placing reliance on the decision of the Delhi Bench in the case of DCIT v. Messee Dusseldorf India (P.) Ltd., [129 TTJ 81] and the decision in the case of M/s. Remfry & Sugar Consultants v. ACIT in ITA. No. 5887/Del/2011 dated 20.07.2012, submitted that the Tribunal considered similar issue as to whether the interest paid for delay in payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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