9911796707
TMI Blog2020 (6) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... t being 18% on the fund borrowed from the relatives. As such the AO disallowed the amount of interest expenses with respect to 7 parties which was in excess of 18% being Rs. 17,44,117/- and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to the learned CIT (A). 5. The assessee before the learned CIT (A) submitted that it has borrowed fund from the relatives without furnishing any security. Furthermore, it has borrowed fund from such parties on long-term basis and therefore it has no pressure for the payment of the same. 6. The assessee also claimed that there is a restriction under The Companies Act for borrowing the fund from the outside parties. Therefore it had no option except to borrow the fund from the relatives. 7. However, the learned CIT (A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under: 3.4. Having considered the appellant's submission, it is noticed that the appellant's plea that as per norms of ROC they cannot accept unsecured loans other than from relative shareholders and directors is factually found not correct for the reason that the appellant itself has^ taken s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly made by the AO. In other words, the AO has granted even the interest @18% to the related parties even though the appellant himself was paying the interest @ 12% to the outside parties. Therefore, the AOs approach in this regard is was correct and reasonable, and hence, the disallowance made by the AO is confirmed. The ground of the appeal is dismissed. 8. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 9. The learned AR before us filed a paper book running from pages 1 to 58 and submitted as under: No disallowance can be made u/s 40A(2) unless AO brings on record "fair market value" of similar services: * AO and CIT(A) failed to bring on record any comparable case as to the "fair market value" of similar services (i.e. prevalent market rate of interest). In absence of the same, no disallowance can be made u/s 40A(2). Reliance is placed on followings: > CIT vs. Sarjan Realities - (2014) 50 taxmann.com 52 (Guj) (Annexure "A"); > Kashi Exports Pvt. Ltd. vs. DCIT - Tax Appeal No.156 of 2003(Guj. HC) (Annexure "B"); > Anilkumar P. Soni - ITA 2511/Ahd/2013 (Annexure "C"); * On this short count, impugned disallowance deserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relates to the disallowance of the interest expenses paid on the money borrowed from the related parties as specified under section 40A(2)(b) of the Act. The assessee has paid interest at the rate of 24% whereas the Revenue was of the view that the rate of interest at 18% is reasonably enough. Accordingly the interest paid over and above the rate of 18% on the money borrowed was disallowed by the AO which was subsequently confirmed by the learned CIT (A). 12. Under the provision of section 40A of the Act the AO can make the disallowance under section 40A of the Act, if he is of the opinion that the expenditure in respect of which payment has been made to the related parties is excessive or unreasonable after having regard to the fair market value. But the AO in the case on hand has not brought such comparable cases. Therefore we are of the view that there cannot be any disallowance under the provisions of section 40A(2) of the Act without bringing any comparable cases based on cogent material. 13. It is also pertinent to note that the money was borrowed from the related parties in the earlier years and the interest paid to them was accepted in those years. Therefore in our con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition made by him. Hence the ground of appeal of the assessee is allowed. 15. The 2nd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO in part amounting to Rs. 70695/- only. 16. The assessee in the year under consideration has earned exempted income amounting to Rs. 70,695/- but made no disallowance under the provisions of section 14A read with rule 8D of Income Tax Rules. Accordingly the AO invoked the provisions of rule 8.D. r.w.s. 14A of the Act, and made the following disallowances: i. Direct expenses nil ii. Interest expenses Rs. 3,69,786/- iii. Administrative expenses Rs. 37,725/- 17. Accordingly the AO made the total disallowance of Rs. 4,07,511/- and added to the total income of the assessee. 18. Aggrieved assessee preferred an appeal to the learned CIT (A) who restricted the disallowance to the tune of Rs. 70,695/-only being exempted income. 19. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 20. The learned AR before us submitted that the owned fund of the assessee for Rs. 5,36,43,221 exceed the amount of investments of Rs. 75,45,186/- only. Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by him on account of the interest expenses. 26. Regarding the administrative expenses, we note that the learned AR at the time of hearing has not advanced any argument about the disallowance made by the authorities below. Accordingly we confirm the disallowance for the administrative expenses made by the authorities below. Hence the ground of appeal of the assessee is partly allowed. 27. The next issue raised by the assessee is that the learned CIT (A) erred in confirming the addition of Rs. 70,695/- while working out the book profit under the provisions of section 115 JB of the Act. 28. The AO during the assessment proceeding has made the disallowance of Rs. 4,07,511/- under the provisions of section 14A read with rule 8D of Income Tax Rule against the exempted income. The AO subsequently disallowed the same amount while determining the book profit under the provisions of section 115JB of the Act. 29. Aggrieved assessee preferred an appeal to the Ld. CIT(A) who restricted the addition to the extent of the exempted income of Rs. 70,695/- only. Thus the learned CIT (A) partly confirmed the order of the AO. 30. Being aggrieved by the order of the Ld. CIT(A), the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962." 37. In view of the above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra). 38. Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act, independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts &circumstances, we feel that adhocdisallowance will serve the justice to both the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required as an employer to credit employees' contribution to the employees account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. 41. In view of the above, we do not find any reason to interfere in the order of the authorities below. Hence the ground of appeal of the assessee is dismissed. 42. Before we part with the issue/appeal as discussed above, it is pertinent to note that the clause (c) of rule 34 of the Appellate Tribunal Rules 1963 requires the bench to make endeavour to pronounce the order within 60 days from the conclusion of the hearing. However the period of 60 days can be extended under exceptional circumstances but the same should not ordinarily be further extended beyond another 30 days. In simple words the total time available to the Bench is of 90 days upon the conclusion of the hearing. However, during the prevailing circumstances where the entire world is facing the unprecedented challenge of Covid 2019 outbreak, resulting the lockdown in the country, the orders though substantially prepared but could not be pronounced for the unavoidable reasons within the maximum period of 90 days. In such circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation dated 19th February 2020, taken the stand that, the coronavirus "should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure...". The term 'force majeure' has been defined in Black's Law Dictionary, as 'an event or effect that can be neither anticipated nor controlled' When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an "ordinary" period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
