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TMI Blog2021 (8) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... as made by the Ld. AO has been rightly done by the Ld. CIT(A) without any ambiguity so as to warrant interference. Hence, the ground of appeal preferred by the Revenue is found to be devoid of any merit and, thus, dismissed. Addition u/s 36(1)(iii) - assessee made long-term capital advances for placing order for constructing building as per the terms to M/s. Riddhi Construction and No interest attributable to the funds utilized for purchasing of the capital asset has been capitalized during the year under consideration - HELD THAT:- Before us assessee which was brought to our notice depicting the opening balance of ₹ 346,621,488/- as on 31.03.2012 as the fund towards share capital and reserves and surplus of the assessee. Therefore, the assessee is not required to proof that no interest bearing fund is utilized for assessment made for purchases of capital when assessee s own fund is much more higher than the advances for such purchase of capital asset provided to the Riddhi Siddhi Construction. In that view of the matter addition of proportionate interest attributable to such funds on the basis of total interest paid is not permissible and hence the same is not sustainab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Addition as made by the authorities below is hereby confirmed. - Decided against assessee. Addition u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT:- After perusal of the record it appears that the assessee has not earned any exempt income neither claimed any exempt income - As relying on CORRTECH ENERGY PVT. LTD. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] when there is no exempt income earned by the assessee no addition could be made under Section 14A of the Act, deletion of such addition made by the Ld. CIT(A) in our considered opinion, is without any ambiguity so as to warrant interference. Thus, Revenue s this ground of appeal is found to be devoid of any merit. Disallowance u/s 36(1)(iii) - Investment made by the assessee is not for the business purposes as of the opinion formed by the Ld. AO - HELD THAT:- Fact reveals from the balance sheet of the appellant that it had share capital of ₹ 8.80 crores and reserve and surplus amounting to ₹ 46.12. crores which proves that the assessee is having sufficient interest free funds available in his hand and therefore, disallowance made under Section 36(1)(iii) of the Act has been rightly delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by the assessee company which was ultimately deleted by the Ld. CIT(A). Hence, the instant appeal by the Revenue before us. 3. During the course of assessment proceeding upon verification of audited balance sheet and Profit Loss accounts it was found that the assessee has shown in its balance sheet under the head of long term capital loans and advances product development expenses worth of ₹ 1,77,27,431/- and also under the head other current assets product development expenses worth ₹ 3,18,79,772/-. The assessee company also claimed amortization on product development expenses to the tune of ₹ 5,31,82,295/- as revenue expenditure. It appears from the order passed by the Ld. AO that the assessee did not submit the documentary evidences showing that any new product or service came into existence from incurring such expenses. Neither any documentary details and/or evidences were produced by the assessee as regards the expenses from which it could be ascertained that there would be increase in the future maintainable profit of the assessee company as of the observation made by the Ld. AO. The AO further relied upon the auditors view that such excess wastage w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on product development expenses worth ₹ 5,31,82,295/- in its computation of income. The appellant tried to explain to the A.O that ₹ 5,31,82,295/- is capitalized and ₹ 6,31,80,619/- was debited back to P L A/c. Accordingly, the net amount remaining in the balance sheet under the head other current assets and long term loans and advances was ₹ 3,18,79,772/- and ₹ 1,77,27431/- respectively. However, the A.O has not agreed with the contention of the appellant. On failure of the appellant to produce any documentary details and evidences regarding these expenses as well as by relying on the note of the statutory auditor of the appellant that the expenses of Rs, 5,31,82,295/- being related to R D activities, the A.O has proceeded to disallow the said amount. 9.5 During the appellate proceedings the appellant has submitted that it is engaged in the business of manufacture and sale of HDPE bags. It admitted that apart from the regular commercial production it was also involved in the R D activities. The statutory auditors have determined the expenses towards development of new products by adopting the formula of yield and wastage. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r written off the product development expenses in A.Y.2016-17 nor claimed the same as deduction in furnishing the return of income for A.Y.2016-17. Considering all these facts I disagree with the A.O for the reason that although the appellant has treated the capitalized R D expenses as revenue expenditure, but at the same time it has added back the amortized amount debited to P L A/c. This has resulted into the income of ₹ 99,98,324/-. Further neither during the remand proceedings or the assessment proceedings the A.O has ever questioned the genuineness of the expenses. In earlier assessment years as well the appellant has been allowed to claim the product development expenses as revenue expenses. Therefore, I hereby delete the addition of ₹ 5,31,82,295/- being disallowed on account of capital expenditure. Thus, the ground of appeal is allowed. 5. It is a fact that the appellant has not claimed double deduction in respect of the said expenditure. Although the amount amortized in the books is different from the amount claimed as deduction it has neither written off the product development expenses in A.Y. 2016-17 nor claimed the same as deduction in furnishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof that no interest bearing funds was utilized for making advance for purchase of capital asset. 8. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record. 9. The case of the assessee is this that the assessee having sufficient own funds of ₹ 3466.21 lakhs which is far more than the money advanced to the tune of ₹ 1,11,70,827/- and that too for business purposes. If that be so, the disallowance as made by the authorities below is not sustainable in the eye of law. We have perused the balance sheet as on 31.03.2013 available at Page 26 of the Paper Book filed before us by the assessee which was brought to our notice by the Ld. AR depicting the opening balance of ₹ 346,621,488/- as on 31.03.2012 as the fund towards share capital and reserves and surplus of the assessee. Therefore, the assessee is not required to proof that no interest bearing fund is utilized for assessment made for purchases of capital when assessee s own fund of ₹ 346,621,488/- is much more higher than the advances for such purchase of capital asset provided to the Riddhi Siddhi Construction. In that vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 10/- and the premium charged is ₹ 240/- per share. Upon perusal of the valuation under Section 11UA of the IT Rules as furnished by the appellant it was found that the fair market value of each share was ₹ 246/- and therefore, show-cause was issued upon the appellant as to why the excess amount of ₹ 4/- per share should not be treated as income of the appellant under Section 56(2)(viib) of the Act. 14. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record. The appellant contention before the Revenue is this that by way of insertion of Clause (viib) to Section 56(2) w.e.f. 01.04.2013 was for the purpose of preventing generation and circulation of unaccounted money. These particular shares were allotted to mainly holding company and the very small difference was only for the purpose of rounding off of the value and resultant convenience in account. Similarly small portion of shares was also allotted to the director of the appellant company and thus the question of circulating any unaccounted money does not arise. Moreso, the nominal difference is less than 2% which is within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 17. Ground No.1:- Deletion of ₹ 21,43,976/- made under Section 14A Rule 8D of the Act has been challenged before us by the Revenue. 18. The facts culled out from the records relating to the issue is this that the assessee made investment in shares of ₹ 23,36,750/- at the beginning of the year and the assessee has not disallowed any sum of amount under Section 14A of the Act. The assessee company is having share capital of ₹ 8.80 crores and reserves and surplus of ₹ 46.12 crores. It has not earned any exempt income in the form of dividend from such shares. According to the Ld. AO investment cannot be made without help of managerial skills and other administrative aspects which involves expenditure. However, no such amount of expenditure is disallowed by the assessee neither disallowed any amount on account of under Section 14A of the Act. The assessee has paid interest of ₹ 20,25,07,500/- and not segregated the interest free funds and interest bearing funds but only submitted that amount of investment is from interest free fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced a loan to M/s. Parekh Polymers which is a related party under the provision of Section 40A(2)(a) of the Act as observed by the Ld. AO and quantified the proportionate interest expenses and disallowed ₹ 15,31,511/- under Section 36(1)(iii) of the Act. However, before the First Appellate Authority the assessee submitted that the said M/s. Parekh Polymers is an associated concern and it provided this fund to the said concern for business purposes towards supply of goods/services. Practically the Ld. AO has not invoked the provisions of Section 36(1)(iii) for non-related persons as the same were given for the business purposes. In that view of the matter the Ld. CIT(A) has not found it justified in invoking the provisions of Section 40A(2)(a) of the Act for disallowing proportionate interest expenses under Section 36(1)(iii) of the Act which in our considered opinion is just and proper so as to warrant interference. Thus, the same is hereby confirmed, thus, Revenue s this ground of appeal fails. 24. The other two grounds are general in nature and do not require any consideration. 25. In the combined results, the appeals preferred by the Revenue are dismissed and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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