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TMI Blog2016 (12) TMI 1873X X X X Extracts X X X X X X X X Extracts X X X X ..... Wall Ropes Ltd [ 2015 (2) TMI 628 - ITAT MUMBAI] and JM Financial Ltd [ 2014 (4) TMI 752 - ITAT MUMBAI] . Therefore, the AO is directed to exclude the amount of investment made in the group companies for strategic reasons. For this limited purpose, this issue is sent back to the file of the AO, who shall decide this issue afresh s a result, ground 1 is partly allowed. Disallowance applying provisions of section 40A(2) with regard to the goods purchased from M/s Ganesh Polychem Ltd. - HELD THAT:- AO has rightly brought out the facts that the rates charged by the sister concerns were exorbitant in comparison to other independent concerns. It is noted that the rates charged by M/s.Ganesh Polychem Ltd were almost double the uncontrolled rates. Therefore, under these circumstances, there was heavy burden upon the shoulder of the assessee to show that when the purchases were made from M/s.Ganesh Polychem Ltd in March / April, 2007, then at that time, the rates in the open market were equivalent to the price charged by the sister concern. No such evidence was brought on record by the assessee. Under these circumstances, it would be very difficult to believe that within two months period, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terfere in the order of the Ld. CIT(A) on this issue. Thus, ground 1 raised by the Revenue is hereby dismissed. Disallowance made of claim of weighted deduction u/s 35(2AB)(3) of the Act - HELD THAT:- We find that the relief has been granted by the Ld. CIT(A) after verifying the requisite approval in proper form. Nothing wrong or contradictory has been brought before us by the Ld. DR. Thus, we do not find any need or justification to interfere in the order of the Ld. CIT(A). Therefore, the order of the Ld. CIT(A) is upheld. Thus, ground of the Revenue is dismissed. Disallowance made by the AO on account of interest u/s 36(1)(iii) on loans advanced to subsidiary companies - as submitted by the Ld. Counsel of the assessee that this issue has been decided in favour of the assessee by the Ld. CIT(A) following the order of the Tribunal for A.Y. 2007-08 .HELD THAT:- DR could not point out any distinction between the facts of A.Y. 2007-08 and the impugned year. Thus, in view of the order of the Tribunal for AY 2007-08, we find that the order of Ld. CIT(A) deserves to be upheld. Therefore, this ground is dismissed. Deduction u/s 10B - interest and finance charges should be allocated on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant had sufficient own / interest free funds and an investment made ought to have been considered as made out of own interest free funds in absence of direct nexus between funds employed and investments made. 1.3 Without prejudice to the above, the Assessing Officer grossly erred in computing disallowance under rule 8D. 1.4 Without prejudice to the above, the disallowance u/s. 14A ought to be substantially reduced. 2. Re: Reducing disallowance made u/s. 14A while computing 115JB: 2.1 On the facts and in the circumstances of the case and in law, the learned CTT(A) ought to have considered that no disallowance u/s 14A is warranted while computing book profit u/s 115.JB. 2.2 Without prejudice to the above, the learned CIT(A) erred in upholding disallowing expenses attributable to earning the dividend income u/s. 14A by invoking Rule SD without satisfying or establishing as to why the disallowance carried out by the Appellant amounting to ₹ 4,67 ,021/- was not satisfactory. 2.3 Without prejudice to the above, the learned CIT(A) ought to have considered that the Appellant had sufficient own / interest free funds and an investment made ought to have been consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by him. In the appeal before the Ld. CIT(A), detailed submissions were made. It was inter-alia submitted by the assessee that assessee has got interest free sufficient funds. Therefore, no disallowance was called for on account of interest. Further, with regard to the expenses incurred it was submitted that assessee had already made voluntary disallowances of ₹ 4,67,021/- therefore, no further disallowance was required to be made. But, the Ld. CIT(A) did not accept the submissions of the assessee and confirmed the disallowance made by the AO with following observations:- "6.3 I have carefully considered the finding of the AO in the impugned assessment order and the above submission of the appellant. It is the claim of the appellant that interest bearing funds were not utilized for the, purpose of investments in shares. Since funds are mixed and both interest bearing as well as noninterest bearing funds goes to the common kitty and as the appellant did not furnish any evidence to show that the investment in shares which earned exempt income was exclusively out of non interest bearing funds. I do not agree with the claim of the appellant. Rule 8(2) is squarely applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) and HDFC Bank Ltd (supra). Therefore, disallowance on account of interest of ₹ 1,16,01,605 is hereby directed to be deleted. 8. With regard to the disallowance of administrative expenses made by the AO of ₹ 12,93,515 computed @0.5% of average value of investment by invoking rule 8D(2)(iii), it is noted that though the assessee had made voluntary disallowance in the return filed by it, but before invoking the above said rule, the AO recorded following findings in the assessment order :- "11.2 The above submissions are considered carefully. With the introduction of section 14A of the Act, no expenditure incurred in relation to earning of income not forming part of total income, is allowable as deduction. The administrative and other expenses incurred by the Assessee Company facilitate earning of all incomes including the exempt income. The funds of business are a mix of own as well as borrowed funds. Hence, the incurring of interest income in relation to earning of exempt income cannot be ruled out. These are valid inferences based on the facts of the case. In this connection, reliance is placed on the following decisions/ judgments. 1. Distributors (Baroda) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ground 1 is partly allowed. 11. Ground 2 is stated to be consequential to ground 1, therefore, it is dismissed. 12. Ground 3: This ground is with regard to the disallowance of depreciation on assets purchased from M/s Pravin Metal Corporation of ₹ 22,057/-. During the course of hearing it was brought to our notice that this issue has been set aside to the file of the AO vide order of the Tribunal for A.Ys 2005-06 to 2007-08 dated 06-02-2015. 13. We have gone through the order passed by the Tribunal for earlier years and noted that this issue has been sent back to the file of the AO to be decided in the light of directions contained in the earlier order of the Tribunal. We find it appropriate to send this issue back to the file of the AO to be decided afresh by the AO in the light of the directions given in the aforesaid order of the Tribunal. This ground may be treated as allowed, for statistical purpose. 14. Ground 4 : In this ground, the assessee has challenged the action of lower authorities for making disallowance of ₹ 4,75,200/- by applying provisions of section 40A(2) with regard to the goods purchased from M/s Ganesh Polychem Ltd. 15. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to the different dates of purchases as contended by the appellant, I find the purchase from M/s.Ganesh Polychem Ltd. was in March, 2007 and with other two concerns it was in July, 2007.1_ feel there cannot be a great variation in rate within 3 months and purchase at different dates should not have a great impact on the rate of purchase. Further, the appellant did not bring any evidence to show that a favourable credit terms have been extended by the sister concern because of which, a higher rate was charged. In view of this, I am satisfied that the rate per kg. from M/s.Ganesh Polychem Ltd. should be adopted at ₹ 25.50 as against ₹ 30.89 adopted by the AO which has resulted in a difference of ₹ 5.39 per kg. which works out to 17%. To this extent, the which has resulted in a difference of ₹ 5.39 per kg. which works out to 17%. To this extent, the AO had made an excess disallowance of 17%. In view of this, I direct the AO to adopt disallowance at 33% (50-17) as against 50% adopted. The appellant gets relief of the balance. This ground of appeal is partly allowed." 16. During the course of hearing before us, the Ld. Counsel vehemently argued that sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reconciliation wherein the reason was given for the difference and the same was duly reconciled. But, Ld. CIT(A) simply rejected the submission of the assessee by stating that he was not convinced with the submissions of the assessee. Thus, order passed by Ld. CIT(A) is neither properly speaking nor well reasoned. Under these circumstances, we find it appropriate to send this issue back to the file of the AO where the assessee shall get adequate opportunity of hearing to submit the reconciliation statement and other required details and evidences. The AO shall also consider all the arguments of the assessee including the arguments that the impugned difference is not leading to suppression of income, and therefore, no addition could be made on account of impugned difference. With these directions, this ground is send back to the file of the AO for deciding it afresh after giving adequate opportunity of hearing to the assessee. As a result, this ground may be treated as allowed, for statistical purposes. 20. In the result, appeal of the assessee is partly allowed. 21. Now we shall take up Revenue's appeal filed on the following grounds:- "1. On the facts and in the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rutiny of Annexure-6 to form NO.3CD. Since the assessee failed to furnish details connected to the approval and certificate given by Department of Scientific and Industrial Research (DSIR) in respect of using any technology or other know-how developed in-house, the AO rejected the claim of the assessee. The AO made a mention that similar claims made during earlier year was also rejected. 24. In the appeal before Ld. CIT(A), the assessee submitted in detail that required approval from DSIR was received by the assessee and the same was produced before Ld. CIT(A). Submissions of the assessee made before Ld. CIT(A) are reproduced below "The submission of the appellant is as under:- "At the outset, we would like to state that the approval from DSIR as required by the under rule 5(2) has been received by the Appellant and same is enclosed herewith at page no. 30 to page no. 32 of the paper book. Thus the very basis of disallowance, being non-receipt of approval from DSIR has been received by the Appellant, hence the disallowance done by the Assessing Officer should be deleted. 1. The Appellant in A. Y. 2005-06 and A. Y. 2006-07 had claimed depreciation @ 40% under rule 5(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenged the action of Ld.CIT(A) in deleting the disallowance made by the AO of claim of weighted deduction of ₹ 64,22,951/- u/s 35(2AB)(3) of the Act. 28. Brief background is that during the course of assessment proceedings it was noted by the AO that assessee had furnished only a certificate received from the Chartered Accountant and certain correspondence with Ministry of Science and Technology to claim the weighted deduction u/s 35(2AB). He was of the opinion that the assessee has not fulfilled the necessary conditions laid down in clause (i) to (v) of the above section and since no evidences were brought before him to show that the assessee had entered into an agreement with the prescribed authority, the claim of the assessee was rejected by the AO. He has also mentioned that the relevant portion was left blank in Form No.3CL and hence, the report is incomplete. The AO had allowed ₹ 1,28,45,902/- which is the actual cost incurred (includes both revenue expenditure u/s 35(1)(i) and capital expenditure u/s 35(21)(iv) as against the claim of ₹ 1,92,68,853/- by the assessee and added ₹ 64,22,951/-. In the appeal before Ld.CIT(A), it was brought to the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Tribunal for earlier years. Though in the earlier years, this issue was sent back to the file of the AO for the limited purpose of verification of order of approval in form 3CM, but in the year under appeal, the said approval in form 3CM was filed before the lower authorities, and Ld.CIT(A) had granted relief after verifying the same. Therefore, no purpose would be served in sending the matter back to the file of lower authorities especially when nothing wrong has been pointed out in the findings of Ld. CIT(A). 30. Per contra, the Ld. DR did not make any serious objection to the proposition. Under these circumstances, we find that the relief has been granted by the Ld. CIT(A) after verifying the requisite approval in proper form. Nothing wrong or contradictory has been brought before us by the Ld. DR. Thus, we do not find any need or justification to interfere in the order of the Ld. CIT(A). Therefore, the order of the Ld. CIT(A) is upheld. Thus, ground of the Revenue is dismissed. 31. Ground 3 : In this ground, the Revenue is aggrieved with the action of Ld.CIT(A) in deleting the disallowance made by the AO on account of interest u/s 36(1)(iii) on loans advanced to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary company have been given for the purpose of business of commercial expediency, disallowance cannot be made. It was also stated that the assessee has huge interest free funds and accumulated reserves. Detailed submissions have also been made wherein the commercial expediency has been explained. Identical issue had come up before my Ld. Predecessor in A.Y.2003-04 & 2004-05 and also undersigned for A.Y.2005-06 and 2006-07 wherein this ground of appeal was allowed relying on several judgements including that of SA Builders Ltd. 288 ITR 1. The facts of the case are identical and hence following these judgements, the AO is directed to allow claim of appellant of interest u/d.36(1 )(iii) of the I.T.Act." 5.5 Since there is no change in the facts and circumstances, following my predecessor's decision, I direct the AO to delete the addition made in this regard. This ground of appeal is Allowed. 34. During the course of hearing before us, it was submitted by the Ld. Counsel of the assessee that this issue has been decided in favour of the assessee by the Ld. CIT(A) following the order of the Tribunal for A.Y. 2007-08 . 35. Per contra, the Ld. DR could not point out any di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us, the Ld. DR submitted that the basis adopted by the assessee and the Ld.CIT(A) were not rational for apportionment of interest and finance expenses. Under these circumstances, the Ld. Counsel was instructed by us to furnish the breakup of interest expenses as well as break up of asset base of both the units. In response, Ld. Counsel submitted the break-up of interest as under:- Sr.No. Particulars Total 1 Interest paid on Unsecured Loans 3,60,32,974 2 Interest paid on Working Capital Loans 25,61,18,560 3 Interest on Term Loans 7,05,53,202 Total interest 36,27,04,736 Further, with regard to break-up of assets employed, following particulars were submitted by the assessee:- Particulars Total 10B Non 10B % of 10B unit to total % of Non 10B unit to total Gross block (A) (including Capital (WIP) 5,18,27,73,230 29,03,02,610 4,89,24,70,620 5.60% 94.40% Current Assets 5,68,58,64,106 41,99,16,440 5,26,59,47,666 - - Current Liabilities 1,58,79,97,787 18,19,68,151 1,40,60,29,636 Net Current assets (B) 4,09,78,66,319 23,79,48,289 3,856,99,18,030 5.81% 94.19% Capital Employed (A+B) 9,28,06,39,549 52,82,50,899 8,75,23,88,650 5.69% 94.31% In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L Account to the tune of ₹ 15,66,105 only and thus, the amount of ₹ 1,14,700 was not debited to the P&L Account, therefore, disallowance has been wrongly made. After considering the submission of the assessee, Ld. CIT(A) allowed the relief to the assessee by observing as under:- "13.3 I have carefully considered the finding of the AO in the impugned assessment order and the above submission of the appellant. I find from the claim of the appellant that only a sum of ₹ 15,66,104/- was debited to the P&L account and the balance expense of ₹ 1,14,700/- was not debited at all is in order. It is the contention of the appellant that the balance being personal expense of the director, the same was not debited to the P&L account. Since the difference in expenditure was not claimed as a business expense and not debited to the P&L account, the addition made by the AO is hereby deleted. This ground of appeal is allowed." 44. During the course of hearing, nothing wrong in the above findings was brought to our notice by Ld. DR. The Ld. Counsel stated that the disallowance has been rightly deleted by Ld. CIT(A) as the same was not debited to the P&L Account by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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