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TMI Blog2022 (10) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery, and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the assessee. Disallowance of foreign travel expenses - AO has disallowed foreign travel expenses on the ground that the assessee has failed to prove nexus between the expenditure for foreign travel and business purpose - HELD THAT:- As we find that the assessee could not justify foreign travel expenses with necessary evidence to prove that said expenditure has been incurred for the purpose of business of the assessee. If the assessee has incurred foreign travel expenses for the business of the parent company, then, the parent company should have incurred the cost of travel of the Director, but not the assessee company. Therefore, we are of the considered view that the assessee is not entitled for deduction towards foreign travel expenses and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the assessee. Reopening of assessment u/s 147 - income chargeable to tax had been escaped assessment on account of assessment of other income under the head 'income from other sources' and also deduction allowed towards expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, we are of the considered view that there is no error in the reasons given by the Ld. CIT(A) in directing the AO to disallow interest and finance charges for non-commencement of business. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the Revenue. Disallowance of expenses u/s. 14A r.w.r. 8D in absence of exempt income - HELD THAT :- As disallowance contemplated u/s. 14A cannot exceed exempt income. In this case, the assessee has earned exempt income of Rs. 50,22,099/-, whereas the Assessing Officer has disallowed expenditure u/s. 14A of the Act, at Rs. 1,28,31,758/- contrary to settled law. Therefore, we direct the AO to restrict disallowance u/s. 14A of the Act, to the extent of exempt income earned for the year amounting to Rs. 50,22,099/-. Appeal of assessee partly allowed. - ITA Nos.3201-3202, 3203-3204 & 3205/Chny/2016 , ITA No.18/Chny/2017 - - - Dated:- 21-9-2022 - SHRI V. DURGA RAO , HON BLEJUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON BLE ACCOUNTANT MEMBER Assessee by : Mr. B. Ramakrishnan , CA Department by : Dr. S. Palanikumar , CIT - DR ORDER PER G. MANJUNATHA , ACCOUNTANT MEMBER : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free loans and advances to subsidiary companies. Therefore, opined that no part of borrowed funds was utilized for the purpose of business of the assessee and hence, rejected the arguments of the assessee and disallowed total interest debited to P L A/c amounting to Rs. 13,31,08,289/- u/s. 36(1)(iii) of the Act. 4. On appeal, the Ld. CIT(A) confirmed the additions made by the AO towards disallowance of interest. 5. The Ld. AR for the assessee submitted that the Ld. CIT(A) erred in not appreciating the fact that the assessee has taken loans from the year 1993 and advanced to subsidiary companies for business purpose. The assessee has entered into a JDA with M/s. Unitech Cestos Realtors Pvt. Ltd., for development of the property on 22.05.2008 and started generating revenue from AY 2011-12. Therefore, it is incorrect on the part of the AO as well as the Ld. CIT(A) to allege that there is a diversion of interest bearing funds for non-business purpose. In this regard, he relied upon the decision of the Hon'ble Supreme Court in the case of SA Builders Ltd., reported in [2007] 158 Taxman 74 (SC) and also the decision of the Hon'ble Punjab Haryana High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 8. As regards, the decision relied upon by the assessee in the case of SA Builders (supra), there is no dispute with regard to the ratio laid down by the Hon'ble Supreme Court on the issue of interest vis- -vis business expediency. However, said judgment cannot be universally applied, but to get the benefit of this case, the assessee proves with evidence that there is commercial expediency in advancing loans to sister concerns. In this case, the assessee fails to establish any commercial expediency in extending loans to subsidiary. In this case, nothing was brought on record to prove the claim of the assessee that loans and advances to subsidiary companies and associate concerns is for business purpose and there is a commercial expediency, which benefitted the business of the assessee and therefore, we cannot find fault with the reasons given by the AO to disallow interest u/s. 36(1)(iii) of the Act. Thus, we reject the arguments of the assessee and sustained the addition towards disallowance of interest u/s. 36(1)(iii) of the Act. 9. The next issue that came up for our consideration from Ground No. 3 of the assessee's appeal is disallowance of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the assessee and how it is eligible for depreciation claim. Although, the assessee argued that once depreciation has been allowed in the initial years on block of assets, then in subsequent FYs depreciation needs to be allowed even if some plant machinery or assets are not put in the business of the assessee, but we do not find any merits in the arguments of the assessee for the simple reason that the assessee has claimed these assets from M/s. SSI Ltd., by virtue of amalgamation of the said company by the order of the High Court. Further, SSI Ltd. was into different business other than real estate business and the assets of SSI Ltd. which were acquired may not be useful for the business of the assessee. Therefore, merely for the simple reason that those assets were come into the books of accounts of the assessee on amalgamation, it cannot be said that the assessee has put to use those assets in its business. In this case, the assessee could not substantiate its claim of depreciation on plant machinery in light of reasons given by the AO that there is no business carried out for the impugned assessment years. Therefore, we are of the considered view that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, on 30.01.2015 and determined total loss at Rs. 5,69,21,225/-. The assessment has been subsequently re-opened u/s. 147 of the Act, for the reasons recorded, as per which, income chargeable to tax had been escaped assessment on account of assessment of interest income under the head 'income from business' as against 'income from other sources'. According to the AO, the assessee has offered interest income under the head 'income from business and profession' and also claimed various expenses against income, even though, there was no business activity for the year under consideration. Further, business of the assessee was started in the FY 2008-09 relevant to AY 2009-10 and expenses incurred by the assessee on administration and finance charges are required to be debited to the project work-in-progress. Since, the assessee has considered interest income under the head 'income from business' and also claimed expenses against income without debiting to project work-in-progress, the income chargeable to tax had been escaped assessment and thus, re-opened assessment u/s. 147 of the Act, and completed assessment u/s. 143(3) r.w.s. 147 of the Act, on 30.01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Madras). 20. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The AO reopened the assessment u/s. 147 of the Act, for the reasons recorded, as per which, income chargeable to tax had been escaped assessment on account of assessment of other income under the head 'income from other sources' and also deduction allowed towards expenditure incurred by the assessee against other income without debiting to capital work-in-progress. We have gone through reasons for re-opening of assessment in light of arguments of the assessee and we find that the AO has formed reasonable belief of escapement of income within the meaning of Sec. 147 of the Act, on the basis of financial statements filed by the assessee and relevant income and expenditure disclosed in the said financial statements without there being any reference to fresh material come to the possession of the AO subsequent to completion of assessment u/s. 143(3) of the Act. The law is very clear in as much as wherever assessment is re-opened within four years or beyond years, but the basis for re-opening of assessment should be on the basis of fresh m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 8D of Income Tax Rules, 1962, amounting to Rs. 12,31,77,832/-. During the course of assessment proceedings, the AO noticed that the assessee has made huge investments in subsidiaries and associate concerns and however, does not make suo-moto disallowance for expenses attributable to exempt income. The AO further noted that the assessee has borrowed huge loans and advances and paid interest. Therefore, invoked provisions of Rule 8D of IT Rules, 1962 and disallowed interest expenses and other expenses u/s. 14A of the Act, amounting to Rs. 12,31,77,832/-. 24. On appeal, the Ld. CIT(A) deleted the addition made u/s. 14A r.w.r. 8D of The Income Tax Rules, 1962. However, directed the AO to disallow expenses under the head 'interest and finance charges' on account of non-commencement of business activities for the AY 2011-12. 25. The Ld. AR for the assessee submitted that the Ld. CIT(A) erred in directing the AO to consider interest and finance charges, disallowance because of non-commencement of business, even though, he had deleted additions made u/s. 14A r.w.r. 8D of IT Rules. The Ld. AR further referring to financial statements submitted that for the impugned assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of expenditure u/s. 14A of the Act, in relation to any assumed income. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) Limited (2018) 95 taxmann.com 250 (SC) held that Sec. 14A of the Act, cannot be invoked where no exempt income earned by the assessee in relevant assessment year. In this case, there is no dispute with regard to the fact that the assessee has not earned any exempt income. Therefore, we are of the considered view that the AO is erred in disallowing expenditure u/s. 14A r.w.r. 8D(ii) of IT Rules 1962. The Ld. CIT(A) after considering relevant facts has rightly deleted the addition made u/s.14A r.w.r. 8D of IT Rules. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the Revenue. 28. As regards enhancement of income by the Ld. CIT(A) towards disallowance of interest and finance charges for non-commencement of business, we find that for the impugned assessment year as per declared financial results of the assessee, the assessee has not earned any income from operations except other income being interest income from debentures and income from current investments. Although, the assessee claims t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has filed a Writ Petition before the Hon'ble High Court vide WP No. 8096 which was disposed off on 19.03.2014 by the Hon'ble High Court with the direction to AO to pass a reasoned order as per the decision of the Hon'ble Supreme Court in the case of GKN Drive Shaft India Ltd., reported in 259 ITR 19. As per the directions of the Hon'ble High Court, the assessee has filed objection before the AO and the AO has disposed off objection filed by the assessee and completed assessment u/s. 143(3) r.w.s. 147 of the Act as on 31.03.2013 and disallowed depreciation on plant machinery amounting to Rs. 3,29,95,364/-. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeed. The Ld. CIT(A), for the reasons stated in his appellate order dated 27.04.2015, rejected the ground taken by the assessee and upheld the re-opening of assessment. 31. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 32. The Ld. AR for the assessee submitted that the Ld. CIT(A) is erred in confirming the re-opening of assessment u/s. 147 of the Act, without appreciating the fact that the re-opening of assessment is with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of arguments of the assessee and we find that the AO has formed reasonable belief of escapement of income within the meaning of Sec. 147 of the Act, on the basis of financial statements filed by the assessee and relevant income and expenditure disclosed in the said financial statements without there being any reference to fresh material come to the possession of the AO subsequent to completion of assessment u/s. 143(3) of the Act. The law is very clear in as much as wherever assessment is re-opened within four years or beyond years, but the basis for re-opening of assessment should be on the basis of fresh material come to the possession of the AO subsequent to the completion of original assessment proceedings. In other words, there should be live nexus between reasonable belief of escapement of income and material relied upon by the AO to form said belief. In absence of any material which suggest escapement of income re-opening of assessment on same set of materials amounts to change of opinion. In our considered view, this is not permissible under the law. The Hon'ble Supreme Court in the case of Kelvinator of India Ltd., (supra) has considered the issue of reopening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout appreciating the fact that the assessee has made investments in equity shares for the purpose of controlling interest. The Ld. AR further submitted that if at all any disallowance is required to be made, then it cannot exceed exempt income earned for the year. 39. The Ld. DR, on the other hand, supported the order of the Ld. CIT(A). 40. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The issue of disallowance of expenses u/s. 14A r.w.r. 8D in absence of exempt income is not a res integra. The Hon'ble Delhi High Court in the case of Cheminvest Ltd., had considered a similar issue and held that Sec. 14A of the Act, will not apply, if no exempt income is received during the previous year. The ITAT Chennai Bench in the case of M. Baskaran had considered an identical issue and held that the disallowance cannot be made u/s. 14A of the Act, where assessee had not earned/received any exempt income during relevant year. The jurisdictional High Court of Madras in the case of Redington (India) Ltd., reported in [2017] 77 taxmann.com 257 (Madras), held that where there is no exempt income in relevant ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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