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Before: Shri Amit Shukla & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)- VIII, New Delhi dated 17.09.2014 for the assessment year 2010-11 on the following grounds : 1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) has erred in deleting addition of Rs. 10,66,199/- made by the AO on account of interest expenses without appreciating the fact that the interest bearing funds were utilized for making interest free advances?
2. Whether on the facts and circumstances of the case & and in law, the Ld. CIT (A) has erred in deleting the addition of Rs. 23,18,720/- made by the AO u/s 14A r.w.r. Rule 8D?
3. Whether on the facts and circumstance of the case & law, the Ld. CIT (A) has erred in deleting the addition of Rs. 2,22,63,421/- on account of prepaid expenses despite the fact that the assessee failed to furnish documentary evidence for ascertainment of prepaid expenses during the assessment as well as in the appellate proceedings?
4. That the order of the Ld. CIT (A) is erroneous and is not tenable on facts and in law.
5. That the grounds of appeal are without prejudice to each other.”
2. The brief facts of thecase are that the assessee filed return on 13.10.2010 at income of Rs.3,07,50,710/-. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee was engaged in the business of whole sale of India Made Foreign Liquor (IMFL) and Beer on commission basis. During the course of scrutiny proceedings, the Assessing Officer observed from the details filed by that the assessee that the assessee had advanced a sum of Rs.1,45,04,989/- interest free to six parties. The Assessing Officer observed that the assessee has paid interest of Rs.2,96,18,128/- during the year. Being dissatisfied with the reply submitted by assessee, the Assessing Officer, therefore, disallowed notional interest of Rs.17,40,599/- @ 12% on interest free advances given.
3. The Assessing Officer further observed that the assessee has made investment on which income earned does not form the part of total income. The assessee submitted reply in response to show cause notice. The assessee himself did not disallow any expenditure incurred on such earning of such exempt income. The Assessing Officer, therefore, calculated disallowance as per Rule 8D read with section 14A of the Act and accordingly disallowed Rs.23,18,720/-.
4. Further, on scrutiny of accounts, the Assessing Officer observed that the assessee claimed license fee expenses of Rs.44,52,68,416/- for the A.Y. 2010- 11. The assessee submitted the ledger account and other documents. The Assessing Officer noted that the license fee was for one year and therefore, any payment made after 01.04.2009 contains a portion of pre-paid expenses and the assessee had debited the payment irrespective of the period. The assessee replied that this payment was not having any portion of pre- paid/advance license fee. The Assessing Officer was not satisfied by the reply of assessee and he disallowed 5% of the license fee paid, amounting to Rs.2,22,63,421/-.
5. In appeal before the ld. CIT(A), the assessee made detailed submissions. The first appellate authority after considering the submissions of the assessee and the order of the Assessing Officer partly allowed the appeal of the assessee by restricting the addition made on account of notional interest to Rs.6,74,400/- and deleting the rest two additions. Aggrieved, the Revenue is in appeal before the Tribunal.
6. The ld. DR relied on the order of the Assessing Officer and the ld. AR of the assessee relied on the order of the first appellate authority. He also filed a paper book containing 214 pages.
Having considered the rival submissions and going through the material available on record we find that in respect of the issue of disallowance of notional interest, the ld. CIT(A) has passed a good reasoned order, which needs no interference. The decision reached by the ld. CIT(A) reads as under on this score : 1. Disallowance on account of notional interest - Rs. 17,40,599/- The AR of the appellant produced evidences that the disallowances made by AO are on account of notional interest on business advances. The appellant had given advances for property/land purchase to different known parties. The AR pleaded that the advances are made in course of regular business, the assessee company had never given any loan to anyone on interest basis. Therefore the AR pleaded that the addition made by the AO on notional interest basis be deleted. He produced the details of the advances given to 6 parties as shown in his submissions in ground no.
2. The AR takes the plea that interest free advances were given out of interest free funds available with the company and hence no disallowance should be made on these advances. The AR took the plea that these advances were given on commercial expediency basis and quoted the different case laws below:-
CIT vs. Dalmia Cement Bharat Ltd. 254 1TR 337.
2. D. Swagat Infrastructure Ltd. vs. JCIT ITAT Ahmedabad Bench. 3. ACIT Circle 11, Chennai vs. Apollo Hospital.
The appellant company has advanced amounts for purchase of shops, land and other business advances to the following persons in the table enclosed:- S.No. Advances 31.03.2010 31.03.2009 Increase 1. Advance for property 500000 - 500000 Purchase of shop 2. Advances for land 2500000 2500000 Amount return 3. Baldev Kr Monga 3210000 3210000 - 4. Deccan Chronical Ltd. 4800000 4800000 Motor Car 5. Jai Krishan Estate 1084989 1084989 Reimbursement of Devlopers expenses 6. Zara Infra Pvt Ltd. 2410000 2410000 - From the above 6 persons, the appellant had purchased and shop or car as per the explanation given in the Following manner- 1. The advance against property amounting to Rs 500000/- was given to acquire the shop at Netaji Subhash place, Delhi which was acquired in the subsequent year and the same was purchased for genuine business necessity of the assessee. The copy of registry in favour of the company is enclosed herewith along with ledger account. (Page No 11-30 of the paper book).
Advance for purchase of stocks (i.e. land) amounting to Rs 2500000/- was given to acquire the land however, the deal could not be finalized the same was received back by the assessee in 2010-2011. Declaration from the party for refunding the aforesaid amount is enclosed herewith. (Page No. 31-32 of the paper book)
Baldev Kumar Monga was given advance for purchase of stocks (i.e. land), which is pending due to some dispute. It is important to note here that the assessee has earlier acquired land from the same party.
Advance of Rs 4800000/- was given to Deccan Chronical Ltd to purchase motor car, which was subsequently purchased in next financial year. Copy of ledger account enclosed. (Page No. 33-34 of the paper book).
Amount of Rs 1084989/- is not in the nature of advance but claim of the assessee company against reimbursement of expenses paid by the assessee company Copy of ledger account enclosed. (Page No. 35-50 of the paper book).
Zara Infra Pvt. Limited was given advance for purchase of stocks (i.e. land) which is pending due to some dispute. It is important to note here that the assessee has also in past acquired land from the same party. Copy of registered deed evidencing purchase of land from aforesaid party is enclosed herewith. (Page No51-70 of the paper book).
There are 2 persons i.e. no. 3 and 6 in above table from whom advances of Rs. 32,10,000/- and Zara Infra (P) Ltd. Rs.24,10,000/- have not been realized by the appellant company till 10.09.2014. Therefore I estimate notional interest income at the rate of 12% on these two parties which comes to Rs.6,74,400/-. This estimated interest will be added to return income of the appellant while giving effect to this order.”
Having gone through the aforesaid findings of the ld. CIT(A), we find that the ld. CIT(A) has given cogent reasons in support of his decision and we do not find any infirmity therein. Therefore, ground No. 1 raised by the Revenue deserves to be dismissed.
In respect of disallowance of Rs.23,18,720/- u/s. 14A, we find on perusal of the balance sheet for F.Y. 2003-04, that the assessee had reserve and surplus of Rs.11,63,44,697/-, but in that year, the assessee had made investment only for Rs.10.00 lacs. During the impugned year, there was opening balance of Rs.9,37,51,260/- for the investment in Association of Persons. The assessee has received exempt income of Rs.22,86,030/- which has been treated as exempt income by the ld. CIT(A). A perusal of the impugned order reveals that the ld. CIT(A) has deleted the addition after following his own order for the assessment year 2009-10 in the case of assessee itself observing that when the assessee had derived income from AOPs after AOP have paid tax at the maximum marginal rate us/ 86 r.w.s. 67A of the Act, there will be no charge of income tax on assessee company u/s. 14A read with Rule 8D for disallowing expenses relating to such exempt income. It is not the case of Revenue that the order of ld. CIT(A) for A.Y. 2009-10, which has been followed by him in the year under consideration on the issue of disallowance u/s. 14A, has been challenged by the Revenue before any higher authority. We, therefore, find no infirmity in the findings reached by the ld. CIT(A) on this score. Accordingly, this issue is decided against the Revenue and in favour of the assessee and the relevant ground of Revenue’s appeal, thus, deserves to be dismissed.
As far as the issue regarding disallowance of license fee is concerned, we find that the Assessing Officer has disallowed lump sum amount representing to 5% of the total license fee paid by the assessee. For this, the Assessing Officer has acted only on his assumption that the license fee paid after 01.04.2009 would have contained some portion of pre-paid expenses towards license fee. This assumption of the Assessing Officer cannot be sustained particularly when the assessee had submitted various documentary evidence in the form of ledger account as well as the certificate from State Excise Officer. However, it is also worthwhile to note that the assessee was also required to furnish complete reconciliation statement of license fee charged to the profit and loss account of Rs.44,52,68,416/-, which he failed to furnish before the authorities below. The Assessing Officer was also required to examine as to how the license fee paid was charged by the assessee in the profit and loss account. He has also to examine as to the actual license fee paid and charged in preceding and subsequent years so as to arrive at the correct figure of license fee relating to the year under consideration. We, therefore, restore this issue also to the file of Assessing Officer to ascertain the correct figure of license fee paid by assessee for the year under consideration and shall decide the issue afresh in accordance with law. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, this ground is also allowed for statistical purposes.
In the result, the appeal is partly allowed for statistical purposes. Order pronounced in the open court on August, 2018.