DCIT 5(1)(2), MUMBAI vs. ETHL GLOBAL CAPITAL LTD, MUMBAI

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions.After considering the available material,he held that as per the provisions of Act only the income accrued or received could be taxed,that an assessee could not be compelled to earn a particular income in a particular way,that in the business advancing interest free loans was a common practice,that if someone was advancing interest free loan out of its own funds or out of non interest bearing borrowed funds to anybody, the AO cannot tax notional income of interest unless there was any proof of underhand payments of interest by the said person,that in the instant case there was no proof that the interest bearing borrowed capital was diverted for non interest bearing loans, that the addition made by the AO on account of notional interest was not sustainable.

4.Before us,the Departmental Represnetative(DR)supported the order of the AO.The Authorised Representative(AR)supported the order of the FAA and relied upon the cases of Highway Construction Co.P.Ltd.(199 ITR 702),B and A plantations and Industries Ltd.( 242 ITR 22).

5.We have heard the rival submissions and perused the material before us.We find that the assessee had advanced loan from its interest free funds and had not charged any interest,that the AO had taxed notional interest in the hands of the assessee without bringing any evidence of charging of interest by the assessee.He has also not explained as to how the interest income accrued to the assessee.In the normal course of its business transaction the assessee had advanced loan and had not charged any interest.Charging or not charging of interest is a discretion of an assessee-especially when the advance is made out of interest free funds. We are of the opinion,that the order of the FAA does not suffer from any legal infirmity.So, confirming the same we dismiss ground no.1,raised by the AO.

6.Second ground of appeal is about disallowance made u/s.14 A of the Act.During the assessment proceeding,the AO found that the assessee has shown investments in the balance

185/M/15-ETHL Global sheet.He asked it as to why disallowance u/s.14A of r.w.Rule 8D should not be made.After considering the submissions of the assessee,the AO worked out the disallowance of Rs.7.20 crores and added to the total income of the assessee.It is, however, noted that there was a mistake in the working of the Assessing Officer,as the disallowance was made 5% instead of prescribed rate of 0.5% under Rule 8D of the Rules.Accordingly by a rectification order same was reduced to Rs.72 lacs.

7.Deciding the appeal,filed by the assesse,the FAA held that in the computation of income no expenditure,except an amount of Rs.l,212/- was claimed deductible by it,that a plain reading of the provisions of section 14A made it apparent that under this section disallowance could be made when the assessee would claim deduction of expenditure,that if an assessee had not claimed any expenditure then there was no scope of disallowance,that the disallowance could not exceed the expenditure claimed by assessee. Accordingly, he directed the AO to restricted the disallowance to Rs.l,212/- only.

8.Before us,the DR stated that matter could be decided on merits.The AR contended that the assessee had incurred expenditure of Rs.1,212/- only. We have perused the material available on record.We find that the FAA had disallowed the expenditure that was claimed against the exempt income.The basic concept for disallowance u/s.14A of the Act r.w.r.8D of the Rules is to deprive the assessee of double benefit i.e. claiming deduction against tax free income.In the case under consideration the FAA has restricted the disallowance to the extent it was claimed against the exempt income.In our opinion there is no need to interfere with his order.So,confirming the same second ground is decided against the AO.

As a result, appeal filed by the AO stands dismissed. फलतःिनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 06th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 06 जनवरी, 2017 को क� गई । (अमरजीत �सह / Amarjit Singh ) (राजे�� / Rajendra) Sd/- Sd/- �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य / ACCOUNTANT MEMBER सद�य सद�य मुंबई Mumbai; �दनांकDated : 06 .01.2016. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.assessee /अपीलाथ� 2. Respondent /��यथ� 3

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