In the instant case The CIT has not indicated the nature of information not furnished and without considering the documents filed by the applicant along with applications for registration u/s 12AA/80G has rejected assessee’s claim solely on the ground that applicant could not file most of the informations call for. We find force in the argument of ld. counsel that CIT failed to consider the claim of the applicant on merit, without considering the record and affording opportunity of being heard to the applicant on alleged non compliance. In the interest of natural justice we deem it fit and proper to restore the issues in question i.e. registration u/s 12AA/80G, back to the file of CIT for decision afresh on merit in accordance with law, after affording reasonable opportunity of being heard to the appellant. We order accordingly.
Since the assessee failed to establish nexus of use of borrowed funds for the purpose of business to claim deduction under section 36(1)(iii) of the Act, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister concerns or other persons on interest free basis, are to be disallowed.
The facts of the present case are similar only in the case in I.T.A. No.350/Del/.2009 wherein the Hon’ble Delhi Bench ‘D’ has dealt with the similar issue which was at ground No.3 of the appeal. The Tribunal has held in favour of the assessee and had remitted back file to the office of Assessing Officer for consideration of claim of assessee u/s 80IB. While deciding the matter, the Hon’ble Tribunal had considered various judicial pronouncements in which it was held that the authorities under the Act are under an obligation to act in accordance with law. If an assessee under a mistake, misconception or not being properly instructed is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes are collected.
The plain reading of sec. 36(1)(ii) contemplates two situations. According to the first situation, any sum paid to an employee as a bonus or commission for services rendered would be allowed to the assessee. The second part exhibits the other condition that the deduction mentioned in the first situation could be allowed, if such sum would have not been payable to an employee as a profit or dividend meaning thereby if the amount of commission or bonus is receivable by an employee in the shape of profit/dividend then such commission paid to such employee would not be allowed as a deduction.
In the instant case, there is nothing to suggest that the AO found the payment of remuneration to director excessive having regard to either (a) fair market value of the services or facilities; or (b) the legitimate needs of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such services or facilities. The AO while making the disallowance observed that disallowance was made keeping in view quantum and nature of business of the assessee. But how quantum or nature of business affected payment of salary to its director, has not been elaborated.
In the present case, the assessee can be said to have discharged its onus under section 68 of the Act in proving the genuineness of the share capital in respect of the impugned 22 shareholders in the light of proposition laid down by the Supreme Court and Delhi High Court in the cases cited above. The appellant has given all the necessary details in order to establish the identity of the aforementioned share applicants. It is also observed that all the share applicants are corporate assessees, incorporated under Indian Companies Act.
During the year under consideration the appellant received dividend income on surplus funds invested with various mutual funds through Citibank who acted as investment adviser with no cost to the appellant company. The dividends were directly credited to the bank account of the appellant electronically by ECS. No interest was paid by the appellant during the year. As such, the appellant did not incur any expenditure on earning dividend income and section 14A and the I.T. Act, 1961 did not apply.
Without any motive it is quite unnatural that any individual would extend the monetary benefit to any person in this day to day world. The Hon’ble Delhi High Court in the case of Rajeev Tandon v. ACIT (supra) has observed that in such circumstances the taxation authorities were entitled to look into the surrounding circumstances.
It has further been the contention of the revenue that the amendments vide Finance Act 2010, inserting mutually exclusionary clauses in s. 44BB and s.44DA are clarificatory, and hence are retrospective in operation, w.e.f. AY 2004-05. We find that this contention is not at all correct as the said provision of the Act cannot be said to be clarificatory and hence retrospective in operation. In this regard in the case of CGG Veritas Services SA (supra) comes to the rescue of the assessee. Furthermore, the Jurisdictional High Court in the case of the assessee itself in Schlumberger Asia Services Ltd. (supra) wherein it has been held that the amendment by Finance Act, 2010, excluding the application of Section 44BB in cases where Section 44DA applies, is prospective and applies from assessment year 2011-12.
Finance Act, 2012 has amended the provisions of sec. 92CA of the Act retrospectively to empower the TPO to determine the arm’s length price of international transactions noticed by him in the course of proceedings before him, even if said transaction was not reported by the assessing officer.
