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2012 (9) TMI 732 - AT - Income TaxDisallowance u/s. 14A - CIT(A) deleted the addition - Held that:- As decided in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] as under the expression “expenditure incurred” refers to actual expenditure and not to some imagined expenditure. The “actual” expenditure that is in contemplation u/s. 14A(1) of the Act is the “actual” expenditure in relation to or in connection with or pertaining to exempt income - as in the present case A.O. had made the disallowance for interest and other expenses pertaining to the investments on an estimate basis at 10% of the dividend income A.O. has not given any finding with respect to incurring of expenses for earning tax free income. Thus disallowance of expenses on adhoc basis @ 10% of dividend income without giving any finding of fact warrants to be deleted - in favour of assessee. Inclusion of amount of sales tax and excise duty while computing the total turnover for the purpose of deduction u/s. 80HHC - CIT (A) directed to reduce the addition - Held that:- As decided in CIT Versus Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] excise duty and sales tax were includible in the "total turnover", which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time whereas amendments to section 80HHC(3) indicate exclusion of book profits but reasoning in this judgment is confined to the workability of the formula in section 80HHC(3) as it stood at the material time - in favour of assessee. Computation of deduction u/s 80HHC - 90% exclusion of net interest/rent or gross interest/rent - Held that:- As the facts in the year under appeal are identical to that of earlier year wherein the co-ordinate Bench has taken a view with respect to interest income and held that 90% of not the gross interest/rent but only the net interest/rent have to be reduced from business profits while computing deduction u/s. 80HHC. Further in the case of ACG Associates Capsules (P) Ltd. (2012 (2) TMI 101 - SUPREME COURT OF INDIA) the Hon’ble Apex Court has held that net interest needs to be reduced under Cl.(1) of Explanation(baa) to Sec. 80HHC for determining profits of business. Thus 90% of the net interest be reduced for determining profit for the purpose of deduction u/s. 80HHC. We therefore direct the A.O. to allow the deduction after verification - in favour of assessee. Computation of deduction u/s. 80HHC - receipt of insurance claim - Held that:- there is no profit element involved in insurance receipts, as the insurance claim is purely for the recovery of loss of material and asset of the company due to damage to the material and assets. We are of the view that the expenditure incurred by the assessee on material and assets lost due to damage is more than the insurance claim and there was no income to the assessee in the nature of insurance claim - the same will not be included either in the total turnover nor in the business profits of the assessee for the purpose of computation of deduction u/s. 80HHC of the Act - in favour of assessee. Computation of deduction u/s. 80HHC - brokerage of investment - Held that:- As this brokerage income in any way is not related to export earning but the expenditure relating to this brokerage income of any expenditure, the same will be reduced and only net income has to be excluded to the extent of 90% under clause (baa) while computing deduction u/s. 80HHC - partly in favour of assessee. Adhoc disallowance of 5% of Sales promotion - Held that:- The co-ordinate Bench on identical matter, in assessee’s own case, in earlier year has decided the matter by holding that the assessee has not vouched the expenses and the AO on scrutiny found that these expenses include the office expenses incurred at its branches at Madras, Bombay, Delhi and Kolkata and on scrutiny of these expenses finds that there are many expenses which have been incurred in providing tea, coffee, refreshments cold drinks, etc. to various visitors but nature of all these expenses reveals that these are many expenses which are not subject to verification and not properly vouched also - even now before that the assessee could not adduce anything to controvert that the expenses are vouched fully and there is no personal element in these expenditures accordingly the disallowance is confirmed - against assessee. Disallowance of Interest on loan - loan is for nonbusiness purpose - Held that:- That Revenue has not brought any nexus of borrowed funds being used for investments and the basis of the conclusion is on the basis of assumption. On the other hand the assessee has demonstrated with the help of details and its accounts that the investments have been made out of the sale of investments and out of free reserves. It has not utilized unsecured loans for the purpose of making investments - as Revenue has not been in a position to rebut the facts by bringing any material on record no disallowance can be warranted - in favour of assessee.
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