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2016 (6) TMI 586 - AT - Income TaxDisallowance u/s 14A - investment in tax-free securities - disallowance of 25% of the salary of Sr. Vice- President, Finance & VP Finance & Secretary - Held that:- In the return of income filed by the assessee, the assessee has not shown any expenditure incurred for earning the exempt income. Therefore, in accordance with the provisions of section 14A r.w. Rule 8D the Assessing Officer made the disallowance of expenditure for earning the exempt income. Even during the course of assessment proceedings, the assessee has not accepted any expenditure for earning the exempt income. Only before the ld. CIT(A), the AR of the assessee has submitted that the assessee has agreed for disallowance of 25% of the salary of Sr. Vice- President, Finance & VP Finance & Secretary at ₹.26,45,886/- [₹.15,37,990 + ₹.11,07,896], which was not accepted by the ld. CIT(A) since there was no substance as the investment of the assessee is quite substantial. The ld. CIT(A) has passed a detailed order, which is reproduced hereinabove. In view of the above, we are unable to accept that only the expenditure of ₹.26,45,886/- would have incurred to handle the investment of huge magnitude of ₹. 338.98 crores. Under the above facts and circumstances, the Assessing Officer has rightly applied Rule 8D and worked out the expenditure relatable to earning of exempt income, which was confirmed by the ld. CIT(A) and we find no infirmity in the order passed by the ld. CIT(A). - Decided against assessee. Disallowance u/s 14A - Held that:- The Department has not disputed over the quantum of investment made by the assessee to the extent of ₹.338.96 crores and receipt of exempt income amounting to ₹.11.70 crores. The value of investment was ₹.344.74 crores and ₹.338.96 crores as on 31.3.2007 and 31.3.2008 respectively. The investment as on 31.3.2008 was ₹ 338.96 crores. The sale proceeds of investments during the year was ₹.964.52 crores, which was higher by ₹.5.78 crores than purchase of investments of ₹.958.74 crores. There is no dispute on the free reserve and surplus funds available with the assessee of ₹.791.40 crores. When the assessee got its own fund and non-interest bearing funds more than the investment in tax-free securities, then there is no question of deeming that the assessee has used the borrowed funds for investment in tax-free securities. By following the decision of the ITAT, Mumbai in the case of HDFC Bank Ltd. v. DCIT (supra), wherein it was held that if assessee’s own fund and non-interest bearing funds are more than the investment in tax-free securities, then there is no basis for deeming that the assessee has used the borrowed funds for investment in tax-free securities, the ld. CIT(A) has held that the assessee had sufficient interest-free funds of its own to make investment in tax-free territory and hence no interest can be disallowed under Rule 8D(2)(ii). No infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue stands dismissed. Disallowance of expenses on dies and moulds - Held that:- As decided in assessee's own case for earlier AYs replacement of dies and mould was only "revenue expenditure" after distinguishing the facts of the assessee's case from that of the Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills Pvt. Ltd (2007 (8) TMI 16 - SUPREME COURT OF INDIA ). - Decided in favour of assessee Disallowance of product launch expenditure - Held that:- CIT(A) has held that the expenditure on product launch, advertisement and sales promotion is allowable as revenue expenditure under section 37(1) of the Act and moreover, amortization of the impugned expenditure under section 35D is also not warranted. As the Department has not accepted the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Brilliant Tutorials Ltd. [2007 (1) TMI 147 - MADRAS High Court] relied on by the ld. CIT(A) and against this decision, the Department has preferred SLP Before the Hon’ble Supreme Court. However, the ld. DR could not file any decision against the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Brilliant Tutorials Ltd. (supra). Until and unless the decision is reversed, the decision of the Hon’ble Jurisdictional High Court is having binding nature, therefore, we find no infirmity in the order passed by the ld. CIT(A) on this issue- Decided in favour of assessee TDS u/s 195 - disallowance under section 40(a)(i) - non-deduction of tax at source on the foreign remittances made for agency commission - Held that:- With regard to the issue as to whether the TDS has to be deducted or not when the commission payment made to the overseas agents, the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. [2014 (8) TMI 170 - MADRAS HIGH COURT ] wherein held the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services - Section 9 of the Act is not applicable to the case on hand and section 195 of the Act does not come into play – Decided against Revenue. Set off of the loss of 80IC units against the income of other units - Held that:- With regard to set off of losses of 80IC unit against the profit of other units, we find that the Hon’ble Delhi High Court in the case of CIT v. KEI Industries Ltd.(2015 (3) TMI 618 - DELHI HIGH COURT) has held that loss suffered by the assessee in a unit entitled to exemption under section 10B of the Income-tax Act, 1961 cannot be set off against income from any other unit not eligible for such exemption. - Decided in favour of revenue
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