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2016 (4) TMI 1081 - AT - Income TaxAddition to the income of the assessee-firm on account of purchases made - Held that:- It cannot be said that the transactions of purchases of ₹ 35,79,224/- as undertaken by the assessee-firm from M/s. Divya Fabric and M/s. N M Corporation are liable to be added to the income of the assessee-firm to fasten liability of taxation and we are of the considered view that the CIT(A) erred in confirming and sustaining the addition of ₹ 35,79,224/- to the income of the assessee-firm on account of purchases made by the assessee-firm from M/s Divya Fabrics and M/s N M Corporation as made by the AO in the assessment order and we delete the additions of ₹ 35,79,224/- made by the A.O. and as confirmed /sustained by the CIT(A) to the income of the assessee-firm. Disallowance u/s 14A - Held that:- We have observed that the current assessment year is 2006-07 and hence Rule 8D of Income Tax Rules,1962 is not applicable , which is held by Hon’ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited (2010 (8) TMI 77 - BOMBAY HIGH COURT) to be applicable from assessment year 2008-09 onwards. We have observed that the assessee-firm has worked the disallowance based upon the total expenditure claimed of ₹ 11,09,724/, after excluding the voluntary disallowances made by the assessee-firm of sales promotion of ₹ 5,42,800/-, STT of ₹ 6,036/- and necessary adjustment for depreciation as debited in P & L A/c vis-ŕ-vis allowance as per the Act and then worked out the disallowance u/s 14A of the Act which is based upon the proportion of the exempt income to the total income as per audited financial statement, which in our considered view, is a reasonable basis as total expenses claimed by the assessee-firm as revenue expenditure was to the tune of ₹ 11,09,724/- in the return of income filed with the Revenue and not ₹ 16,58,665/- as contended by the authorities below , which amount of ₹ 11,09,724/- was arrived at after the disallowance voluntarily made by the assessee-firm as set out above. Thus, we hold that disallowance of ₹ 1,27,914/- as worked out by the assessee-firm u/s. 14A of the Act is quite reasonable and is correct disallowance worked out by the assessee-firm . The orders of the CIT(A) upholding the addition to income of the assessee-firm by way of further disallowance u/s. 14A of the Act of ₹ 86,917/- in addition to the disallowance of ₹ 1,27,914/- u/s 14A of the Act as offered by the assessee-firm of its own is not justified based on the facts and circumstances of the case and our discussions and reasoning as set out above and the addition of ₹ 86,917/- to the income of the assessee-firm as confirmed/sustained by the CIT(A) is hereby ordered to be deleted.
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