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2017 (12) TMI 928 - AT - Income TaxBogus purchases - Held that:- We find that Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) wherein it has applied the profit rate at the rate of 12.5% of the bogus purchases in similar circumstances. Accordingly, we also apply the profit rate of 12.5% of the bogus purchase and direct the AO to compute the income of all these AYrs. and not the entire bogus purchases are to be added. Accordingly, we allow these appeals of assessee partly. Addition u/s 14A - Held that:- Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Limited [2014 (8) TMI 119 - BOMBAY HIGH COURT] wherein, it is held that the presumption will go in favour of the assessee, that it has made investment out of its own funds which are sufficient to cover the value of investment, in that case, no disallowance of interest is required to be made under section 14A of the Act read with Rule 8D(2)(ii) of the Rules. When this was confronted to the learned Sr. Departmental Representative, he fairly conceded the position. As the issue is squarely covered in favour of the assessee we confirm the order of CIT(A) by deleting the disallowance of interest under Rule 8D(2)(ii) of the IT Rules made by the AO. Retention of disallowance under Rule 8D(2)(iii) i.e. administrative expenses the assessee has calculated the disallowance by calculating 5% of the salary of the CFO, 50 % of the salary of one accounts executive and 79.1% of bank charges paid to ABN Amro Bank through which the investment were routed. Further, the assessee suo moto has disallowed a sum of ₹ 2,26,732/-, the expenses relatable to exempt income. The learned counsel took us through the relevant expenditure booked in the profit and loss account and argued that there is no item which can be co-related with the investment giving exempt income. We find force in the arguments of the learned counsel, which is apparent from the records and hence, we delete the disallowance and allow this issue of assessee’s appeal. Disallowance of expenses relatable to exempt income under section 14A - Held that:- The assessee claimed that it has disallowed 5% of salary of CFO and 50% salary of Accounts executive and further disallowed 71% of bank charges at ₹ 34,609/- on the basis that the total transaction relating to investment are routed through current account. The learned counsel took us through the relevant expenditure booked in the profit and loss account and argued that there is no item which can be co-related with the investment giving exempt income. We find force in the arguments of the learned counsel, which is apparent from the records and hence, we delete the disallowance and allow this issue of assessee’s appeal.
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