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2020 (4) TMI 426 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - suo moto disallowance by assessee - share investments are in the nature of strategic investments to acquire the controlling interest in the appellant’s business division sold to its wholly owned subsidiary companies in the year under reference - HELD THAT:- CIT (A) has justified the suo moto disallowance of ₹ 5,00,000/-made by the assessee inter alia on the ground that if strategic investments are excluded disallowance u/s 8D(ii) would come down to ₹ 2,17,950/- and further 0.5% of average investments would worked out to ₹ 59,190/- under rule 8D(2) (iii). As pointed out by the Ld. DR, the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT [2018 (3) TMI 805 - SUPREME COURT] has held that the dominant purpose for which investment into shares made by the assessee is not relevant as section 14A applies irrespective of whether shares are held to gain control or as stock in trade. Where shares are held as stock in trade the main purposes to trade in shares and earned profit and in this process certain dividend is also earned which is exempt u/s 10(34) of the Act. Therefore, the expenditure attributable to exempt income will have to be apportioned and disallow u/s 14A of the Act. Assessee has rightly pointed out that in the case of Joint Investment Pvt. Ltd. vs. CIT [2015 (3) TMI 155 - DELHI HIGH COURT]has held that disallowance u/s 14A cannot exceed the dividend income. In the present case, the assessee earned exempt income of ₹ 7,00,000/- during the previous year and it has made suo moto disallowance of ₹ 5,00,000/- u/s 14A of the Act. In the light of the ratio laid down by the Hon’ble Delhi High Court, the disallowance cannot exceed the exempt income of ₹ 7,00,000/-. Hence findings of the Ld. CIT (A) is erroneous to the extent that the Ld. CIT (A) has justified the suo moto disallowance on the ground that the AO has not excluded the strategic investments made by the assessee during the previous year. Partly allow this grounds of appeal of the revenue and modify the impugned order and direct the AO to restrict the disallowance to ₹ 7,00,000/-. Since, we have partly allowed the appeal of the revenue and directed the AO to restrict the addition to the exempt income earned by the assessee, we partly allow the cross objection filed by the assessee. Disallowance u/s 36(1) (va) r.w.s. 2(24) (x) - assessee had deposited being employees contribution towards Provident Fund and ESIC after the due date prescribed under the relevant Act - HELD THAT:- As relying on HINDUSTAN ORGANICS CHEMICALS LTD. [2014 (7) TMI 477 - BOMBAY HIGH COURT] and GHATGE PATIL TRANSPORTS LTD. [2014 (10) TMI 402 - BOMBAY HIGH COURT] appellant has deposited the EPF and ESIC contributions before the due date of filing of Income tax Return, thus disallowance is hereby deleted. Addition of notional interest out of the interest paid during the previous year - whether assessee failed to offer explanation to the satisfaction of the AO, the AO rightly worked out the interest @ 12% on the said advances and added back the same to the income of the assessee? - HELD THAT:- CIT (A) has deleted the addition made on account of disallowance of notional interest out of the interest paid during the relevant year on the ground that the assessee had surplus funds with it while the loans in question were advanced. As per the computation by the Ld. CIT (A) the assessee had surplus fund of ₹ 3846.97 lakhs which was more than the investments made and the loans advanced. Hence, the Ld. CIT (A) has rightly deleted the addition by following the ratio laid down in the case of CIT vs. Reliance Utilities [2009 (1) TMI 4 - BOMBAY HIGH COURT] wherein the Hon’ble Court has held that if the assessee is having sufficient interest free funds available with it to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were made from the interest free funds available with the assessee. Hence, we do not find any infirmity in the findings of the Ld. CIT (A) to interfere with.
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