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2015 (5) TMI 420 - ITAT MUMBAI

2015 (5) TMI 420 - ITAT MUMBAI - TMI - Disallowance u/s 14A - whether on facts, where there is no exempt income, can the provisions of section 14A be invoked at all? - Held that:- the instant case, there is no claim of exempt income. The assessee explained the reason as well, as to how the dividend income received is taxable, because, the receipt of dividend was from a Sahakari Bank, which does not fall within the definition of Scheduled Bank and hence does not come within the scope of section 1 .....

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MAT provision. In such a circumstance, the second limb become otiose. In any case, tax payable under normal provisions was much more then MAT provisions. - Decided in favour of assessee.

Depreciation claimed on inflated cost of windmills - CIT(A) allowed claim - Held that:- CIT(A), who allowed the claim of depreciation, placing reliance on the decision of his predecessors in assessment years 2002-03, 2003-04 and 2008-09 in the case of Karma Energy Ltd. (now amalgamated with the asses .....

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d investments of ₹ 5162.95 lacs. This would clearly show that there would be no diversion of interest bearing funds. In such a case, the decision of Reliance Utilities and Power Ltd reported in [2009 (1) TMI 4 - HIGH COURT BOMBAY] would squarely cover the conduct of the assessee.Since the assessee did not intend to earn dividend and the investments made were from interest free funds, in our opinion, the CIT(A) was correct to hold that no further disallowance was called for. We, therefore, .....

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partment, which are as under: Sr.No. ITA No. Filed By & Asst. year Dt of CIT(A) Order CIT(A) 1 7551/Mum/2012 Assessee & 2009-10 15.10.2012 CIT(A) 8, Mum 2 7662/Mum/2012 Revenue & 2009-10 15.10.2012 CIT(A) 8, Mum 3 86/Mum/2013 Revenue & 2009-10 29.10.2012 CIT(A) 2, Mum 4 87/Mum/2013 Revenue & 2009-10 29.10.2012 CIT(A) 2, Mum 2. As all the above four appeals are of the same assessee, hence they have been clubbed & heard together and are being disposed off by this consolidat .....

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ed to Weizmann Limited. Since the appeals to ITAT, by the assessee and the department, were filed in 2012, which is after the appointed date, they were filed in the name of the amalgamated company viz. Weizmann Limited (in respect of M/s Karma Energy Ltd. Amalgamated with Weizmann Ltd.). ITA No. 7551/Mum/2012 : by the assessee : 4. The solitary ground taken by the assessee pertains of disallowance of ₹ 19,76,095/- under section 14A of the Income Tax Act, 1961. 5. The facts are that the ass .....

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The assessee explained to the AO that the assessee has not claimed this income of dividend as exempt and hence provisions of section 14A read with Rule 8D would not be applicable. 7. The AO negated the explanation of the assessee resorted to Rule 8D and computed the disallowance of ₹ 52,06,481/-. 8. The assessee took the issue before the CIT(A), who after considering the submissions and case laws cited before him, reduced the disallowance to ₹ 19,76,095/-. 9. Against this decision o .....

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should be made. 11. In the instant case, there is no claim of exempt income. The assessee explained the reason as well, as to how the dividend income received is taxable, because, the receipt of dividend was from a Sahakari Bank, which does not fall within the definition of Scheduled Bank and hence does not come within the scope of section 115O. The AR has placed reliance on a number of decisions, which are as: ACIT vs Baskaran, ITA no. 1717/Mds/2013, wherein the coordinate Bench of the Chennai .....

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opinion that the revenue authorities erred in computing the disallowance. 13. The second limb of the GOA is whether there would be an effect in the working of tax in accordance with the provisions of section 115JB. 14. Provision of section 115JB would get attached, if the income determined under normal provisions is less then MAT, in such a circumstances MAT will supercede the normal provisions. Here in the case before us we do not find any reference of MAT provision. In such a circumstance, th .....

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in deleting the disallowance made as per sub clause (ii) of Rule 8D(2) r.w.s. 14A of the Income Tax Act. 3. On the facts and in the circumstances of the case, the impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary . 17. The facts are, The facts of the case are that the assessee had purchased 12 windmills from M/s NEG Micon (I) Pvt .....

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nsideration, the Assessing Officer disallowed deprecation of ₹ 1,536/- . 18. The issue was brought up before the CIT(A), who allowed the claim of depreciation, placing reliance on the decision of his predecessors in assessment years 2002-03, 2003-04 and 2008-09 in the case of Karma Energy Ltd. (now amalgamated with the assessee). The issue was taken by the department before the ITAT and the ITAT, after considering detailed replies and submissions from either side, rejected the appeal as fi .....

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um/2012, that no disallowance is called for in a case where there is no exempt income. 23. Following the decision taken by us, we reject the ground of appeal. 24. Ground no. 2 is therefore, rejected. 25. Grounds 3 & 4 are general. 26. As a result, the appeal filed by the department is dismissed. ITA No. 86/Mum/2013 : Department Appeal : 27. The following ground is taken by the department: 1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in holding .....

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ove exempt income in the Profit and Loss account. During the assessment proceedings, the Assessing Officer asked the appellant to explain as to why disallowance u/s. 14A read with rule 81) of the I.T. Rules should not be made. The appellant vide its letters dated 3/11/2011 and 30/11/2011 has submitted before the A.O. that it had already disallowed an amount of ₹ 98.86 lacs u/s. 14D in its computation of income against the said exempt income. The A.O. observed that the appellant in principl .....

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loans from banks for purchase of foreign bills packing credit etc. The CIT(A) has decided this issue in favour of the appellant in A.Y. 2006-07 which has been accepted by the Department. The appellant's contention in this regard was accepted and the interest expenditure for the purposes of computing disallowance u/s. 14A rule 8D was computed by the Assessing Officer as follows: Total interest expenditure 623.70 Interest expenditure which has no nexus with investment IREDA 56.25 IDBI 11.23 Ba .....

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he appellant. The A.O. observed that this issue has already been decided by the Special Bench of ITAT, New Delhi in the case of M/s. Chemlnvest Ltd. Vs ITO (121 ITD 318(Delhi) and 124 TTJ 577). The Special Bench of ITAT has held in para 22 of its order as follows: The controversy raised in this case is that the appellant had not earned or received any dividend in the year under consideration and, therefore, no disallowance can be made by invoking the provisions of section 14A of the Act. We do n .....

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d out the disallowance at ₹ 196.10 lacs, of which the assessee had suo moto made the disallowance of ₹ 98.86 lacs. He, therefore added back ₹ 97.24 lacs. 30. The assessee took up the issue before the CIT(A) and submitted that primarily it has to be ascertained whether the investment made in companies were for the purpose of earning dividend, or for gaining control. The second aspect to be seen is whether the investment made in from interest free funds or interest bearing funds .....

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of interest bearing funds. In such a case, the decision of Reliance Utilities and Power Ltd reported in 313 ITR 340 would squarely cover the conduct of the assessee. The AR also placed reliance on the decision of Shoppers Stop Ltd vs ACIT in ITA No. 144 & 4475/Mum/2010. 32. Coming to the next aspect, i.e. whether the investments were made for dividend yielding or non dividend yielding. It has been argued by the AR that the assessee made investments in companies to gain control and not to ear .....

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he department is dismissed. ITA No. 87/Mum/2013 : Department Appeal : 35. The following grounds have been taken by the department: 1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in holding that section 14A of the IT Act cannot be applied to expenditure incurred in relation to tax free dividend income as there was no tax free dividend income earned or received by the assessee during the year under consideration which is contrary to the judgment of the .....

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herein it has been held by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of section 14A(A) of the IT Act.? 36. Both the grounds are linked to the disallowance u/s 14A. In the assessment proceedings, despite the submission of the assessee that it had not received any income, which was exempt, the AO went on to compute the disallowance at ₹ 28,94,104/-. 37. Before the CIT(A) the assessee reiterated its submissi .....

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rcantile Pvt Ltd vs DCIT in ITA No. 5779/Mum/2006. 39. Adverting our attention towards the decision of Special Bench in the case of Chemivest Ltd reported in 121 ITD 318 as referred to by the department in its GOA, it must be noted that the Special Bench was seized with an issue whether the disallowance u/s 14A could be computed in case of exempt income yielding investments, though no income had been earned. The Special Bench decided the case in favour of the department. But the case is distingu .....

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he Special Bench held that disallowance under section 14A can be made even in the year in which no exempt income has been earned or received by the assessee. The decision of Special Bench of the Tribunal has been impliedly overruled by the decisions of High Courts in the following cases: 6. In the case of M/s Shivam Motors P Ltd (supra), before the Hon ble Allahabad High Court, the Revenue raised the following question of law:- "Whether on the facts and in the circumstances of the case and .....

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income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question the finding of fact is that the assessee had not earned any tax free income. He .....

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facts and the decision relied upon by the Id AR. The Hon ble Punjab & Haryana High Court in the case of CIT vs Winsome Textile Industries Ltd reported at (2009) 3191 TR 204(P&H) has held that in the present case admittedly, the assessee did not make any claim for exempt/on In such a situation. section 14A could have no application. In this case also the assessee has not claimed any exempt income in this year. Therefore respectfully following the judgment of Hon b/c High Court of Punjab .....

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year 2009-2010 such formula was correctly applied by the Revenue. We however, notice that subsection (1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act no deduction shall be allowed n respect of expenditure incurred by the assessee n relate on to income which does not form part of the total income under the Act. In the present case the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any incom .....

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6) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case. admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no applic .....

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the fact that the borrowed funds were used by the Assessee Company to invest in the Capital of another Partnership Firm and since profits derived by the Assessee Company from a Partnership firm were exempt from tax u/s. 10(2A) of the Income-tax Act. the interest expense related to such fax free profits is to be disallowed u s. 14A of the Income Tax Act (B) Whether on the facts and in the circumstance of the case and in law the Hon'ble Tribunal was right in holding that the Assessing Officer .....

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