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2015 (6) TMI 87 - ITAT DELHI

2015 (6) TMI 87 - ITAT DELHI - TMI - Disallowance u/s 14A - CIT(A) deleted the addition - Held that:- This is an admitted fact that assessee had not earned exempted income during the present year, therefore, following above judicial pronouncement in the case of Holcim India (P) Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT] we hold that disallowance was not sustainable and, therefore, we dismiss ground - Decided in favour of assesse.

Disallowance u/s 36(1)(iii) - CIT(A) deleted part addit .....

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ng of fact that internal accounts of the assessee represented about 30% of value of fixed assets and, therefore, he had allowed relief to the extent of 30% and has upheld addition to the extent of 70% of disallowance. Ld. CIT(A) has passed a well reasoned and speaking order and, therefore, we are in agreement with his findings - Decided against revenue. - I.T.A. No.2364 /Del/2012 - Dated:- 25-3-2015 - Shri G. C. Gupta And Shri T.S. Kapoor JJ. For the Appellant : Shri P Dam Kanunjha, Sr. DR For .....

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8377; 1,73,796/- made by A.O. u/s 36(1)(iii) of I. T. Act, 1961. 2. At the outset, Ld. D.R. submitted that the assessee had made investment in shares and the income from which is exempt and, therefore, as per the provisions of Section 14A, disallowance was mandatory and in view of the application of Rule 8D, the A.O. had rightly made addition of ₹ 12,25,610/-. It was submitted that the A.O. has held that irrespective of receipt of exempt income, the addition has to be made u/s 14A if the a .....

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ere is no exempt income, disallowance u/s 14A cannot be made. In this respect, he filed a copy of Hon'ble Delhi High Court decision the case of Holsim India P. Ltd. (supra). Ld. A.R. further submitted that Hon ble Punjab & Haryana High Court in the case of CIT vs Lakhani Marketing Incl. vide order dated 02.04.2014 had similarly held that disallowance u/s 14A requires incurring of certain expenditure and assessing Officer has not pointed out any expenditure, which was incurred to earn exe .....

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e case of CIT Vs. Holcim India (P) Ltd. in I.T.A. No. 486 & 299/ 2014 order dated 05.09.2014, in similar circumstances has held as under: On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been sh .....

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orrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.20 14. In the said decision it has been held: As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in rel .....

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e. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of ₹ 2, 03,752/- made by the Assessing Officer was in order . Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction e .....

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not be ruled out and is not an improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the busi .....

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(A). In these circumstances, we do not find any merit in the present appeals. The same are dismissed in limine. 5. This is an admitted fact that assessee had not earned exempted income during the present year, therefore, following above judicial pronouncement in the case of Holcim India (P) Ltd., we hold that disallowance was not sustainable and, therefore, we dismiss ground No.1. 6. Now, coming to ground No.2, we find that Ld. CIT(A) has allowed part relief of ₹ 52,193/- out of disallowan .....

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for acquisition of assets. As per the proviso to section 36(1)(iii), any amount of the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business, whether capitalized in the books of account or not, for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Therefore, the disallowance of interest pertaining to term .....

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purchase of plant and machinery nor has the appellant been able to furnish such details. The details filed by the appellant along with submissions dated 01.11.2011 reveal that the entire amount of ₹ 1, 73, 796 / - pertains to both term loan as well as funds utilized from the CC bank account. Section 36(1)(iii) of the Act provides for allowing of interest as an eligible expenditure subject to fulfillment of the conditions that the funds must have been borrowed, the expenditure by way of in .....

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aft account, were sufficient to meet the advance tax liability. It should, therefore, be presumed that in essence and in their true character, the taxes were paid out of the profits of the year and not out of the overdraft account from the running of the business. The impugned interest was, therefore, not relatable to the payment of advance tax and hence could not be disallowed in computation of the assessee's business income." In a latter decision, the Hon'ble Mumbai High Court in .....

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a Ltd.'s case (134 ITR 219) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not .....

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aise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments." The principle that follows from the above judicial rulings is .....

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