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M/s. Brigade Enterprises Ltd. Bangalore and others Versus Addl. Commissioner of Income-tax Range-11 Bangalore and others

Disallowance under section 14A - CIT(A) who deleted the addition under rule 8D(2)(ii), while he confirmed the disallowance made under rule 8D(2)(iii) - Held that:- Tribunal for the earlier assessment year had considered the very same issue at length stating as per Rule 8D(2)(ii), disallowance can be made in respect of that interest expenditure which is not directly attributable to any particular income or receipt. The learned CIT (Appeals) after considering the facts on record held that there is .....

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t, on which interest is paid, has been invested in mutual funds which yield tax exempt income. In this factual matrix, we hold that the learned CIT (Appeals) was justified in deleting the disallowance under section 14A r.w. Rule 8D(2)(ii)

In the present case, the assessee, in so far it relates to common expenses [falling within the ambit of Rule 8D(2)(iii) of the Rules], has taken a stand that no expenses whatsoever was incurred by the assessee. The AO has only dealt with the expendi .....

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that no indirect expenses were incurred to earn the tax-free income is not correct. In the circumstances, we are of the view that it would be just and appropriate that the order of the CIT(A) should be set aside and the issue with regard to disallowance to be made of indirect expenses under Rule 8D(2)(iii) of the Rules should be remanded to the AO for fresh consideration. Thus we confirm the order of the CIT(A) as far as disallowance under rule 8D(2) is concerned and set aside the issue of disal .....

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uction under section 80-IB(10) of the Act was denied by the Assessing Officer. Revenue has failed to demonstrate as to how the facts in the assessment year under consideration i.e. 2009-10 are different, even though in ground No.5 of revenue’s appeal it is stated that the facts of the present assessment year are different. It appears to us that the facts and circumstances of the case as it prevailed for Assessment Years 2007-08 and 2008-09 are identical for the Assessment Year under consideratio .....

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hes of this Tribunal, the Hon'ble Karnataka High Court and the Hon'ble Apex Court in the assessee's own case for the earlier assessment years (supra), we hold that the assessee is entitled for deduction under section 80-IB(10) of the Act in respect of residential units having built up area of 1500 sq. ft. or less in ‘Brigade Gateway’ and ‘Brigade Metropolis’ housing projects. - Decided in favour of assessee.

Disallowance of Interest paid u/s.36(1)(iii) - CIT(A) deleted the disallowanc .....

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e are of the considered view that the learned CIT (Appeals) has rightly deleted the disallowance of interest - Decided in favour of assessee.

Disallowance of fine and penalty paid by the assessee on account of project Brigade Gateway - Held that: - This issue is decided against the assessee by the decision of the jurisdictional High Court in the case of CIT vs. Mamta Enterprises (2003 (10)26 - KARNATAKA High Court) which has been followed by the CIT(A) in rejecting the assessee’s grou .....

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t it had parted with the completed portion to Brigade Foundation for running the school during the relevant assessment year and since it had not entered into an agreement of sale with Brigade Foundation for sale of the said property, the benefit of using the property should be treated as the ALV of the property and should be brought to tax. Since the revenue authorities have accordingly brought the income to tax and the assessee has not been able to produce any evidence to the contrary, we do no .....

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ated 09/06/2014 for the assessment year 2010-11. 2. Brief facts of the case are that the assessee-company filed its return of income for the assessment year 2010-11. During the assessment proceedings u/s 143(3) of the Income-tax Act, 1961 [ Act'], the Assessing Officer (AO) called for various details which were filed by the assessee on various dates. The AO observed that the assessee has made investment of ₹ 14.70 crores in various tax exempt assets but has not made any disallowance u/ .....

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stomers of the company against project bookings made by them. It was submitted that the total advance received by the company from its customers as on 31/3/2010 was ₹ 124.54 crores and the total amount standing to the credit of reserve and surplus was ₹ 913.14 crores and therefore out of the total assets of ₹ 1.680.13 crores, reserve and surplus and advances from customers itself were to the tune of ₹ 1037.68 crores and the balance was either share capital or secured loan .....

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is to be made under rule 8D(2)(iii). Accordingly, he brought it to tax. 3. Aggrieved, assessee preferred an appeal before the CIT(A) who deleted the addition under rule 8D(2)(ii), while he confirmed the disallowance made under rule 8D(2)(iii) against which the revenue is in appeal before us and against the confirmation of the addition under rule 8D(2)(ii), the assessee is in appeal before us. 4. The learned counsel for the assessee, while reiterating the submissions made by the assessee before t .....

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e us. The learned Departmental Representative, however, supported the orders of the authorities below. 5. Having regard to the rival contentions and the material on record, we find that the Tribunal for the earlier assessment year had considered the very same issue at length at pages 12 to 21 of its order and at paragraphs.8 and 9 had held as under: 8.1 Grounds No.7 to 13 of revenue s appeal and Ground No.1 of the assessee's C.O. pertain to the issue of disallowance under section 14A of the .....

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ssee submitted that the dividend income of ₹ 11,55,53,320 were earned out of investments made in debt and liquid mutual funds, out of approximately ₹ 903 Crores raised out of public issue of shares. It was submitted that till such time that the funds raised by the public issue of shares were utilized for new projects in a phased manner as construction of new projects progresses, these funds were parked by way of investments in mutual funds which have resulted in the earning of divide .....

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and not out of loans borrowed by the assessee company and there are no expenses incurred by it to earn dividend income and therefore no disallowance is called for under section 14A r.w. rule 8D. In support of the proposition that disallowance under section 14A r.w. Rule 8D necessitates the establishment of expenses being incurred for earning exempt income and in the absence of such connection between expenditure incurred and exempt income earned, no disallowance can be made, the assessee placed .....

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77; 91,93,948 was considered as indirect interest for the purpose of disallowance under section 14A of the Act. The proportionate indirect interest attributable to exempt income was computed at ₹ 15,27,310 under Rule 8D(2)(ii) and a sum of ₹ 1,09,99,962 computed at 0.5% of the average amount of tax exempt investments was computed under Rule 8D(2)(iii). The total disallowance under section 14A r.w. Rule 8D was thus quantified at ₹ 1,25,27,272 (i.e. ₹ 15,27,310 plus ₹ .....

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e decided afresh keeping in view of the guidelines laid down by the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). 8.1.4 The learned CIT (Appeals) deleted the disallowance made under Rule 8D(2)(ii) amounting to ₹ 15,27,310 holding that interest payments which are not attributable to any taxable income or exempt income alone can be considered. The learned CIT (Appeals) held that :- (i) there is no material available on record to show that the overd .....

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) held that the overdraft facility was not used for making tax exempt investments and deleted the disallowance of ₹ 15,27,310 made under rule 8D(2)(ii). 8.1.5 In respect of the disallowance under rule 8D(2)(iii) amounting to ₹ 1,09,99,962, the learned CIT (Appeals) held that the above disallowance is with regard to other indirect expenses which are normally estimated as per accounting principles as it cannot be quantified directly. The learned CIT (Appeals) held that, in this regard, .....

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aised by revenue in this appeal. 8.3 The learned Authorized Representative relied on the findings of the learned CIT (Appeals) on this issue and submitted that revenue has not brought any material on record to controvert the findings of the learned CIT (Appeals). The learned Authorized Representative also relied on the decisions of the coordinate bench of this Tribunal in the case of M/s.Bharatiya Reserve Bank Note Mudran Pvt. Ltd. V DCIT in ITA No.650/Bang/2011 dt.7.12.2012 and M.P. No.43 & .....

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eserve Bank Note Mudran Pvt. Ltd. (supra) after considering the various aspects of section 14A of the Act, Rule 8D of the IT Rules, 1963 and the decision of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) held that Rule 8D cannot be invoked unless the Assessing Officer records his satisfaction about the correctness or otherwise of the claim made by the assessee having regard to the accounts of the assessee. The relevant portion of the above decision i .....

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Rules applies only for AY 08-09 and subsequent Assessment years and not to earlier Assessment Years. 20. In the present case the AY is 2008-09 and therefore Rule 8D of the Rules are applicable. The Assessee made a claim before the AO that no expenditure was incurred for earning income which does not form part of the total income under the Act. The AO rejected the claim of the Assessee for the reason that funds for making the investments flowed from a common pool of funds i.e., cash credit/overdr .....

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ccount. The claim of the Assessee before the AO was that no interest expenditure was incurred for making investments in units of mutual funds. The funds for making investment in units of mutual funds have its origin in the cash credit/overdraft Account of the Assessee. The Bank statement for the period ending 31.3.2008 shows that the outflow from the bank account for the investment in question was on 31.3.2008. Therefore during the previous year till the last day of the previous year all the fun .....

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nt Assessment year is concerned, no disallowance can be made under Section 14A of the Act read with Rule 8D(2)(ii) of the Rules. The addition made by the AO and confirmed by the CIT(A) is directed to be deleted. 8.4.2 In the case on hand, it is not in dispute that the assessee made a claim before the Assessing Officer that no expenditure had been incurred to earn the exempt income, which is reproduced at para 8 of the order of assessment. The Assessing Officer considered the submissions of the a .....

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e's claim in respect of such expenditure in relation to exempt income as is required in accordance with section 14A(2) of the Act for making a disallowance under Rule 8D. 8.4.3 As per Rule 8D(2)(ii), disallowance can be made in respect of that interest expenditure which is not directly attributable to any particular income or receipt. The learned CIT (Appeals) after considering the facts on record held that there is no material on record to show that the overdraft cannot has been directly us .....

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ax exempt income. In this factual matrix, we hold that the learned CIT (Appeals) was justified in deleting the disallowance under section 14A r.w. Rule 8D(2)(ii) amounting to ₹ 15,27,310. Consequently, Ground Nos.7 to 13 raised in revenue s appeal are dismissed. 9.1 Ground No.1 of the assessee's C.O. deals with the disallowance confirmed by the learned CIT (Appeals) under section 14A r.w. rule 8D (2)(iii) amounting to ₹ 1,09,99,962. We have already considered the facts and materi .....

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in ITA No.1279/Bang/2010 dt.12.1.2012 set aside the issue of disallowance under Rule 8D to the file of the Assessing Officer holding at para 10 thereof as under : 10. In the present case, it is noticed that the Assessing Officer had not established the nexus between the expenditure incurred and income earned. He considered the entire amount of expenditure by way of interest as well as of expenses incurred towards IPO as the expenses related to the earning of dividend income. The learned CIT (App .....

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d. (2010) 328 ITR 81 (supra). 9.2 On similar facts and circumstances of the case and law applicable, the co-ordinate bench of this Tribunal in Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (supra) has at paras 18 to 20 of this order held as under : 18. In the present case, the assessee, in so far it relates to common expenses [falling within the ambit of Rule 8D(2)(iii) of the Rules], has taken a stand that no expenses whatsoever was incurred by the assessee. The AO in para 3.4 of his order has o .....

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the claim of the assessee that no indirect expenses were incurred to earn the tax-free income is not correct. In the circumstances, we are of the view that it would be just and appropriate that the order of the CIT(A) should be set aside and the issue with regard to disallowance to be made of indirect expenses under Rule 8D(2)(iii) of the Rules should be remanded to the AO for fresh consideration. The assessee should make a claim before the AO specifying the basis on which a claim is made that n .....

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empt income, it is not mandatory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. The plea of the assessee that applying the Rule 8D blindly by the AO will lead to absurd results, in our view, is without any basis because while examining the claim of the assessee regarding expenditure incurred in earning the exempt income including a claim that no expenses were incurred, the AO is bound to take note of .....

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d to decisions relied upon by either of the parties before us viz., the decision in the case of Hero Cycles Ltd. (supra), Walfort Share & Stock Brokers (supra), we are of the view that those decisions would not be relevant to the present case which relates to A.Y. 2008-09 to which the provisions of Rule 8D are applicable. In the case of Hero Cycles Ltd. (supra), it was a case where there was no nexus shown to exist between expenditure incurred and exempt income. The Hon ble High Court emphas .....

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t in the light of the discussion in the earlier part of this order, the question of disallowance to be made under Rule 8D(2)(iii) of the Rules is remanded to the AO for fresh consideration and the order of the CIT(A) in this regard is set aside. The assessee as well as the AO shall follow the directions given in para 18 of this order. The issue will be decided by the AO after giving opportunity of being heard to the assessee. 9.3 In view of the above, and following the above decision of the co-o .....

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to whether the said claim is correct or not having regard to the accounts of the assessee after affording adequate opportunity of hearing to the assessee. Ground No.1 of the assessee's C.O. is therefore treated as allowed for statistical purposes. Since the facts and circumstances during the relevant assessment year are also similar, respectfully following the decision of the coordinate bench to which one of us i.e. the Judicial Member is the signatory, we confirm the order of the CIT(A) as .....

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that in these projects, the assessee-company has constructed some of the flats of the dimension of more than 1500 sq.ft. and therefore it claimed deduction on proportionate basis. The AO was of the opinion that 4 projects were conceived with substantial number of flats measuring more than 1500 sq.ft. and therefore deduction u/s 80IB(10) is not allowable with regard to these projects. He accordingly, disallowed the deduction for all the 4 projects and brought it to tax. 7. Aggrieved, assessee pr .....

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deduction u/s 80IB(10) of the Act in respect of flats which are more than 1500 sq.ft. of built-up area. The learned Departmental Representative, however, supported the orders of the authorities below. 9. Having gone through the records and having perused the decision of this Tribunal in the assessee s own case, we find that the Tribunal, at paras.7.3 to 7.5.5 has held as under: 7.3 In support of the grounds raised at S.No.2 to 6, the learned Departmental Representative placed reliance on the or .....

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he conditions stipulated therein in relation to a housing project as a whole. 7.4.1 The learned Authorized Representative, on the other hand, argued that the above facts raised in the grounds of appeal by revenue have already been considered by the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 and 2008-09 in respect of the very same projects i.e. Brigade Gateway and Brigade Metorpolis and deduction u/s.80-IB(10) of the Act have been allowed in resp .....

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submitted by the learned Authorized Representative that Revenue s appeal against the decision of the co-ordinate bench of this Tribunal for Assessment Year 2004-05 was dismissed by the Hon'ble Karnataka High Court by order in ITA No.763 c/w 25/2009 dt.29.2.2012. It was further submitted that Revenue s appeal against the decision of the co-ordinate bench of this Tribunal for Assessment Year 2006-07 was also dismissed by the Hon'ble Karnataka High court vide order in ITA No.61/2012 dt.5.10 .....

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) in the assessee's own case, the assessee is entitled for being allowed deduction u/s.80-IB(10) of the Act in respect of residential units having built up area of less than 1,500 sq. ft. in Bangalore Gateway and Brigade Metropolis housing projects. 7.5.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial decisions cited. In the year under consideration, the Assessing Officer denied the assessee's claim for deduction u/s .....

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ssee's case for Assessment Year 2008-09. 7.5.2 As submitted by the learned Authorized Representative, we find that this issue of the deduction u/s.80-IB(10) of the Act was considered by a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 and 2008-09 in order in ITA Nos.1356 & 1357/Bang/2010 dt.7.9.2012. In this order, the co-ordinate bench of this Tribunal held that deduction u/s.80-IB(10) of the Act should be allowed proportionately in respect .....

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sue stands squarely covered by the decision in assessee's own case for the A.Y. 2004-05 to 2006-07. Following the aforesaid decisions, we uphold the order of CIT (Appeals) on this issue. 7.5.3 The proportionate deduction u/s.80-IB(10) of the Act was allowed by the co-ordinate bench in its order for Assessment Years 2007-08 and 2008-09 relying on its earlier decision for Assessment Year 2004-05 in the assessee's own case in ITA No.198/Bang/2997 dt.29.8.2008. The relevant portion of the or .....

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of 80-IB, the assessee is entitled for deduction. So considered, it is only in respect of those units which have not fulfilled the stipulated conditions, deduction should be denied. The law prescribes maximum permissible area with reference to each residential unit….. 5.2….. Further, profits from the units will have to be arrived based on the method of accounting employed. Accounting principles would mandate recognition of profits from each unit separately. It is with reference to .....

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order of the coordinate bench of this Tribunal for Assessment Years 2004-05 and 2005-06 was dismissed by the Hon'ble Karnataka High Court in its orders in ITA No.25/2009 for Assessment Year 2004-05 and ITA No.763/2009 for Assessment Year 2005-06 dt.29.2.2012. Revenue s appeal against the order of the coordinate bench for Assessment Year 2006-07 was determined by the Hon'ble Karnataka High Court vide order in ITA No.61/2012 dt.5.10.2012. Revenue s SLP against the decision of the Hon'b .....

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.2013. 7.5.5 In the case on hand, the housing projects Brigade Gateway and Brigade Metropolis were same for Assessment Years 2007-08, 2008-09 and 2009-10 in respect of which deduction under section 80-IB(10) of the Act was denied by the Assessing Officer. Revenue has failed to demonstrate as to how the facts in the assessment year under consideration i.e. 2009-10 are different, even though in ground No.5 of revenue s appeal it is stated that the facts of the present assessment year are different .....

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e Hon'ble Karnataka High Court (supra) and Revenue s SLPs by the Hon'ble Apex Court (supra). In this view of the matter, respectfully following the decisions of the co-ordinate benches of this Tribunal, the Hon'ble Karnataka High Court and the Hon'ble Apex Court in the assessee's own case for the earlier assessment years (supra), we hold that the assessee is entitled for deduction under section 80-IB(10) of the Act in respect of residential units having built up area of 1500 .....

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ct holding that advances to the subsidiary were in the normal course of business for business purposes. It is the grievance of the revenue that the CIT(A) has deleted the same without appreciating that the funds from the overdraft account were utilized to make interest free advances to the assessee s subsidiary and also for acquiring lands and property and also has erroneously relied upon the decision of this Tribunal in the assessee s own case though it has not been accepted and further appeal .....

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of interest paid amounting to ₹ 76,66,638 by the learned CIT (Appeals). In the course of assessment proceedings, the Assessing Officer noticed that the assessee has made certain advances and deposits, details of which are as under : Sl.No. Particulars Amount Rs. 1 Amounts advanced to subsidiaries 9,85,23,071 2 Amount advanced to subsidiary company, M/s. BCV Developers Pvt. Ltd. for acquiring lands 112,21,69,506 3 Other property advances 90,18,17,578 4 Other deposits for Joint Development .....

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which interest was paid to the extent of ₹ 91,93,948. Since interest paid amounting to ₹ 15,27,310 had been disallowed by the Assessing Officer under section 14A r.w. Rule 8D(2)(ii), the remaining amount of interest paid amounting to ₹ 76,66,638 (Rs.91,93,948 less ₹ 15,27,310) was disallowed by the Assessing Officer under section 36(1)(iii) of the Act. 10.2 On appeal, before the learned CIT (Appeals), it was contended that the bank overdraft facility is taken solely with .....

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SPV ) Companies and the assessee is involved in real estate business, advances to these subsidiaries are in the natural course of business. The learned CIT (Appeals) also held that the advances to Joint Venture companies are in the normal course of business of real estate wherein land and buildings are held stock-in-trade and not as capital assets and hence the entire advances and deposits cannot be treated as nonbusiness or capital advances. The learned CIT (Appeals) also observed that the asse .....

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ficer on this issue and submitted that since the overdraft account was utilized to make interest free advances and for acquiring lands, etc. the interest paid on the overdraft account is to be disallowed. 10.4 Per contra, the learned Authorized Representative relied on the findings in the order of the learned CIT (Appeals) on this issue. It was contended by the learned Authorized Representative that no disallowance is to be made in respect of interest expenditure claimed as deduction, placing re .....

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the Assessing Officer that the advances and deposits have been made from the overdraft account is not borne out by the facts or material on record. Further, we find that the Assessing Officer has not been able to controvert the contentions of the assessee that these advances and deposits were made out of own funds, i.e. reserves and surplus earned by the assessee company which were approx.. ₹ 994.92 Crores as against the total advances and deposits of approx. ₹ 248.24 Crores. The lea .....

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reads as under : 17. One aspect needs to be mentioned during the Assessment Year 1995-96, apart from the loan given in August / September, 1991, the assessee advanced interest free loan to its sister concern amounting to ₹ 5 lacs. According to the Tribunal, there was nothing on record to show that the loans were given to the sister concern by the assessee firm out of its own funds and, therefore, it was not entitled to claim deduction under section 36(1)(iii). This finding is erroneous. T .....

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e time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of the Calcutta High Court in woolcombers of India Ltd. (supra) 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 re .....

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ty and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise 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 over draft and / or loans taken, .....

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d paid up capital/reserve/surplus of ₹ 6.10 Crores on which no interest was being paid and therefore interest free advances made by it are covered. There is no question of any disallowance of notional interest on loan taken by it. The Tribunal, however, had also recorded a finding that the assessee has not diverted any borrowed fund on which interest was paid for non-commercial purposes and therefore, there is no question of disallowance of interest out of the interest paid by the assessee .....

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to be no material on record to justify the Assessing Officer s conclusion that deposits and advances have flown from out of the bank overdraft facility, we are of the considered view that the learned CIT (Appeals) has rightly deleted the disallowance of interest amounting to ₹ 76,66,638. 10.6 The second reason of the Assessing Officer that the advances and deposits were made for non-business purposes and are capital advances are also not borne out by the material on record. The advances an .....

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purpose of the assessee's business has not been supported by any evidence and is therefore factually unsustainable. Further, we also find that the Assessing Officer has not been able to establish a clear nexus of interest bearing funds being given as interest free advances. In this view of the matter, we are of the considered opinion that the learned CIT (Appeals) has rightly deleted the disallowance of interest paid amounting to ₹ 76,66,638 under section 36(1)(iii) of the Act and the .....

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s appeal, ground of appeal No.1 is against the disallowance u/s 14A read with rule 8D(2)(iii) and in the revenue s appeal, we have already set aside the issue to the file of the AO. Therefore, this ground of appeal is treated as allowed for statistical purposes. 14. The ground of appeal No.2 is for alternative relief that if the disallowance u/s 14A read with rule 8D(2)(iii) is warranted, then the AO should be directed to allow deduction u/s 80IB(10) in respect of the increase in the business pr .....

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sdictional High Court in the case of CIT vs. Mamta Enterprises (2004) 256 ITR 356 which has been followed by the CIT(A) in rejecting the assessee s ground of appeal. We find that the CIT(A) has followed the said decision and at para.3 of his order, reproduced the relevant portion of the decision at length. Since the issue is covered against the assessee, this ground of appeal is rejected. 16. Ground of appeal No.4 is an alternative ground that in respect of disallowance of fine and penalty, the .....

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nd consequent addition of ₹ 10,50,000/- under the head income from house property . 18. Brief facts relating to this issue are that the assessee had constructed school property at Mahadevapura and during the previous year relevant to the assessment year under consideration, it had incurred total cost of ₹ 53,16,18,100/- as shown in the balance sheet. On inquiry by the AO, he observed that the said building was not sold to Brigade Foundation but that the completed portion of the build .....

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