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M/s ICICI Venture Funds Management Co. Ltd., Bangalore Versus The Deputy Commissioner of Income-tax Large Tax Payers Unit, Bangalore

2015 (7) TMI 775 - ITAT BANGALORE

Disallowance made u/s 14A - Held that:- The assessee was having its own interest free funds which is morethan the investments in question. Further, there was no disallowance on account of interest expenditure u/s 14A for the earlier assessment years. We note that the AO has took the opening balance of investments at 9.30 Crores and closing at 14.85 Crores therefore, keeping in view of the availability of assessee’s own fund we find that the assessee has established the claim that the no borrowed .....

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ed by various venture capital funds has already been disallowed and the amount received by the assessee is net amount. Therefore, for the purpose of disallowance u/s 14A expenditure already disallowed from the dividend income prior to the allocation to the assessee is required to be taken into account. In the facts and circumstances of the case, we direct the AO to re-compute the disallowance by reducing the amount of expenditure already disallowed from the dividend income from the amount worked .....

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vely 2. The assessee has raised common issues in both these appeals regarding disallowance made u/s 14A of the Act. The grounds raised for the AY ; 2009-10 are as follows; 1. The ld. Asst. CIT Bangalore had erred in adding a sum of ₹ 77,32,196/- to the income of the appellant as disallowance u/s 14A of the IT Act, 1961 and the ld.CIT has erred in confirming such disallowance. 2. The lower authorities have not properly appreciated the facts of the case and law applicable it will be clear th .....

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o be adduced at the time of hearing, it is requested that the disallowance made and confirmed u/s 14A of the Act be deleted. 3. The assessee is an asset management company and provides venture capital assistance to various industrial sectors. The assistance is extended through venture capital equity funds managed by the assessee. The assessee filed its return of income on 30-12-2009 declared a total income of ₹ 199,31,03,010/-. The assessee received a sum of ₹ 32,54,491/- as allocati .....

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ure capital funds after deduction of expenditure for earning the said dividend income. The AO did not accept the contention of the assessee and made a disallowance u/s 14A r.w. Rule 8D for a sum of ₹ 42,07,010/-. The AO has worked out the disallowance made u/s 14A on account of interest expenditure under rule 8D(2)(ii) at ₹ 71,28,196/- and on account of general administration expenditure under rule 8D(2)(iii) of the Act at ₹ 6,04,000/-. The assessee challenged the action of the .....

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the dividend income being an allocation of dividend from venture capital funds which is net of the expenditure and therefore, no further disallowance was called for u/s 14A of the Act. The CIT(A) did not accept the contention of the assessee and concur with the AO in disallowing the interest expenditure as well as the general administrative expenditure u/s 14A of the Act. 4. Before us learned AR of the assessee has submitted that the AO made the disallowance irrespective of the fact that the as .....

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her contended that there was no disallowance on account of expenditure u/s 14A in the earlier AY and the long term investment shown as on 31-03- 2009 was made about 6 years earlier. Thus, the learned AR submitted that there is no question of utilizing any borrowed funds. He has further pointed out that the assessee has produced the loan sanctioned letter before the AO as well as the CIT(A) to show that the loan was obtained from the banks for specific purpose as shown in the loan sanctioned lett .....

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the concerned bankers to verify the fact for the utilization of the loan. 5. The learned AR of the assessee submitted that though the AO has considered only the long term investments made for the purpose of 14A however, the assessee has also made the current investment and the source of funds has been explained by the assessee. In this respect the learned AR submitted that this issue was not raised by the authorities below and the AO has made the disallowance u/ 14A only by considering the long .....

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essee from venture capital funds. 6. As regards disallowance on administrative expenses, learned AR of the assessee submitted that the assessee being a venture capital fund management company made investments in other venture capital companies and other trade investments. The funds are managed by the specific venture capital companies and all expenses were incurred by these venture capital funds. He has pointed out that the assessee has received the exempt income in the nature of dividend by way .....

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H) b) ACIT Vs Magarpatta Township Development & Construction Co.Ltd (2014) 46 Taxmann.com 284 (Pune-Trib.) 7. On the other hand, learned DR has relied upon the order of the CIT(A) and submitted that the CIT(A) has specifically pointed out that the assessee was asked to produce certificate from the bank to show that the loans availed from the bank was utilized only for the purpose for which the loans were taken. He has further submitted that even if the investment was made from the common poo .....

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eration and therefore, the utilization of borrowed funds is not ruled out. 8. We have considered the rival submission and perused the material available on record. Section 14A stipulates apportionment of expenditure incurred for the composite/indivisible activity in which taxable and non-taxable income is received and the object of sec.14A is not to allow he assessee to reduce the tax payable on non-exempt income by debiting the expenditure incurred to earn the exempt income. If there is an expe .....

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ome, it is incumbent upon the AO to determine as to whether the assessee has incurred any expenditure in relation to the income which does not form part of total income and if so, to qualify to the extent of disallowance. Hence, there must be a live-in nexus between the expenditure incurred and the income not forming part of total income to bring the case under the ambit of sec.14A of the Act. No notional expenditure can be apportioned on account of earning the exempt income unless there is an a .....

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ilized any borrowed funds. Therefore, disallowance u/s 14A of the Act on account of interest income is not called for. We find that the AO has not examined the fact of availability of assessee s own funds for making the investments. The AO rather strict to the principal that even if the assessee has claimed that no expenditure incurred for earning dividend income the provisions of sec.14A are applicable and the disallowance was accordingly, worked out as per Rule-8D of the Act. It is pertinent t .....

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anctioned letters before the authorities below in support of its claim that the loan was taken for specific purpose and it was utilized for the same and therefore, there was no question of using the loan for the purpose of investments. We find that the assessee has produced tangible evidence in support of its claim that the assessee has not utilized the funds for the purpose of investments as the loan were taken for specific purpose as given in the loan sanctioned letters. The assessee contended .....

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ter of the banks to show that the loan was availed for specific purpose and therefore, it could not be utilized other than the purpose for which the loan was granted. The CIT(A) without making any further enquiry or investigation through the AO has refused to accept the claim of the assessee on the ground that the assessee has not produced the certificate from the bank that the loan were utilized for stated purposes. We do not agree with the view of the CIT(A) in this respect because, once the a .....

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fore, once the assessee has produced the details of its interest free funds which is morethan the investments in question. The claim of assessee cannot be rejected without bringing the contrary record or findings. The details of the funds as given by the CIT(A) in para-9 as under ; FY ended Equity share capital. Reserves and Surplus Rs. in million 31-03-2007 10 312.59 322.59 31-03-2008 10 368.42 378.42 31-03-2009 10 737.47 378.42 9. Thus, it is clear that the assessee was having its own interest .....

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