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2015 (7) TMI 834 - ITAT MUMBAI

2015 (7) TMI 834 - ITAT MUMBAI - TMI - Disallowance made under section 14A assessee has agitated the action of the Ld. CIT(A) in sustaining the disallowance on account of administrative expenses at the rate of 0.5% of the average value of investment as per Rule 8D(2)(iii) as against the suo-moto disallowance of ₹ 2 lakh offered by the assessee - Held that:- Considering the nature of investments of the assessee during the year under consideration, we do not find any justification on the par .....

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he assessee and also without ignoring the nature of investments made by the assessee. The order of the Ld. CIT(A) confirmed the disallowance under Rule 8D(2)(iii) is therefore set aside. In view of our observations made above, the disallowance under section 14A is restricted to the suo-moto disallowance of ₹ 2 lakh offered by the assessee and the remaining disallowance over and above the disallowance offered by the assessee himself is therefore ordered to be deleted. - Decided in favour of .....

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oan for capital asset. He, thereafter, relying upon the decision of the Hon'ble Jurisdictional High Court, in the case of "Mahindra & Mahindra Ltd. vs. CIT" [2003 (1) TMI 71 - BOMBAY High Court] held that the waiver of the loan amount was a capital receipt not taxable as business income of the assessee. - Decided in favour of assessee. - ITA No. 5693/M/2011, ITA No. 6211/M/2011 - Dated:- 17-6-2015 - R. C. Sharma, AM And Sanjay Garg, JM,JJ. For the Petitioner : Shri Vijay Mehta, AR For the Respon .....

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i.e. ITA No.5693/M/2011. ITA No.5693/M/2011 2. The assessee in its appeal has taken two grounds of appeal. At the outset, the Ld. A.R. of the assessee has stated at bar that as per the instructions of his client, he does not press ground No.1 of the appeal. Ground No.1 is therefore dismissed as not pressed. 3. The issue raised vide Ground No.2 is relating to the disallowance made under section 14A of the Income Tax Act. The assessee has agitated the action of the Ld. CIT(A) in sustaining the di .....

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er referred to as the AO) observed that the assessee had earned dividend income of ₹ 3,13,15,384/- which was claimed as exempt under section 10(34) of the Act. He further observed that the assessee had disallowed only a sum of ₹ 2 lakh. The AO applied Rule 8D and disallowed a sum of ₹ 61,45,777/- under Rule 8D(2)(ii) on account of interest expenditure and further a sum of ₹ 18,32,980/- on account of administrative expenses under Rule 8D(2)(iii). Aggrieved by the order of .....

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lakh offered by the assessee was reasonable. The assessee also demonstrated and explained before the CIT(A) the one to one relation of the borrowed funds and their utilization towards business of the assessee to prove that the interest of ₹ 3,99,96,656/- was incurred wholly and exclusively for the purpose of business of the assessee and that the same cannot be considered for disallowance u/s 14A. The assessee further submitted that the administrative expenses incurred by the company were f .....

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ubmissions of the assessee, the Ld. CIT(A) observed that the AO himself had not made any disallowance relating to any direct expenditure for earning of exempt income. The Ld. CIT(A) also agreed to the contention of the assessee that indirect expenses e.g. interest expenditure had not been incurred by the assessee for earning of dividend income. He therefore deleted the disallowance made by the AO under Rule 8D(2)(ii) in relation to interest expenditure. The Ld. CIT(A), however, observed that Rul .....

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of the disallowance under Rule 8D(2)(iii) whereas the Revenue has agitated the action of the Ld. CIT(A) in deleting the disallowance made by the AO under Rule 8D(2)(ii). 7. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. The Ld. CIT(A) has observed in the impugned order that the AO has not given any finding that the assessee had incurred the indirect expenses under Rule 8D(2)(ii) for earning of exempt income. The assesse .....

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est expenditure. The Ld. A.R. of the assessee has submitted that the identical issue had come for consideration before the Tribunal in the own case of the assessee in the subsequent assessment year i.e. A.Y. 2009-10 wherein the Tribunal, after considering the balance sheet of the assessee for the relevant period, observed that the assessee had huge surplus funds in the balance sheet as on 31.03.09. The Tribunal further considered the utilization of the loan amount by the assessee and thereafter .....

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the claim of the assessee in respect of expenditure debited was not correct or that there could have been certain other expenditure which could have been incurred in relation to earning of exempt income. The Tribunal further observed that the AO in the case had straightway applied Rule 8D without considering the suo-motoworking/computation given by the assessee in relation to disallowance under section 14A. The Tribunal ultimately held that once the AO fails to comply the statutory requirement, .....

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be made to Rule 8D of the Income Tax Rules, if the AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure. The satisfaction of the AO has to be arrived at having regard to the accounts of the assessee. Sub section 2(14) does not ipso-facto enable the AO to apply the method prescribed by the rules straightway without considering whether the claim made by the assessee in respect of such expenditure is correct. The satisfaction of the AO must be ar .....

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erve that the Ld. CIT(A) having regard to the accounts of the assessee has observed that the assessee has not incurred any interest/indirect expenditure for earning of the exempt income. The balance sheet of the assessee reveals that the assessee had reserve and surplus of ₹ 2,69,82,76,106/- as on 31.03.08 as against the total investments of ₹ 69,33,10,403/-. The reserve and surplus investments of the assessee as on 31.03.06 was at ₹ 1,31,08,13,906/- and therefore there was an .....

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0,029/- as on 31.03.07. The Ld. D.R., from the balance sheet has tried to explain that there is an increase in the fixed assets of the assessee and the assessee has also used its funds in repayment of the loan amount and hence it cannot be said that the entire surplus was used by the assessee for making investments. However, after considering the overall facts and circumstances and the explanation of the assessee regarding the utilization of the loan amount and also considering that there is suf .....

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ncurring of expenditure which are generally done through agents. Otherwise, there is no considerable increase of the investment in equity shares etc. The assessee has already disallowed a sum of ₹ 2 lakh. Considering the nature of investments of the assessee during the year under consideration, we do not find any justification on the part of the AO in straightway applying Rule 8D and without recording any dissatisfaction in relation to the suo-moto working made by the assessee. Even otherw .....

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2)(iii) is therefore set aside. In view of our observations made above, the disallowance under section 14A is restricted to the suo-moto disallowance of ₹ 2 lakh offered by the assessee and the remaining disallowance over and above the disallowance offered by the assessee himself is therefore ordered to be deleted. 9. Now we take up the Revenue's appeal bearing ITA No.6211/M/2011. ITA No.6211/M/2011 10. The Revenue has taken the following three grounds of appeal: "1. Whether on th .....

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0,73,487/- is capital receipt not chargeable to tax inspite of Apex Court's decision in the case of Goetz (India) Ltd. reported in 284 ITR 323 (SC)? 3. Whether on the facts and circumstances of the case and in law, the CIT (A) is right in directing that the amount of disallowance of expenses u/s 14A to be added while computing book profit u/s 115JB should be restricted @ 0.5% of average investment amounting to ₹ 18,32,980/- as against the total amount of ₹ 79,78,757/- disallowabl .....

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round No.2, the Revenue has agitated the action of the Ld. CIT(A) in holding that the remission of loan liability of ₹ 2,10,73,487/- was capital receipt and not chargeable to tax. During the year under consideration, the assessee company was allowed rebate on loan liability of ₹ 30510355/- from Inter Continental Hospital (hereinafter referred to as SCH) and SC Hotels & Resorts India Pvt. Ltd. The entire rebate on loans was credited to the P& L account under the head 'othe .....

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submitted that the waiver of loan on principal amount inadvertently remained to be excluded from total income and the same was wrongly offered for tax and therefore the same was required to be deducted from the total income. The AO, however, did not accept the contention of the assessee and disallowed the same observing that the assessee was required to file a revised return of income in this respect. He relied on the decision of the Hon'ble Supreme Court in the case of "Goetze (India) .....

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the same should be allowed to the assessee. He therefore directed the AO to calculate the amount of ₹ 21073487/- being the rebate received on loan as the same was capital receipt. 14. We may observe that the Ld. CIT(A) has discussed the nature of the loan amount and has held that the waiver was not in respect of any benefit in kind or of any perquisite. The waiver was of the principle loan amount in cash. The assessee had not claimed any deduction in respect of loss, expenditure or trading .....

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