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AIA Engineering Ltd., Ahmedabad and others Versus The ACIT, Circle-1, Ahmedabad and others

Disallowance under Section 14A - Held that:- It is an undisputed fact that for the year under consideration the method prescribed under Rule 8D for working the disallowance u/s. 14A would not be applicable in view of the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce [2010 (8) TMI 77 - BOMBAY HIGH COURT ] wherein held that the method prescribed under Rule 8D would be applicable to A.Y. 08-09 and subsequent assessment years. We further find that the coordinate Bench of Tribun .....

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ot be considered for making proportionate disallowance. Before us, Revenue has not placed any material on record to demonstrate as to how the aforesaid finding of ld. CIT(A) is wrong. We further find that the Assessee had suo motu worked out the disallowance u/s. 14A at ₹ 16,30,762/- and in the aforesaid working of Assessee also no mistake has been pointed out by the Revenue - Decided in favour of assessee.

Disallowance of employees contribution to ESIC - CIT(A) deleted disallow .....

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reating the delayed deposit of Employees contribution of ESIC as income of the Assessee and accordingly uphold the order of A.O on this ground. - Decided against assessee.

Addition by income from investment in Free Trade Zone - CIT(A) deleted addition - Held that:- CIT(A) while deleting the addition has followed the decision of Tribunal for A.Y. 06-07 in Assessee’s own case. Before us, Revenue has not pointed out any distinguishing feature in the facts of the case for the year under c .....

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- Shri shailendra kr. Yadav & Shri Anil Chaturvedi, JJ. For the Petitioner : Shri Tushar Hemani For the Respondent : Smt. Vibha Bhalla, CIT/DR ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. These 2 appeals of which 1 is filed by the Assessee and the other is filed by the Revenue are against the order of CIT(A)-6, Ahmedabad dated 21.02.2012 for A.Y. 2007-08. 2. The relevant facts as culled out from the material on record are as under. 3. Assessee is a company stated to be engaged in the bus .....

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al relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue are now in appeal before us. The grounds raised by the Assessee reads as under:- 1.1 The Commissioner of Income Tax (Appeals) ['CIT(A)'] erred in making an additional disallowance of ₹ 14,65,232 under Section 14A of the Act. 1.2 The Appellant has not made any borrowings for the purpose of investments. Therefore, no interest expense has been incurred in relation to investments. 1.3 The CI .....

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vide its order dated 19 January 2012. 1.5 The Appellant suo-motu offered ₹ 16,30,762 on the basis of apportionment of indirect expenses in the ratio of dividend income to total income. While working out this disallowance of ₹ 16, 30, 762 the appellant has already included interest expenses of ₹ 47.45 lakhs. 1.6 The Appellant submits that the approach followed by the CIT(A) being akin to Rule 8D and as mentioned above Rule 8D does not apply to the year under consideration, there .....

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f filing of return. Employee contributions are not covered by section 43B of the Act, but covered u/s 36(1)(v) r.w.s. 2(24)(x) of the Act. Parliament has provided separate section to disallowance for "Employee Contribution" if not paid within the time allowed under the relevant Act. 2. The Id, CIT(A) erred in law and on facts in deleting the disallowance of ₹ 53,39,722/- u/s 14A r.w. Rule 8D of I.T. Rules, 1962. 3. The Id. CIT(A) erred in law and on facts in deleting the addition .....

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377; 164 crores and the exempt income constituted 11% of the total profits earned but Assessee had not disallowed any amount as per the provisions of Section 14A of the Act. The Assessee was therefore asked to justify of no disallowance u/s. 14A to which assessee interalia submitted that provisions of Rule 8D of the I.T. Rules are applicable from A.Y. 08-09 and not applicable to the year under consideration and further Assessee had not utilized any borrowed funds for the purpose of investment an .....

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e reason that Assessee has not maintained separate accounts in relation to the income that does not form part of the total income. A.O was further of the view returns on investment is not automatic and involves time, energy and resources in terms of finance, administration, decision making and managing the activities involving the buying and selling of investments, re-investment of dividend. He also noticed that Assessee while working the disallowance during the course of assessment proceedings .....

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for working out the disallowance. He accordingly worked out the disallowance u/s. 14A at ₹ 84,35,716/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee granted partial relief to the Assessee by holding as under:- 3.3 I have considered the facts of the case, assessment order and appellant s submission. Assessing Officer made the similar addition in assessment year 2006-07 which was confirmed by DRP against w .....

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2006-07.The assessee has given working regarding interest expenditure which can be attributed for investment in shares/mutual funds on which -dividend income was earned by the assessee and the same has been worked out at ₹ 6,96,609/-. The Ld. D.R. could not point out any mistake in this working on account of interest expenditure in respect of investment in shares/mutual funds. Regarding indirect expenditure, the assessee has also given working as per which attributable expenditure has been .....

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llant did not disallow any part of expense although it earned more than RS 7 crores exempt income. The disallowance was computed by the assessing officer as per rule 8D. However ITAT in the appellant's own case in the immediate preceding year as mentioned above held that rule 8D is applicable only with effect from assessment year 2008-09 and therefore disallowance under section 14 A cannot be made as per the formula given in rule 8D for this assessment year. Accordingly respectfully followin .....

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ng in exempt income. The disallowance quantified by the appellant was ₹ 16,30,762. Assessing officer did not agree with this disallowance proposed by the appellant on the ground that appellant did not consider certain expenses and after considering of the same the indirect expenses comes to ₹ 1022.68 Lacs for making this disallowance. The difference between assessing officer and appellant's quantification of disallowance is on two counts- (1) assessing officer included entire dep .....

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tory building and ether direct equipments and machines are not relating to investment and earning of exempt income and therefore entire depreciation cannot be considered for making proportional disallowance. As regards difference in the figure of total income adopted for making proportional disallowance, assessing officer adopted the taxable income whereas appellant considered turnover/gross revenue as the basis of apportionment. Normally Indirect expenses are apportioned in the ratio of turnove .....

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to be worked out in proportion to funds used in exempt investments as compared to total assets. Since formula given in rule 8D works out disallowance of Interest as per this method only, the Interest disallowance made by the assessing officer ₹ 14,65,232 is absolutely correct and justified. Since appellant used common bank accounts for both business as well as investment activity, there is no distinction as to which fund (whether borrowed or owned) was used for investment resulting on exem .....

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al before us. 8. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that the interest free funds available with the Assessee were far in excess of the investment and in such a case the presumption would be that the investments are out of interest free funds and therefore no disallowance on account of interest expenditure was called for and for this proposition Assessee placed reliance on the following decisions. (i) CIT vs. Torrent Power Ltd. -363 .....

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the A.O based on Rule 8D. He submitted that since the provisions of Rule 8D were not applicable for the year under consideration it was not tenable in the eyes of law to confirm part disallowance u/s. 14A by following the mentioned prescribed under Rule 8D. He further submitted that Assessee had suo motu offered ₹ 16,30,762/- as disallowance u/s. 14A and no mistake in the disallowance that was offered by Assessee has been pointed out by the A.O and in such a situation, the disallowance u/ .....

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14A itself is erroneous, the entire disallowance u/s. 14A made by the A.O needs to be deleted. The ld. D.R on the other hand supported the order of A.O. 10. We have heard the rival submissions and perused the material on record. It is an undisputed fact that for the year under consideration the method prescribed under Rule 8D for working the disallowance u/s. 14A would not be applicable in view of the decision of Hon ble Bombay High Court in the case of Godrej & Boyce 328 ITR 81 (Bom) wherei .....

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CIT(A) has noted that depreciation for factory building and other direct equipments and machines are not related to investments and earning of exempt income and therefore the depreciation cannot be considered for making proportionate disallowance. Before us, Revenue has not placed any material on record to demonstrate as to how the aforesaid finding of ld. CIT(A) is wrong. We further find that the Assessee had suo motu worked out the disallowance u/s. 14A at ₹ 16,30,762/- and in the afore .....

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ssee (i.e. ₹ 16,30,762/-) is called for. We thus direct the deletion by the disallowance in excess of the disallowance worked out by the Assessee of ₹ 16,30,762/-. Thus the ground of Assessee is allowed. 11. In the result, the appeal of Assessee is allowed. Now we take up Revenue s appeal in ITA No. 922/Ahd/2012 1st ground is with respect to disallowance of employees contribution to ESIC. 12. During the course of assessment proceedings and on perusing the tax audit report, A.O notice .....

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gly considered the delayed payment of ₹ 36,313/- of Employees contribution towards ESIC to be as income of the Assessee. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who decided the issue in favour of the Assessee by holding as under:- 4.3 I have considered the facts of the case; assessment order and appellant's submission. This issue is covered in favor of the appellant by the several decisions of jurisdictional ITAT. Delhi High Court also held that if .....

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jarat High Court in the case of Gujarat State Road Transport Corporation 366 ITR 170. He therefore submitted that in view of the decision of jurisdictional High Court the order of A.O be upheld. The ld. A.R did not object to the submission made by ld. D.R. 15. We have heard the rival submissions and perused the material on record. In the present case, it is an undisputed fact that the employees contribution of ESIC was paid after the due date prescribed under ESI Act. We find that the issue of d .....

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Contribution fund, etc provided the said sum is credited by the assessee to the employees accounts in the relevant fund or funds on or before the "due date" under the Provident fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. .." 16. In view of the aforesaid decision of Hon ble Gujarat High Court and in the absence of any contrary binding decision brought on record by ld. A.R, we are of the view .....

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und. In view of the aforesaid submission of both the parties, we for the reasons stated hereinabove while deciding the appeal for Assessee s appeal in ITA No. 889/Ahd/2011(supra) and for similar reasons dismiss the ground of Revenue. Ground no. 3 is with respect to deleting the addition by income from investment in Free Trade Zone. 18. On perusing the accounts of the Assessee, A.O noticed that Assessee had made investments in Emirates of Ajman in the form of free Zone entity by the name of Vega .....

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ne entity as income of the Assessee. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who deleted the addition by holding as under:- From the aforesaid decision of jurisdictional ITAT in the appellant's own case on the same issue it is clear that Vega ME is held to be an independent entity and not a proprietorship concern of the appellant. ITAT has met with all the arguments of the assessing officer and therefore the same are not repeated here. Since highest fact .....

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