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2015 (8) TMI 7 - ITAT AHMEDABAD

2015 (8) TMI 7 - ITAT AHMEDABAD - TMI - Disallowance u/s. 14A - Held that:- With respect to disallowance of indirect interest as per Rule 8D(2)(ii) we find that the CIT(A), after considering the submissions of the Assessee has directed the A.O to work out the disallowance as directed by him in the order. Before us, ld. A.R. could not point out any fallacy or inconsistency of law in the directions of CIT(A) and therefore we find no reason to interfere as far as the disallowance on account of indi .....

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material on record like the ledger accounts of the firm, or any other material which could justify of not incurring of expenses including administrative expenses for earning tax free income. At the same time ld. CIT(A) has also presumed the spending of time and energy by the officials of the Assessee for running of the firms from which Assessee has earned tax free income. In view of the contrary submissions of both the parties before us and in the absence of any material on record, we are of the .....

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y the Assessee is against the order of CIT(A)-I, Baroda dated 01.07.2011 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 business of building contractor and developer of residential and commercial projects. Assessee filed its return of income for A.Y. 2008-09 on 29.09.2008 declaring total income of ₹ 2,18,86,580/-. The case was selected for scrutiny and thereafter the assessment was framed .....

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case for application of section 14Aof the I. T. Act, 1961. 2. Without prejudice, on the facts and in the circumstances of the case, the departmental authorities have erred in treating assessee's share income from firms as tax exempt for the purposes of application of section 14A. 3. Without prejudice, on the and in the circumstances of the case, even the quantification directed by the CIT(A) is erroneous, particularly because the income from interest was required to be netted against expendi .....

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0(2A) of the Act. He also noticed that the investments of the Assessee in the aforesaid firms was to the extent of ₹ 12.95 crores and Assessee had also paid interest of ₹ 13.98 lacs. He also noticed that Assessee on one hand was paying interest and on the other hand the borrowed funds were invested from which it was receiving tax free income in partnership firms and that there was intermingling of own funds and borrowed funds and therefore disallowance u/s. 14A was warranted. Assesse .....

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sessee carried the matter before ld. CIT(A) who granted partial relief to the Assessee by holding as under:- 3.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The A. O. has made the disallowance u/s. 14A by applying the Rule 8D. There are two components of disallowance. The disallowance out of interest and disallowance for administrative expenses. Regarding the disallowance out of interest, the appellant has submitted that it had sufficient i .....

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as submitted that if the nexus between incurring expenses and earning of exempt income is not established, no disallowance can be made. I have carefully perused all the judgments cited by the appellant. These judgments are prior to A. Y. 2008-09. Rule 8D has been made effective from A. Y. 08-09. From A. Y. 08-09 a formula has been prescribed for working out the disallowance under section 14A which takes care of all the possible circumstances related to borrowed funds. Therefore, considering all .....

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of the appellant is not acceptable as the appellant is a partner in many firms which are involved in the business of construction. The directors of the company and other employees must be spending sufficient time and energy in running day to day business of these firms and also monitoring the business of these firms. Accordingly, it cannot be said that the disallowance has been made only on the basis of presumption. Further, from A. Y. 08-09, the disallowance on account of administrative expens .....

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her submitted that the A. O. has made certain mistakes in taking various figures for calculating the disallowance of interest U/S.14A. Each objection taken by him is discussed separately for the sake of convenience. The appellant has submitted that the A. O. has made an error in taking the value of average total assets at Rs.l7,53,77,832/-. The mistake has occurred as the A. O. has taken the values of net current assets. The A. O. should have taken the value of total assets in place of net asset .....

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- ₹ 28,12,64,006/- The appellant has submitted that the A. O. has also made mistake in considering the amount of investment for the purpose of Rule 8D. The appellant has submitted that the quantum of opening and closing investment taken by the A. O. include profit element received from respective partnership firm which should be excluded for the purpose The disallowance should be made taking into the account the funds actually invested by the appellant and the profit element needs to be ex .....

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of the firm throughout the year. Therefore, only the profit that is worked out on the last day of the Financial Year can be excluded. The profit of earlier years included in the balances with the firm cannot be excluded. Therefore, the submission of the appellant is partly accepted. The A. O., is therefore, directed to exclude the profit of the A. Y. 08-09 from the investment as on 31/03/2008. Accordingly, the following figures should be taken for the investment As on 31/03/2007 ₹ 3,99,35, .....

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ssion made by the appellant is acceptable. The A. O., is therefore, directed to exclude the following interest expenditure for the purpose of calculation under Rule 8D. Particulars Amount(Rs.) Interest Expenditure as per the P & L Account 13,98,382 Less:(i) Interest on vehicle Loan 2,91,148 (ii) Interest on FBT 5,467 (iii) Interest on TDS 408 (iv) Interest on Service Tax 108 Interest Expenditure to be considered for Rule 8D 11,01,251 The A.O., is therefore, directed to work out the disallowa .....

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ission made by the appellant is not acceptable as the partnership firm for the purpose of Income Tax Act is a separate assessable entity, partners vis-a-vis partnership firm would stand on the same footing as shareholders vis-a-vis company. Accordingly, the income charged in the hands of the partnership firm cannot be treated as being non - exempt income in the hands of the partners of such firm. Accordingly, the claim of the appellant that the provisions of Section 14A should not be applied is .....

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the investments and therefore no disallowance u/s. 14A was warranted in the present case. He pointed out to the copy of the audited Balance sheet and pointed that against the investment of ₹ 12.94 crores, the interest free funds in the form of Share Capital and Reserves and Surplus was to the extent of ₹ 22.25 crores. He further submitted that Assessee has not incurred any expenses for earning tax free income and therefore also no disallowance on account of administrative expenses wa .....

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