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2015 (8) TMI 118 - ITAT MUMBAI

2015 (8) TMI 118 - ITAT MUMBAI - TMI - Disallowance is called for u/s 14A - assessee has submitted that when the working under rule 8D gives contradictory result to the actual fact then the provisions of Rule 8D cannot be applied for the purpose of disallowance under section 14A - Held that:- Having regard to the facts that the disallowance made by the AO by applying Rule 8D exceeds the amount of total expenditure debited by the assessee to the profit and loss account, we are of the view that fo .....

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at the disallowance on account of interest expenditure is strategic one and the investment in question strategic in nature and not made with the intention of earning exempt income because the investment have been made in the sister concern and for commercial expediency.

The authorities below have not examined this issue by considering fact that the investment in question are in the sister concern and are in the nature of strategic investment. However, the assessee itself has made a d .....

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kar Rao, AM,JJ. For the Appellant : Shri Neil Philip For the Respondent : Shri Dharmesh Shah ORDER Per Vijay Pal Rao (JM) These two sets of cross-appeals are directed against the two separate order of the ld.CIT(A) both dated 17.10.2012 for the assessment years 2008-09 and 2009-10 respectively. Since facts as well as issues raised in these cross- appeals are common, therefore, for the sake of convenience, these appeals were heard together and are being decided by this common order. 2. The facts .....

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A of ₹ 1,13,04,344/- computed as per the formula given under Rule 8D of the Income Tax Rules, 1962. Thus, the AO has made an addition of ₹ 50,58,468/- on account of disallowance u/s 14A of the Act. 3. On appeal, before the ld.CIT(A), the assessee contended that the assessee has debited a total expenditure of ₹ 86.33 lakhs to the profit and loss account and out of which the assessee suomotu has disallowed a sum of ₹ 69.64 lakhs under section 14A in computation of income, t .....

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to be disallowed u/s 14A of the Act. The ld.CIT(A) further directed the AO to disallow the interest expenditure of ₹ 60,49,500/-. Since the ld.CIT(A) has reduced disallowance on account of administrative expenses and further directed the AO to make a separate disallowance of interest expenditure, both the parties have filed respective appeals for these two assessment years. 4. We have heard the rival contentions and considered the relevant material available on record. There is no dispute .....

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ed reliance on the decision of this Tribunal in the case of Cape Trading P Ltd V/s ACIT in ITA No.3772/Mum/2013 (AY-2010-11) dated 11.3.2015. On the other hand, the ld.DR has strongly relied upon the order of AO. 5. Having regard to the facts that the disallowance made by the AO by applying Rule 8D exceeds the amount of total expenditure debited by the assessee to the profit and loss account, we are of the view that for the purpose of disallowance u/s 14A, the computation made under Rule 8D cann .....

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:- Schedule K Administrative and other expenses Auditor s remuneration (including service tax) For the Year ended March 31, 2010 -Audit Fees 13,236.00 Tax Audit Fees 9,927.00 Legal and professional fees 30,142.00 Profession tax 2,500.00 Business support fees 661,800.00 Printing and stationary 478.00 Bank charges and commission 76,843.00 Filing fees and registration charges 978.00 7. The Assessing Officer while making the disallowance u/s 14A worked out the disallowance under Rule 8D (2) (iii) at .....

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unt of auditor fee, legal and professional fees, profession tax, business support fees cannot be said to have any direct or proximate nexus with the activity of investment or earning the exempt income. Thus the disallowance u/s 14A can be made only to the extent of allocation of these expenses which has direct or proximate nexus with earning of exempt income. From the details of the expenses, we find that the printing and stationary expenses and bank charges & commission are only two items w .....

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e earning of exempt income but also to the total expenditure debited by the assessee in the P&L account under the head administrative and other expenses. Therefore, it turns out to be contradictory to the actual facts and gives absurd results in complete disregard to the scheme of disallowance u/s 14A. Therefore, the provisions of Rule 8D(2)(iii) cannot be applied in the case of the assessee as it becomes unworkable and unrealistic. In the facts and circumstances of the case, we find that wh .....

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