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Mr. Jones Manasha Versus Deputy Commissioner of Income Tax, Company Circle- II (3) , Chennai

2015 (8) TMI 871 - ITAT CHENNAI

Disallowance u/s 14A r.w.r. 8D - Held that:- In the case of ACIT Vs. M.Baskaran(2015 (3) TMI 192 - ITAT CHENNAI) the co-ordinate Bench following various decisions of High Courts deleted the disallowance made under section 14A for the reason that assessee has not earned any exempt income. When there is no claim for exemption of income in such situation section 14A has no application. Admittedly, in this case assessee has not received any exempt income during the assessment year 2010-11, therefore .....

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ed by the assessee against the order of the Commissioner of Income Tax (Appeals)-II, Chennai dated 17.01.2014 for the assessment year 2010-11. The only issue in the appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in sustaining the addition made under section 14A read with rule 8D of the Income Tax Rules. 2. At the outset, counsel for the assessee submits that in this case assessee has not received any dividend income which was claimed as deduction in the assessment year .....

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tion Pvt. Ltd. which is not an investment or asset yielding tax free income but is only a debt due to the assessee till the date of allotment of shares, therefore the same would have to be excluded in working out the disallowance under rule 8D. For this proposition, counsel places reliance on the decision of Mumbai bench of this Tribunal in the case of Rainy Investments P. Ltd. Vs. ACIT (30 Taxmann.com 169). The counsel further referring to balance sheet filed for the assessment year 2010-11, pa .....

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e case of ACIT Vs. M.Baskaran(supra), the co-ordinate Bench following various decisions of High Courts deleted the disallowance made under section 14A for the reason that assessee has not earned any exempt income. Admittedly, in this case assessee has not received any exempt income during the assessment year 2010-11, therefore this decision is squarely applicable to the facts of the present case. The co-ordinate Bench while holding that provisions of section 14A have no application, when no exem .....

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al has been impliedly overruled by the decisions of High Courts in the following cases: 6. In the case of M/s. Shivam Motors P.Ltd. (supra), before the Hon ble Allahabad High Court, the Revenue raised the following question of law:- Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding the decision of CIT(A) in deleting the disallowance of Rs. 2,03,752/- u/s.14A ignoring the fact that there is difference of opinion of v .....

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t Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not giv .....

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t in the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application. In this case also, the assessee has not claimed any exempt income in this year. Therefore, respectfully following the judgement of Hon'ble High Court of Punjab & Haryana in the case of CIT vs. Winsome Textile Industries Ltd. (supra), we hereby allow this ground and direct the AO to delete the addition. Therefore, ground Nos 1 to 1.2 raised by t .....

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r chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assesseein relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision .....

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when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assesse did not make any claim for exemption. In such a situation section 14A could have no application." 5. We do not find any question of law arising, Tax appeal is therefore dismissed. 9. The Hon ble Bombay High Court in the case of CIT Vs. Delite Enterprises(su .....

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e Assessee Company from a Partnership firm were exempt from tax u/s.10(2A) of the Income-tax Act, the interest expense related to such tax free profits is to be disallowed u/s.14A of the Income Tax Act? (B) Whether on the facts and in the circumstance of the case and in law the Hon'ble Tribunal was right in holding that the Assessing Officer cannot consider notional interest on deposit received by the Assessee Company while arriving at the fair market value u/s.23(1) (a) of the Income-tax Ac .....

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7. After hearing learned counsel for the parties, we do not find any merit in the appeals. 8. The primary issue that arises for consideration in these apepals is whether the CIT(A) as well as the Tribunal were right in allowing deduction of interest liability out of other income and the claim of the revenue to disallow the same under section 14A of the Act was justified. 9. The CIT(A) vide order dated 24.6.2004 annexure A.II recorded as under:- "7.2 Keeping in view the above facts and circu .....

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A.III, the Tribunal on appeal by the revenue while upholding the finding recorded by the CIT(A) noticed as under:- "We have heard rival submissions and have perused the material on record. From the reading of section 14A of the Act, it is clear that before making any disallowance the following conditions are to exist:- a) That there must be income taxable under the Act, and b) That this income must not form part of the total income under the Act, and c) That there must be an expenditure inc .....

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income and hence according to us, the Assessing Officer has erred in invoking Section 14A of the Act, to disallow various interestpayments on capital account, security deposits and unsecured loans. This conclusion of ours finds support in the decision of Bombay Bench of the Tribunal in the case of Joint Commissioner of Income Tax v. Holland Equipment Co. B.V. reported in (2005) 3 SOT 810 (Mumbai) and the relevant portion of the order of the Bombay Bench of the Tribunal is reproduced below:-  .....

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