Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (8) TMI 1037 - ITAT CHENNAI

2015 (8) TMI 1037 - ITAT CHENNAI - [2015] 42 ITR (Trib) 324 (ITAT [Chen]) - Disallowance u/s.14A - assessee submitted that no disallowance is warranted since the interest free funds available with the assessee in the form of share capital, reserve and surplus, and the same were used for the purpose of investment in assets, the income from which shall not or does not form part of the total income - Held that:- Admittedly, in this case the assessee is having enough interest free funds in the form .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

w 2% of exempt income as income expenditure towards earning that income - Decided partly in favour of assessee.

Whether disallowance, if any, under section 14A should go to increase the profit derived from the eligible undertaking(s)/ unit(s) for purpose of sections 10A? - Held that:- This issue is squarely covered by the order of the Bombay High Court in the case of CIT vs. M/s. Gem Plus Jewellery India Ltd [2010 (6) TMI 65 - BOMBAY HIGH COURT], wherein it was held that the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

compute deduction u/s.10A of the Act. - Decided partly in favour of assessee.

Travelling expenses incurred in foreign currency - whether are to be reduced from total turnover also for the purpose of computation of deduction u/s.10A ? - Held that:- This issue is squarely covered by the order of in the case of ITO vs. SAK Soft Ltd, (2009 (3) TMI 243 - ITAT MADRAS-D) wherein it was held that for the purpose of applying the formula under-sub-section (4) of section 10B, the freight, telec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a Nagendra Prasad, JM,JJ. For the Appellant : Dr Anitha Sumanth, Adv. For the Respondent : Shri A Sreekanth, IRS, JCIT ORDER Per Chandra Poojari, Accountant Member The assessee and the Revenue are in cross appeals against the order of the Commissioner of Income Tax (Appeals)-II, Chennai, dated 19.05.2014 for the assessment year 2008-2009. 2. The first ground raised by the assessee is to regard to disallowance u/s.14A of the Income Tax Act. 3. The facts of the case are that the assessee company w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

read with rule 8D and determined the expenditure attributable for earning such exempt income at ₹ 37,28,239/- and disallowed the same,both under the regular provisions of the Act as well as u/s.115JB of the Act. The relevant portion of the assessment order held as under:- 6. Disallowance of expenditure attributable to earning of Exempted Income: During the period under reference the Assessee Company has received a dividend of ₹ 4,92,32,251/- which has been claimed as exempt u/s 10(3 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

led on 02-12-11 stated mainly as follows: i) The investments in mutual funds were not made out of borrowed funds but surplus funds available with the Company. ii) The Company did not incur any expenditure towards banker charges, brokerage or demat charges during the subject F. Y. for earning the income. 6.1 I have carefully gone through the submission of the Assessee. Under Sec. 14A, no deduction shall be allowed In respect of expenditure incurred by the assessee in relation to Income which does .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mputed in accordance with the following formula, namely. B AX- C Where A= amount of expenditure by way of interest other than the amount of interest include in clause (I) incurred during the previous year; B= the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C= the average of total assets as appearing in the balance sheet of the asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lue of investment, income from which his exempt. 92,35,12,831 + 55,77,81,586/- = ₹ 74,56,47,712/-/ 2 ½ % of ₹ 74,56,47,712/- = ₹ 37,28,239/- Accordingly the amount of ₹ 37,28,239/- is added back with the total income being the expense incurred for earning the dividend income exempt u/s.10(34). Accordingly, Assessing Officer added back an amount of ₹ 37,28,239/- with the total income being the expense incurred for earning the dividend income exempt u/s.10(34). .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The Commissioner of Income Tax (Appeals) observed that the assessee was not maintaining any separate books of accounts for the investments in shares/funds. Nor there was a separate establishment to look after the investments in shares/funds. The assessee may be having substantial interest free own funds (in the form of capital/reserves and surpluses etc). But this does not mean that the investments are made only from these own interest free funds, especially if the books are not maintained sepa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uation, the only way to ascertain the investments made from the borrowed funds, if any, was on a proportionate basis. Therefore, the interest expenses, which could not be directly linked to any activity, are to be treated as common interest expenses and considered in the step-2 of the formula given in Rule-8D for the purpose of attributing the indirect interest burden on the investments made, on a proportionate basis. Even Bombay High Court, in the case of Godrej Boyce Mfg Co Ltd v. CIT, decided .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

income and not in relation to the exempt income earned as such. The disallowance of expenses is always in relation to the efforts made for earning such exempt income and not proportionate to the exempt income earned. It is particularly so because, in some years the income so earned may be less or nil. Therefore, the disallowance to be computed should always be with reference to the investments made in such activity and the effort made therein, as held by Special Bench of ITAT Delhi in the case .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urred in relation to dividend income not forming part of assessee's total income, cannot be allowed as a deduction - Held, yes- Whether such disallowance under section 14A can be made even in a year in which no exempt income has been earned or received by assessee - Held, yes 4.3 Thus, from the above decision it was clear that the amount of exempt income earned during the year was not relevant for the purpose of disallowance of expenses u/s.14A read with rule 8D. What was to be seen the amou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

npower, machinery and infrastructural facilities of the assessee are being used. Hence, there was an element of expenditure involved in the process. This expenditure may not be direct. Thus, there was an expenditure involved in making these investments. Therefore, there was a need to identify and apportion a reasonable amount of expenses as attributable for earning the exempted income. For this purpose reliance placed on the following decisions Dy. CIT vs. SREI International Finance Ltd. (2006) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e to non-taxable or exempted income by invoking provisions of section 14A. 4.5 According to the Commissioner of Income Tax (Appeals) in order to arrive at a reasonable amount of expenditure, which may vary from case to case and situation to situation, the legislature, after taking various factors into conisation, came to a conclusion that such expenses can be reasonably calculated @ 0.5% of the average investments made by the assessee. For this purpose, the legislature has arrived at a common fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctural facilities in making the investments in shares/funds. Hence there was a satisfaction of the Assessing Officer that there was some element of expenses incurred by the assessee in relation to the investments in shares and earning the exempt income, which needs to be quantified and disallowed u/s.14A of the Act. Accordingly, as provided u/s.14A of the Act the Assessing Officer quantified the said expenses at ₹ 37,28,239/-, by using the rule 8D, and disallowed u/s.14A of the Act. 4.7 Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y stated these facts before invoking the provisions of section 14A r.w.r.8D. Hence the Assessing Officer rightly invoked the Rule-8D and arrived at the disallowance of expenses u/s.14A r.w.Rule-8D. 4.8 In view of the above he confirmed the Assessing Officer's action of determining the expenses attributable for earning exempt income at ₹ 37,28,239/- u/s.14A, r.w.Rule 8D, both under the regular provisions of the Act as well as u/s.115JB of the Act. Against this, the assessee is in appeal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ement for the year ending 31.03.2008, stating that the assessee is having share capital, reserve and surplus that are interest free funds. The sources of funds are under;- Schedule 31st March, 08 31st March, 07 SOURCES OF FUNDS Shareholders'funds Share Capital 1 181,825,600 181,825,600 Reserves and surplus-Profit and Loss account 2,659,340,503 2,204,527,633 Total 2,841,166,103 2,386,353,233 APPLICATION OF FUNDS Fixed assets Gross block 728,324,538 626,273,101 Less: Accumulated depreciation 5 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

isions 9 292,607,719 131,436,743 Net Current assets 304,729,921 282,555,599 Total 2,841,166,103 2,386,353,233 The ld. Authorised Representative for assessee submitted that the assessee is having enough interest free funds to make investments which are yielding tax free income not used the borrowed funds to make such investment. 6. On the other hand, the Departmental Representative relied on the orders of the Commissioner of Income Tax (Appeals). 7. We have heard the rival submissions. Admittedly .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t. Accordingly, placing reliance on the judgment of the jurisdictional High Court in the case of Simpson & Co Ltd in T.C. No.2621/2006, dated 15.10.2012, we direct the Assessing Officer to disallow 2% of exempt income as income expenditure towards earning that income. This ground of the assessee is partly allowed. 8. The next ground for our consideration is that the Commissioner of Income Tax (Appeals) erred in not adjudicating the following ground. Admittedly, the assessee raised the follow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

squarely covered by the order of the Bombay High Court in the case of CIT vs. M/s. Gem Plus Jewellery India Ltd 330 ITR 175, wherein it was held that the assessee was entitled to exemption u/s.10A with reference to addition or disallowance of various payments, as the plain consequence of the disallowance and add back made by the Assessing Officer is an increase in the business profits of the assessee and the same to be considered for the purpose of computation of deduction u/s.10A of the act. A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version