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2015 (8) TMI 1151 - ITAT CHENNAI

2015 (8) TMI 1151 - ITAT CHENNAI - TMI - Disallowance u/s.14A - assessee earned dividend income which was claimed as exempt under sec.10(34) - AO observed that funds for a company come in a common kitty. and they compromise of borrowed funds, share capital and retained earnings (reserves and surplus) - Held that:- AO made he disallowance by invoking the provisions of sec.14A read with Rule 8D. Rule 8D was inserted by the IT (Fifth Amdt.) Rules, 2008, w.e.f. 24.3.2008. Since, Rule 8D has no retro .....

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Decided partly in favour of assessee.

Disallowance on account of syndication charges/guarantee fee paid u/s.40A(2)(b) - CIT(A) deleted addition - Held that:- Similar issue was considered in the case of M/s. AIG Home Finance India Ltd. [2011 (5) TMI 408 - ITAT, Chennai] wherein held 0.5% of guarantee fee paid by the assessee is not excessive or unreasonable but is well within the range as paid by the assessee to third parties and much lower than the percentage fixed by National Housin .....

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securitization amount is nothing but the interest on the housing loan which is discounted to the present net value. This amount would obviously be the income of the assessee from the long term housing loan disbursed by the assessee. In the circumstances, we are of the view that the securitization income is an income from business of long term housing finance. We are of the view that the same is eligible for deduction under Section 36(1)(viii) of the Act. Therefore, we uphold the finding of the l .....

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nue are directed against the order of the Commissioner of Income-tax(Appeals) dated 20.11.2012. 2. The first common ground raised in these cross appeals is with regard to sustaining of disallowance of ₹ 20 lakhs out of ₹ 25,36,790/- u/s.14A of the IT Act made by the Assessing Officer. 3. The facts of the case are that during the assessment year 2007-08, the assessee had earned dividend income amounting to ₹ 49,102/- , which was claimed as exempt under sec.10(34) of the Act. The .....

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a company come in a common kitty. They compromise of borrowed funds, share capital and retained earnings (reserves and surplus). Therefore, relying on the decision of the ITAT, Special bench in the cases of CIT v. Daga Capital Management P. Ltd. (ITA No.1372/Delhi/2005), Maxopp Investments Ltd. v. ACIT(ITA No.183/Delhi/2005) and Cheminrest Ltd. v. DCIT (ITA No.2048/Del/2005), the Assessing Officer applied Rule 8D and disallowed a sum of ₹ 25,36,790/-. Against this, the assessee went in app .....

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4,05,01,000/- as on 31.3.2007. The funds were not required immediately during the year for the business and hence the same were invested in cash management funds. The Bombay High Court in the case of M/s. Godrej Boyce Manufacturing Co. Ltd, v. DCIT, 328 ITR 81 (Bom.) has clearly held that the provisions of Rule 8D have been notified w.e.f. 24.03.2008 and hence shall apply from AY 2008-09 onwards. Since the year under consideration is AY. 2007-08, provisions of Rule 8D cannot be applied. Hence, t .....

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rest and common expenditure for receiving dividend income. The Bombay High Court in the case of Reliance Utilities and Power Ltd. (ITA No.1398 of 2008) vide order dated 9.1.2009 has also held as follows: If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were made from the interest free funds available. The investment in equity shares of various companies including .....

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d sale of cash management funds, deposit of the dividend warrants, portfolio management etc. The assessee has almost doubled its investments during the year which are likely to generate exempt incomes in the future years. The assessee has not specified the sources for these investments. The assessee's contention that the disallowance made in accordance with sec 14A(1) r.w.Rule 8D cannot exceed the amount of exempt income earned during the year is not acceptable, in view of the decision of th .....

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um.-Trib.) wherein it was held as below: 'There is nothing in provisions of section 14A to effect that expenditure disallowed should not exceed income which is not chargeable to tax; therefore, as long as there is identification of income which does not form part of total income, amount so identified has to be disallowed. The interest expenses of the assessee during the year are ₹ 25,28,91,275/- .Increase in the value of investments yielding exempt income is about ₹ 2 crores. Kee .....

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rial on record. The AO disallowed ₹ 25,36,790/- by invoking the provisions of sec.14A read with Rule 8D. Rule 8D was inserted by the IT (Fifth Amdt.) Rules, 2008, w.e.f. 24.3.2008. Since, Rule 8D has no retrospective effect, it cannot be applied for the assessment year 2007-08. Further, there is every chance of incurring expenditure towards maintaining of investment which yields exempt income and this cannot be ruled out. Therefore, we direct the AO to allow ₹ 10 lakhs of expenditure .....

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arges/guarantee fee paid to M/s. Weizman Ltd. made u/s.40A(2)(b) of the Act. 6.1. The facts of this issue are that during the year under consideration, M/s. Weizmann Ltd. has been the holding company of the assessee. The assessee is engaged in the business of providing long term housing finance. For the said purpose, the assessee borrows funds from various banks and financial institutions. Syndication charges have been paid for facilitating/arranging loans from different financial institutions. .....

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the assessee to show cause as to why such commission paid to M/s. Weizmann Ltd. be not disallowed u/s 40A(2)(b). The assessee filed submissions in response to the show cause notice. The AO proceeded to disallow the said payment of ₹ 58,49,022/- u/s. 40A(2)(b). The AO held that since M/s. Weizmann Ltd. was the promoter of the assessee, it should have provided the services free of cost to the assessee. The AO also observed that other leading banks and financial institutions were shareholder .....

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appeal before the CIT(Appeals). 6.3. On appeal, the CIT(Appeals) observed that the issue in this case is whether the payments made to a related party, viz., the erstwhile promoter, M/s. Weizmann Ltd. can be disallowed considering the facts of the case. He further observed that the provisions of sec.40A(2)(b) are applicable to a case where excessive or unreasonable payments are made to related party and the same has been explained in the CBDT Circular No.6P(LXXVI-66) of 1968, which was relied on .....

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ange that would typically be charged by a third party and hence cannot be disallowed under sec.40A(2) of the Act. Accordingly, the CIT(Appeals) allowed this ground of appeal. Against this, the Revenue is in appeal before us. 7. After hearing both the sides, we find that similar issue was considered by the Tribunal in the case of M/s. AIG Home Finance India Ltd. in ITA No.2167/Mds/2010 dated 5.5.2011, for the assessment year 2005-06, wherein it was held as under: 6. We have considered the rival s .....

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h is the accredition authority for finance companies doing the business of long term housing finance, has permitted 0.75% of guarantee fee for providing loans availed by housing finance companies. Public sector banks are also charging 1.5% for providing guarantee cover. It is also noticed that the ld. CIT(Appeals) has taken into consideration the fact that the A.O. has not doubted the fees paid to third parties for providing identical range of services especially when such fee was between 0.5% t .....

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same is upheld. Thus, ground Nos.2 to 2.4 are dismissed. Respectfully following the same, we are inclined to uphold the order of the CIT(Appeals) and this ground of appeal of the Revenue is dismissed. 8. The next ground in ITA No.313/Mds/2013 is that the CIT(Appeals) erred in deleting the disallowance of a sum of ₹ 9,14,264/- made under sec.36(1)(viii) of the Act. 8.1. The facts of this issue are that the assessee is engaged in the business of providing long term housing finance and is ac .....

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dministrative charges amounting to ₹ 1,79,06,298/- were not part of income attributable to the business of providing long term housing finance and accordingly cannot be considered for the purpose of computing the deduction u/s.36(1)(viii). Accordingly, the AO restricted the deduction u/s.36(1)(viii) to ₹ 31,87,536/- disallowing a sum of ₹ 9,14,264/- as not eligible for deduction u/s.36(1)(viii). Against this, the assessee went in appeal before the CIT(Appeals). 8.2. On appeal, .....

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ss of long term housing finance and hence is eligible for deduction u/s.36(1)(viii). Considering the judicial precedents relied on by the assessee and the facts and circumstances of the case, the CIT(Appeals) held that the processing fees and other charges should be taken as subject matter of deduction u/s.36(1)(viii) of the Act and allowed the ground of appeal. Aggrieved by this, the Revenue is in appeal before us. 9. After hearing both the sides, we find that similar issue was considered by th .....

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