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2015 (9) TMI 281 - ITAT DELHI

2015 (9) TMI 281 - ITAT DELHI - TMI - Disallowance u/s 14A - AO has rejected the suo motu disallowance - Held that:- Rule 8D is applied then disallowance would work out at ₹ 37,08,098/- which is almost four times the actual expenditure claimed by the assessee. So, according to ld. AR, the disallowance has to be made, it should be confined to the actual expenditure incurred and claimed for earning exempt income.

First submission of assessee that total expenditure claimed as per P .....

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the expenditure of ₹ 15,74,196/- it is apparent that it includes a sum of ₹ 2,22,729/- (Kiran Securities Pvt. Ltd. ) and a sum of ₹ 3,17,679/- (Soarma Vinimay Pvt. Ltd.) as claimed by the ld. AR which are pertaining to amalgamating companies and further amalgamation expenses of ₹ 8,58,617 (of Mayuka Investment Ltd.), capital increase expenses of ₹ 70,000/- (of Mayuka Investment Ltd.) are claimed by the ld. AR; and loss on sale of investment ₹ 11,695/- which h .....

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ture.

In view of the aforesaid submission of the AR, we feel that if these expenditures are considered in the light of the suo motu expenditure of ₹ 50,000/- as claimed by the assessee for earning exempt income need to be reconsidered by the AO. Therefore, we set aside the impugned order and restore the matter back to the file of the AO for deciding the issue in view of the aforesaid submissions of ld. AR and thereafter, determining the question of disallowance u/s 14A of the A .....

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by the assessee read as under :- 1. That the order of the learned Commission of Income Tax (Appeals) confirming additional disallowance of ₹ 7,59,498/- made by the Assessing Officer u/s 14A of the Income-tax Act, 1961 without appreciating the detailed reasoning given by the appellant only on the ground that the appellant has impliedly accepted the method of computation applied by the Assessing Officer. 2. That the learned Commissioner of Income Tax (Appeals) has erred in holding that the e .....

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14A of the Income Tax Act, 1961. 4. That the learned Commissioner of Income Tax (Appeals) has further erred in also allocating statutory expenses in relation to earning of income not forming part of total income necessarily require to be incurred whether the income is earned or not. 5. That the learned Commissioner of Income Tax (Appeals) has erred in not appreciating the fact that for purposes of disallowance u/s 14A of the Income Tax Act, 1961 allocation has to be made only out of expenditure .....

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f the Assessee company and the transferor companies, for financial year 2009-10 relevant to assessment year 2010-11, were separately prepared, but final accounts of the Assessee Company was made by incorporating the accounts of two transferor companies. 2.2 For the financial year relevant to the assessment year under consideration, the assessee company has filed return on 23.09.2010, declaring total income of ₹ 36,701/-. The case was selected for scrutiny and assessment was completed under .....

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e CIT (A) that the calculation made by the A.O. in respect of 14A disallowance is incorrect as the same is not in accordance to Rule 8D of the Income-tax Rules, 1962. The Ld. CIT (A) found reasonability in the submission that no disallowance can be made beyond the expenses claimed. However, the CIT (A) upheld the order passed by the Assessing Officer vide his order dated 29.09.2013. Hence the Present Appeal. 2.4. From the records and the paper book filed before us, the Ld. Counsel for the Assess .....

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₹ 44,60,035/-. As per Schedule 11 and 12 attached to the Profit and Loss Account, assessee paid salary of ₹ 2,59,835/- and incurred other expenses of ₹ 15,74,196/-, which according to it included amalgamation expenses of ₹ 11,69,242/- (incurred by all the three companies), and capital increase expenses of ₹ 70,000/- in Mayuka investments Ltd. The Ld. Counsel for the Assessee submitted that out of some of the expenses, assessee had already added back in its computati .....

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y investment made, nor any dividend that was earned, in either of these two companies. Therefore, it was submitted that no part of expenses incurred by these two companies could be considered for disallowance u/s 14A of the Act. 3. The Ld. Counsel for the assessee submitted that expenditure of ₹ 10,33,789/- incurred in Mayuka Investments Ltd. before merger included ₹ 9,28,617/- amalgamation and capital increase expenses, therefore, any disallowance u/s 14A of the Income Tax Act, 1961 .....

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e by the Assessee and increase in the investment was due to the merger of Accounts of Soarma Vinimay Pvt. Ltd. and Kisen Securities Pvt. Ltd. Further it was shown that advances made by the Assessee were from the funds available with the assessee company and that interest bearing loans have been taken by Assessee during the relevant year. The Id. Counsel further demonstrated that the Assessee has added ₹ 9,35,394/- being amalgamation expenses. Further schedule 11, 12 of the P & L Accoun .....

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ven ad-hoc disallowance of ₹ 50,000/- made u/s 14A of the Income Tax Act, 1961 is excessive and in no case additional disallowance on this account could be made. The Ld. Counsel further submits that the disallowance u/s 14A cannot exceed the expenditure and in the case of the assessee. 4. The Ld. D.R in his submission supports the order of the lower authorities. 5. We have heard both the sides and perused the material on record. The only controversy as emerging from the appeal before us re .....

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- Total expenses x Investment in shares Capital employed i.e. ₹ 8,16,942 x 92.44 93.29 = ₹ 8,09,498/- On appeal before the CIT (A), we find that the assessee had made the following submissions :- 3.2 In its computation of income placed at page 3 of the paper book appellant offered an amount of ₹ 50,000/- for disallowance u/s 14A of the Income Tax Act,1961 on an ad-hoc basis. 4. As per Profit and Loss Account of the Company assessee earned a dividend income of ₹ 5,59,20,43 .....

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er expenses of ₹ 15,74,196/-, which included amalgamation expenses of ₹ 11,69,242/- (incurred by all the three companies) and capital increase expenses of ₹ 70,000/- in Mayuka Investments Ltd. Out of these two expenses assessee had already added back in its computation of income capital increase expenses of ₹ 70,000/- and amalgamation expense of ₹ 9,35,394/-. 4.2 Salary of ₹ 2,59,835/- was incurred by the two amalgamating companies, whereas the break up of  .....

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₹ 10,33,789/- incurred in Mayuka Investments Ltd. before merger included ₹ 9,28,617/- amalgamation and capital increase expenses. Thus, the net expenditure incurred and claimed as deduction in Mayuka Investments Ltd., where dividend income has been earned was ₹ 1,05,172/- only. Any disallowance u/s 14A of the Income Tax Act, 1961 could have been made from this amount of ₹ 1,05,172/- only. Apart from the above, it was also submitted as under :- 7. From the above narration .....

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her held any investment, nor received any dividend during the year. They did not earn any income, which does not form part of the total income. Of the remaining expenditure of ₹ 10,33,789/-, share issue expenses of ₹ 70,000/-, loss on sale of investment ₹ 11,695/-, depreciation ₹ 1033/- and amalgamation expenses ₹ 8,58,617/- having already been added back by the appellant assessee in the computation of income, these could not have been considered for making disallow .....

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ments in shares and securities and loans. He has not considered investment in fixed assets ₹ 3.63 lakhs and investment in immoveable property as advance ₹ 3.97 crores. This amount of ₹ 3.97 crores is reflected in the details of loans and advances in Schedule 7 attached to the Balance Sheet. Therefore, for allocating expenses Assessing Officer ought to have taken the divider at ₹ 97.29 crores instead of ₹ 93.29 crores (Rs.93.29 crores + ₹ 3.97 crores + ₹ .....

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wance will be still lower. The CIT (A), however, rejected the claim of the assessee and upheld the disallowance made by the AO. 6. In the above factual matrix, the fundamental aspect which clearly emerges is that AO has rejected the suo motu disallowance of ₹ 50,000/- by substituting a method which is not prescribed by the Act read with Rule 8D of the Income-tax Rules, 1962 (hereinafter the Rules ). Thus apparently, on this ground alone, computation as made is not in accordance as per Rule .....

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of Annual Report). It has been stated that out of this amount, ₹ 2,59,835/- is the administrative expenses and ₹ 5,40,397/- pertains to the two companies which have amalgamated with the assessee, namely, M/s. Kiran Securities Pvt. Ltd. and M/s. Soarma Vinimay Pvt. Ltd. and from whom no dividend income has been earned and declared by the assessee. Thus to the said extent, according to assessee, no disallowance of expenditure of ₹ 5,40,397/- is warranted. As regards the expendit .....

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