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2015 (9) TMI 540 - ITAT MUMBAI

2015 (9) TMI 540 - ITAT MUMBAI - TMI - Disallowance u/s.14A in respect of direct expenditure, including by way of interest on borrowings, in relation to income/s not forming part of the total income - CIT(A) deleted addition in part - Held that:- Both the interest cost being allocated, i.e., as between the incomes forming and not forming any part of the total income, as well as the said incomes themselves, it needs to be noted, are for the whole year. This, even otherwise patent, becomes inevita .....

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artmental Representative (DR). We direct accordingly, so that the disallowance of interest u/s.14A r/w Rule 8D(2)(ii) shall be with reference to the interest cost for the entire year, i.e., ₹ 204.52 lacs, and not ₹ 136.35 lacs. As regards our competence to so direct, we rather consider it our bound and duty to do so.

Sale of depreciable assets - Disallowance of deprecation - the assessee found favour with the ld. CIT(A) in-as-much as section 50C only applies for computing .....

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assessee. We are in complete agreement with the ld. CIT(A). The deeming of section 50C is for the limited purpose for computing the capital gains u/s.45 r/w s. 48 on the assets specified under the said section. The only purport of section 50C is the extent of the matter specified therein, providing (to that extent) an alternate basis to that specified u/s.48, for computing the capital gains chargeable u/s.45. The WDV would have to be necessarily computed in terms of section 43(6), and for which .....

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e are cross appeals, i.e., by the Assessee and the Revenue, agitating the part allowance of the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 20.12.2011 by the Commissioner of Income Tax (Appeals)-23, Mumbai ('CIT(A)' for short) vide his order dated 10.05.2012. Assessee's Appeal (in ITA No. 5019/Mum/2012) 2. The same raises a single ground, reading as under .....

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of the tax exempt income in the form of dividend, i.e., at ₹ 7,51,999/-, stood worked by the Assessing Officer (A.O.) at ₹ 1,06,18,325/-, and against which part relief has been allowed by the ld. CIT(A), resulting in both the parties being in appeal. The assessee, however, does not wish to contest its appeal and, accordingly, does not press its ground, which concerns, as apparent, deduction u/s.14A made with reference to Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Income Tax Rules, 19 .....

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t on borrowings, in relation to income/s not forming part of the total income. The assessee is a cotton merchant, whose business is, therefore, seasonal. The A.O., analyzing the assessee's activity in the form of purchase and sale of cotton yarn for the different months of the year, found no purchases of yarn for the months of July to October, 2008, while that for the months of June and November, 2008 were also, at a little over 2% of the total purchases for the year, minimal. On the credit .....

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llowance under rule 8D(2)(i) at ₹ 68,17,444/-. The balance interest claim of ₹ 136.35 lacs, being the difference of the total claim of ₹ 204.52 lacs and that disallowed as direct expenditure (Rs.68.17 lacs), was considered for disallowance under r. 8D(2)(ii) on a proportionate basis, i.e., in the ratio of the average investment in shares to the total assets as per the assessee's balancesheet. In appeal, it was argued before the first appellate authority that the calculation .....

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f Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom), upheld the disallowance u/s.14A made with reference to rules 8D(2)(ii) and 8D(2)(iii), so that, aggrieved, the Revenue is in appeal. 5. We have heard the parties, who raised similar contentions before us, as also perused the material on record. No doubt, the A.O. has established release of no insubstantial funds from its regular business activities of trading in cotton yarn by the assessee during non-seasonal months. So, howe .....

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e., from ₹ 3090.24 lacs as at the beginning of the year to ₹ 973.45 lacs at its end. Though the fund position as at the year-end, would not, in our view exhibit whether the surplus funds of the business were or were not utilized in whole or in part toward the tax exempt investment during the non-seasonal months, the same is a matter of fact and, accordingly, required to be established as so. It is only the assessee's balance-sheet as at the end of the relevant months, or the fund .....

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able for allocation under rule 8D(2)(ii), disallowance qua which has been in fact conceded to by the assessee, would stand to be correspondingly increased. This is as the allocation of the interest, as a indirect cost, to be made on a proportionate basis, would have to be with reference to the interest cost for the whole year, as against 2/3rd thereof, as made by the A.O. The same follows as a natural inconsequence of the holding of no part of the total interest, assessed by the A.O. at 1/3rd th .....

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ore us nor before the first appellate authority has made out any case against the disallowance of interest u/s.14A(1) r/w r. 8D(2)(ii). We, accordingly, consider it a serious lapse on the part of the ld. CIT(A) in not so directing the A.O. So much so, in our view, the parties themselves should have pointed out this during hearing, which exhibits or reflects smugness on the part of the assessee and a lack of preparation on the part of the ld. Departmental Representative (DR). We direct accordingl .....

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ty Co. Ltd. vs. CIT [1993] 199 ITR 351 (Bom). We may though clarify that it is not be a case of enhancement, but only of an inter-clause adjustment of the clauses of rule 8D(2) under which the disallowance u/s. 14A is required to be more appropriately made in the facts and circumstances of the case; taking into account the position of law in the matter. Reference though may also be made to the decisions by the apex court inter alia in Martin Burn Ltd. vs. CIT [1993] 199 ITR 606 (SC); CIT vs. Ass .....

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377; 1,50,000/-. The same attracts section 50C. The value adopted by the stamp value authority was at ₹ 2,30,000/-. He, accordingly, recomputed the opening WDV of the relevant block of assets by reducing the said sum, as 'moneys payable', and allowed the depreciation for the current year accordingly, working the same to ₹ 2,78,970/-, i.e., at ₹ 5,700/- less than that claimed by the assessee. In appeal, the assessee found favour with the ld. CIT(A) in-as-much as section .....

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