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M/s. Tatva Global Environment Ltd. Versus The DCIT-9 (3) , Aayakar Bhavan, Mumbai

2015 (10) TMI 2041 - ITAT MUMBAI

Disallowance u/s 14A of interest expenses - Held that:- Undisputedly, the investments made by the assessee are in its subsidiary companies and associated companies which are special purpose vehicle formed to execute specific projects. Undoubtedly, the investments in subsidiary/associate companies are done on account of business expediency in order to carry on the business of the assessee. Accordingly, the investments can be seen in the light of strategic in nature and inextricably linked with th .....

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on, the balance expenditure of ₹ 29,62,421/- may be considered for earning the income from auxiliary services. However, at the same time we find that some reasonable disallowance ought to be attributed for which 2% of the dividend income should meet the ends of justice. We, accordingly direct the AO to restrict the disallowance to 2% of dividend income. Decided partly in favour of assessee.

Disallowance in interest expenses u/s. 37 - Held that:- The assessee has made investments .....

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es in companies promoted as special purpose to strengthen and promote assessee’s existing business interest was allowable. A similar view was taken by the Hon’ble High Court of Madras in the case of RPG Transmissions Ltd in [2014 (2) TMI 238 - MADRAS HIGH COURT]. Respectfully following the decisions of the Hon’ble High Court (supra), in the light of identical facts of the case in hand, we do not find any reason for the disallowance - Decided against revenue.

Non-granting of tax credit .....

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verifying the TDS certificate. - Decided in favour of assessee for statistical purposes. - I.T.A. No.2173/Mum/2013, I.T.A. No.470/Mum/2014 - Dated:- 10-9-2015 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND RAM LAL NEGI, JUDICIAL MEMBER For The Appellant : Shri Kirit Kamdar For The Respondent : Shri Udaya Bhaskar Jackle ORDER PER N.K. BILLAIYA, AM: These two appeals by the assessee are preferred against two separate orders of the Ld. CIT(A) 20, Mumbai dated 21.12.2012 and 8.10.2013 pertaining A.Yrs .....

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ce of the assessee relates to the disallowance of interest expenses amounting to ₹ 1,94,94,645/- and disallowance of other expenses amounting to ₹ 19,49,464/-. The second grievance relates to the disallowance of interest expenses amounting to ₹ 1,10,83,572/- u/s. 37 of the Act and the last grievance relates to the Non-granting of tax credit for TDS amounting to ₹ 13,30,533/-. 5. The assessee is in the business of trading in pollution control equipments. The return for the .....

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f the exempt income is required to be made in the instant case. The AO proceeded by computing the disallowance u/s. 14A as prescribed under Rule 8D and computed the disallowance at ₹ 2,14,44,109/- and added to the income declared. The AO further noticed that the assessee has claimed net interest of ₹ 3,05,78,217/- being interest paid ₹ 3,58,66,882/- less interest earned ₹ 52,88,665/-. The AO was of the opinion that the assessee has diverted borrowed funds towards share ap .....

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plained that during the year, the assessee has received dividend of ₹ 63,50,534/- from Bharuch Enviro Infrastructure Ltd., ₹ 35,28,140/- from Enviro Technology Ltd and ₹ 67,65,400/- from UPL Environmental Engineers Ltd, total dividend received is ₹ 1,66,44,074/-. It was contented that no portion of interest expenses is attributable to the exempt income received during the year. Therefore, no disallowance is called for u/s. 14A of the Act. 6.1. In so far as disallowance ou .....

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rguments which are in line with the submissions made before the lower authorities. It is the say of the Ld. Counsel that no disallowance ought to be made u/s. 14A since the purpose of making the investments is definitely not for the purpose of earning exempt income but the investments made by the assessee are strategic in nature. Reliance was placed on the decision of the Tribunal, Mumbai Bench in the case of J.M. Financial Ltd in ITA No. 4521/M/2012. The Ld. Counsel further brought to the notic .....

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wed while computing profits and gains from business or profession. The Ld. Counsel placed the order of the Tribunal. 9. Per contra, the Ld. Departmental Representative strongly supported the findings of the Revenue authorities. 10. We have given thoughtful consideration to the orders of the authorities below. Undisputedly, the investments made by the assessee are in its subsidiary companies and associated companies which are special purpose vehicle formed to execute specific projects. Undoubtedl .....

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f the assessee, the Tribunal has considered the decision in the case of Garware Wall Ropes Ltd. Vs ACIT in ITA No. 5408/M/12 wherein the relevant findings read as under: We have considered the rival submission and carefully perused the relevant records. So far as the issue regarding disallowance u/s 14A in the case where no dividend has been received, the same is covered against the assessee by the order of Tribunal in assessee s own case for the assessment year 2008-09, wherein the Tribunal has .....

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and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments. The AO has not brou .....

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on. The object of section 14A is not allowing to reduce tax payable on the non exempt income by deducting the expenditure incurred to earn the exempt income. In the case in hand it is not the case of the revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which .....

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he exempt income, therefore, it was incumbent on the AO to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case .....

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has been confirmed by the Hon ble Delhi High Court vide decision dated 15.01.2013 in para 6.3 as under:- 6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of ₹ 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of ₹ 6,07,775,00 .....

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therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A LW. Rule 8D because it cannot be termed as expense/ interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum ₹ 40,556/- calculated@2%ofthedividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commiss .....

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page-33 of the Paper book, we find that the total amount debited is ₹ 87,04,079/- out of which the assessee has suo moto disallowed ₹ 50,85,541/-. We further find that expenditure amounting to ₹ 6,56,117/- are covered by the decision of the Tribunal in assessee s own case for A.Y. 2007-08. Thus, only the expenditure amounting to ₹ 29,62,421/- remain to be considered. 13.1. We find that the assessee has also received income from business auxiliary services amounting to &# .....

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in interest expenses amounting to ₹ 1,10,83,572/- u/s. 37 of the Act. 14.1. As mentioned elsewhere, the investments made by the assessee have to be seen in the light of strategic investment inextricably linked with the main business operations of the assessee and the main object of the assessee company reads as under: To undertake, design, manufacture and supply of pollution control equipment as well as complete plants and their operation and detailed design and engineering relating to env .....

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and coordinate with concerned state, national and international organization, agencies and authorities on matters related to environmental issues for the improvement and betterment of environment and to subscribe for, take or otherwise acquire and hold shares, stocks, debentures or other securities of any other company having objects altogether or in part similar to those of the company. 14.1. In order to carry out the aforementioned main object, the assessee has made investments in subsidiary .....

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