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PRINCIPAL COMMISSIONER OF INCOME-TAX Versus INDIA GELATINE AND CHEMICALS LTD.

2015 (11) TMI 392 - GUJARAT HIGH COURT

Disallowance of the interest expenses under section 14A read with rule 8D - assessee suo motu disallowed the amount - ITAT delted the disallowance - Held that:- So far as the contention on behalf of the appellant with respect to the applicability of rule 8D of the Rules with effect from March 31, 2006, is concerned, there cannot be any dispute about the same. How ever, it is required to be noted that the Assessing Officer made the dis allowance under section 14A of the Act solely on the ground t .....

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se on hand. Therefore, we confirm the impugned judgment and order passed by the learned Tribunal in so far as deleting the disallowance of interest expenses under section 14A of the Act in its entirety.- Decided against revenue.

Disallowance under section 40(a)(ia) - non-deduction of the TDS on over seas freight - ITAT deleted the disallowance - Held that:- As per section 172 of the Act, payment made to the non-resident shipping company would not be covered in section 194C or section .....

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udgment of the court was delivered by 1. M. R. Shah J.-As common question of law and facts arise in both these tax appeals challenging the impugned common judgment and order passed by the learned Income-tax Appellate Tribunal, both these tax appeals are heard, decided and disposed of together by this common judgment and order. 2. Feeling aggrieved and dissatisfied with the impugned judgment and order dated October 10, 2014, passed by the learned Income-tax Appellate Tribunal, "B" Bench .....

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Appeal No. 276 of 2015 with the following proposed question of law : "Whether, on facts and in the circumstances of the case, the Appel late Tribunal is right in deleting the disallowance made on account of interest expenditure under section 14A read with rule 8D though the assessee suo motu disallowed the amount on ad hoc basis ?" 2.1 Feeling aggrieved and dissatisfied with the impugned judgment and order dated October 10, 2014, passed by the learned Income-tax Appellate Tribunal, &qu .....

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t for non-deduction of TDS on overseas freight, the Revenue has preferred the present Tax Appeal No. 277 of 2015 with the following proposed substan tial questions of law. "(A) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the disallowance made on account of interest expenditure under section 14A read with rule 8D though the assessee suo motu disallowed the amount on ad hoc basis ? (B) Whether the Appellate Tribunal has substantially .....

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14,19,79,940. The return of income was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notices under section 143(2) were issued and duly served upon the assessee. 3.2 During the course of assessment proceedings, the Assessing Officer noticed that the assessee had made investment of ₹ 21,14,07,850 in shares and mutual funds. The assessee suo motu offered/disallowed the amount of ₹ 2 lakhs on account of section 14A of the Act. As the Ass .....

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ection 14A of the Act should not be made. In response to the said show-cause notice the assessee submitted its reply and explanation. Having not satisfied with the explanation given by the assessee, the Assessing Officer disallowed ₹ 14,06,934 by observing that the assessee made investment in shares and mutual funds amounting to ₹ 21,14,07,850 and interest expenses of ₹ 40,10,861 and that the assessee is not able to justify that the investment was made out of the interest-free .....

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e 8D of the Rules and also the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act for non-production of the TDS on overseas freight, the assessee pre ferred an appeal before the learned Commissioner of Income-tax (Appeals). That the learned Commissioner of Income-tax (Appeals) partly allowed the said appeal and deleted the disallowance of ₹ 5,84,706 out of the disallowance of ₹ 12,06,934 made by the Assessing Officer under section 14A of the Act of the amou .....

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h the order passed by the learned Commissioner of Income-tax (Appeals), both the assessee as well as the Revenue preferred tax appeal before the learned Tribunal. The asses see preferred an appeal being I. T. A. No. 611/Ahd/2013 challenging the order passed by the learned Commissioner of Income-tax (Appeals) in so far as confirming the disallowance of administration and calculation charges of ₹ 6,22,228 under section 14A of the Act. The Revenue pre ferred an appeal being I. T. A. No. 781/A .....

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he assessee being I. T. A. No. 611/Ahd/ 2013 and has deleted the disallowance made by the Assessing Officer under section 14A of the Act in its entirety, i.e., the entire amount of ₹ 12,06,934 disallowed by the Assessing Officer under section 14A of the Act and consequently dismissed the appeal preferred by the Revenue in so far as challenging the deletion of disallowance made by the learned Com missioner of Income-tax (Appeals) and also confirmed the order passed by the learned Commission .....

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d in deleting the disallowance of interest expenses under section 14A of the Act in its entirety. It is submitted that the learned Tribunal has not properly appreciated the fact that the dispute with respect to the assessment year 2009-10 and, therefore, rule 8D of the Rules which had come into force with effect from March 2008, would be applicable. It is submitted that it is neither the learned Commissioner of Income-tax (Appeals) nor the learned Tribunal which disputed that there were mix kind .....

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and the expenditures are mix kind of expenditures. Mrs. Bhatt, learned counsel appearing on behalf of the Revenue, has further submitted that even the learned Tribunal has materially erred in confirming the order passed by the learned Commissioner of Income-tax (Appeals) deleting the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. It is submitted that while deleting such disallowance the learned Tribunal has not properly appreciated the provisions of the Act more p .....

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and relying upon the above decision, it is requested to admit/allow the present tax appeals. 5. Heard Mrs. Bhatt, learned counsel appearing on behalf of the Revenue at length. We have gone through and considered in detail the assessment order as well as the order passed by the learned Commissioner of Income-tax (Appeals) as well as the impugned judgment and order passed by the learned Tribunal. 5.1 Now, so far as the deletion of disallowance of interest expenses under section 14A of the Act by .....

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ategorically found on the basis of the material on record that as such the assessee was having interest-free funds out of which the investment was made. Therefore, by observing in paragraphs 6 to 9 extracted herein below, the learned Tribunal has deleted the entire disallowance of ₹ 12,06,934 made by the Assessing Officer under section 14A of the Act. "6. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. The undis put .....

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(Appeals), the assessee submitted that the assessee had borrowed funds for the purposes of vehicle and old loan of ₹ 2,005 for captive power plant, and, therefore, no borrowed funds were used for non-business purposes. Further, the assessee relied upon the decision of the hon'ble Supreme Court in the case of S. A. Builders Ltd. [2007] 288 ITR 1 (SC) and Munjal Sales Corpo ration v. CIT [2008] 298 ITR 298 (SC) and the decision of the hon'ble Mumbai High Court in the case of CIT v. .....

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to 12.5 per cent. from the associated concerns depending upon the availability of surplus funds and thereby earned interest income of approximately ₹ 50.74 lakhs during the year. He, therefore, held that the disallowance made by the Assessing Officer under section 36(1)(iii) was of ₹ 40,10,861 was not justified. 7. The Departmental representative has merely relied upon the order of the Assessing Officer. He has not pointed out any specific error in the order of the Commissioner of In .....

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ive expenses but had restricted the dis allowance made to ₹ 6,22,228 as the assessee himself had made dis allowance of ₹ 2,00,000 as expenses incurred for earning tax-free dividend income. The Commissioner of Income-tax (Appeals) observed that the said expenses must have been incurred by the assessee in making the investments and, therefore, confirmed the dis allowance of ₹ 6,22,228 made by the Assessing Officer. The autho rised representative of the assessee submitted that the .....

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wance of ₹ 6,22,228 could not have been made by the Assessing Officer and confirmed by the Commissioner of Income- tax (Appeals). Our above view finds support from the decision of the hon'ble Delhi High Court in the case of CIT v. Consolidated Photo and Finvest Ltd. [2012] 211 Taxman 184 (Delhi) ; [2013] 358 ITR 310 (Delhi). Therefore, we set aside the orders of the lower authorities and delete the disallowance of ₹ 6,22,228. Thus, ground No. 1 of appeal of the assessee is allowe .....

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