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2015 (11) TMI 392 - GUJARAT HIGH COURT

2015 (11) TMI 392 - GUJARAT HIGH COURT - [2015] 376 ITR 553 (Guj) - 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 t .....

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of the Revenue would not be of any assistance to the facts of the case 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-reside .....

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JJ. Mrs. Mauna M. Bhatt, Advocate, for the appellant. JUDGMENT The judgment 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, pass .....

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s") in its entirety, the Revenue has preferred the present Tax 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 Octobe .....

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ance made by the Assessing Officer under section 40(a)(ia) of the Act 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 .....

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for the assessment year 2009-10 declaring a total income of ₹ 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 .....

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see was called upon to show cause as to why the disallowance under section 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 ab .....

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of the interest expenses under section 14A of the Act read with rule 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 ma .....

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TDS on overseas freight. 3.5 Feeling aggrieved and dissatisfied with 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 o .....

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and order the learned Tribunal has allowed the appeal preferred by the 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 (Ap .....

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s vehemently submitted that the learned Tribunal has materially erred 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 (Appea .....

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n that rule 8D could be applicable from the assessment year 2008-09 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 Tr .....

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n-deduction of TDS on overseas freight. Making the above submissions 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 o .....

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oner of Income-tax (Appeals) as well as the learned Tri bunal have categorically 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 t .....

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4,706 and disallowed the same. Before the Commissioner of Income-tax (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 .....

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in fact earned interest income at the rate varying from 9 per cent. 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 p .....

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fficer also made disallowance of ₹ 8,22,228 out of administrative 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 Office .....

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end income. In the circumstances, in our considered opinion, disallowance 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 S .....

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