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2015 (11) TMI 1207 - ITAT AHMEDABAD

2015 (11) TMI 1207 - ITAT AHMEDABAD - TMI - Disallowance u/s 14A - Held that:- In the case of assessee no bank borrowings, no bank over-draft/deposits and nor any interest expenditure has been claimed by the assessee in the computation of total income and the port-folio management was looked after by the Director. There was sufficient source of funds which was required to make fresh investment in shares and mutual funds during the year and nothing contrary to the above facts have been brought on .....

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nce 94 years. AO in his assessment order has not been able to bring any specific material on record to prove that expenses shown in the profit and loss a/c were in any way attributable specifically for earning rental income. But has made ad hoc disallowance of ₹ 1,50,000/- deeming that there has been some nexus of some portion of the expenses incurred by the assessee company during the year to earn rental income. Therefore, in view of the above and for the lack of proper working to show th .....

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inst the order of CIT(A)- VI, Ahmedabad, dated 4.10.2011 for AY 2008-09. Assessment was framed under section 143(3) of the Income-tax Act, 1961 (in short the Act) on 19.11.2010 by ITO, Wd-1(3), Ahmedabad. Assessee has raised the following grounds of appeal - 1) The CIT(A) has erred both in law and in fact in holding that provisions of section 14A applies to the facts of the case and that the AO had rightly invoked the same and rightly disallowed a sum of ₹ 45,375/-. It is submitted by your .....

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being of personal or capital nature the disallowance is required to be deleted. 3) Without prejudice to above it is submitted that as long as the expenses are incurred for purpose of business under the Income-tax Act there is no provision of making any disallowance on estimate basis and in relation to amount of business income earned by the appellant. In view of the direct and binding judgment of Hon. Gujarat High Court in the case of CIT v. City of Ahmedabad Spg. & Mfg. Co. Ltd. reported in .....

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ssment. Notice under section 143(2) of the Act was issued on 25.09.2009. Assessment was framed by the AO by making disallowance under section 14A of the Act at ₹ 45,375/- and disallowance of expenses pertaining to income from house property of ₹ 1,50,000/- totaling ₹ 1,95,375/-. 3. Aggrieved, assessee went in appeal before CIT(A), who confirmed the action of AO. Being further aggrieved, the assessee is now in appeal before us. 4. We first take up ground No.1 which is against di .....

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incomes. From the P&L account it can be seen that appellant earned rent of ₹ 17.42 lacs, warehouse income of ₹ 17.61 lacs and income from investments ₹ 28.28 lacs. Therefore it can be seen that substantial income is earned by the appellant from which expenses are not allowable. Part of such income is exempt from tax. Therefore, it is clear that appellant incurred expenses which are relating to exempt income but still appellant did not disallow any part under section 14A. Si .....

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ce substantial expenses as mentioned earlier were incurred which are also relating to exempt income but still no disallowance was made by the appellant. In view of this AO justified in making disallowance u/s 14A read with rule 8D. The disallowance is accordingly confirmed. Aggrieved, the assessee is now in further appeal before the Tribunal. The ld. AR of the assessee has filed Paper Book containing computation of total income, annual report of the assessee for F.Y.2007-08 and the working of ad .....

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n 31.3.2007 was at ₹ 72,91,694/- and after adding the additions made during the year at ₹ 23,77,768/- , the closing balance of share capital and reserve surplus as on 31.3.2008 stood at ₹ 1,02,69,463/-. So there was an increase in the capital and reserve & surplus by ₹ 23,77,768. On the other hand, the total investment in shares and mutual funds as on 31.3.2007 at ₹ 80,66,131/- and the closing balance of investment in shares and mutual funds as on 31.3.2008 stoo .....

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and mutual funds t ₹ 20,58,929/- was made from the source of funds generated during the year at ₹ 23,77,768/- in the form of increase in general reserve and profit earned by the assessee company during the year. 7. Hon. Gujarat High Court in the case of CIT vs. Torrent Power Ltd. (2014) 363 ITR 474 (Guj) has held that disallowance u/s 14A is not justified if assessee had sufficient funds for making investment and it had not used borrowed funds for such purposes and there is nothing .....

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no error in the order of the CIT(A) holding that the assessee had interest free funds far in excess of the investment made by it as at the year ending on March 31, 2007 and deleting the disallowance of interest expenditure of ₹ 3,15,370/-. Thus, this ground of appeal of the Revenue is dismissed. Applying the facts of assessee on the above referred judicial pronouncement it is very clear that in the case of assessee no bank borrowings, no bank over-draft/deposits and nor any interest expen .....

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5/-. This ground of assessee is allowed. 8. The second ground of the appeal is in regard to disallowance of ₹ 1,50,000/- by the AO from rental income on estimated ad hoc basis. Being aggrieved, the assessee went in appeal before CIT(A) who confirmed the disallowance made by AO by giving following observations :- 3.3 I have considered the facts of the case, assessment order and appellant s submissions. It is not in dispute that appellant was earning rent and other income against which no ex .....

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nses was ₹ 17.99 lacs as against warehouse income of ₹ 17.61 lakhs. If the expenses are apportioned on the basis of income, then not even one third expenses can be claimed against warehouse income. Therefore, disallowance of expenses on this basis can be more than 12 lakhs. However, AO only allocated ₹ 1.50 lakhs against house property income wherein appellant has already claimed 30% as repairs and maintenance. Appellant submitted the details of possible disallowance to the ext .....

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en the common P & L account is prepared for entire expenses incurred by the appellant, onus is on the appellant to prove that which expenses relates to which income. It cannot be presumed that all the expenses debited in P & L account relates to only business income which does not constitute even one third of the total income. Since appellant has not submitted details of expenses attributable to particular income, appellant did not discharge its onus and accordingly AO is justified in es .....

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l gain were earned without spending anything. If expenses were incurred for earning those incomes against which expenses are not allowable, such expenses will have to be excluded from the allowable expenses under business head. When appellant itself admitted that some expenses could have been incurred for earning these income, it was duty bound to submit the basis for allocating such expenses with evidence in absence of any evidence, I find the disallowance of expenses made by the AO very reason .....

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f the assessment order. We may submit that the AO has not given any show cause notice or a chance of personal hearing before making any such disallowance. 2. The only ground for the above ad hoc disallowance is a suspicion that the assessee must have incurred various expenses i.e. salary, legal expenses, conveyance, bank charges, auditors fees etc, [page 4 of the order]. 3. On this issue we state that we have maintained all vouchers, bills, receipts etc. with the supporting evidences. It is subm .....

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violation or r.6D pointed out - no justification in making ad hoc disallowance to the extent of 1/4th of total expenditure. Mahendra Oil Cake Industries Pvt. Ltd. vs. ACIT 55 TTJ page 711 (Ahd). (ii) Business expenditure -Foreign expenses -Ad hoc disallowance AO has not pointed out any expenditure of personal nature relating to the partner or the employee of the assessee- Thus ad hoc disallowance made by the AO without supporting evidence was not sustainable. Modi Exports vs. ACIT 117 TTJ page 9 .....

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undation -CIT(A) justified in deleting the disallowance. ACIT vs. Arthur Anderson & Co. 94 TTJ Page 736 (Mum) (iv) Where assessee company was carrying out various business activities and also deriving rental income from house property and AO without pointing out any specific item of expenditure being incurred by assessee towards management of house property from which assessee had offered rental income for tax purposes, had simply made an ad hoc proportionate disallowance towards personnel/a .....

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our letter dt.11.9.10 which is also reproduced in para -3 page 4 of the assessment order. Further in addition to the judgments referred in the Paper Book filed, the ld. AR also referred to the decision of Hon ble Gujarat High Court in assessee s own case reported at 207 ITR 427 (supra), wherein the Hon ble High Court has held as under :- For the assessment years 1973-74, 1974-75 and 1975-76, the assessee claimed deduction in respect of expenditure of ₹ 18,336/-, ₹ 10,089/- & S .....

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e Department then went in appeal to the Tribunal by filing three separate appeals. The Tribunal dismissed the appeals agreeing with the view taken by the Appellate Assistant Commissioner. The same contention which was urged on behalf of the Revenue before the lower authorities has been urged before us. Now, in this connection, what is required to be borne in mind is that it is found as a matter of fact that the said expenditure was incurred and it did relate to the business activity of the asses .....

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