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2016 (1) TMI 172 - ITAT DELHI

2016 (1) TMI 172 - ITAT DELHI - TMI - Disallowance u/s 14A - Held that:- Section 14A will not apply if no income is received or receivable during the relevant previous year. We, therefore, do not find any justification in the action of the ld. Authorities below while disallowing expenditure u/s. 14A of the Act, as none of the authorities below have pointed out receipt of any such income by the assessee which does not form part of the total income. - Decided in favour of assessee.

Disa .....

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ts, this advance cannot be said to be an interest free non-business transaction. Moreover, the advance was given to the broking company for the purpose of investment in the share market. In view of these facts, we do not find any infirmity in the conclusion of the ld. CIT(A) in this regard. - Decided in favour of assessee.

Disallowance on account of delayed payments of employees contribution to ESIC/EPF - CIT(A) deleted the addition - Held that:- Where payments of EPF contribution if .....

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r deleting the disallowance made by the AO on this count.- Decided in favour of assessee. - ITA No. 5477/Del./2012 - Dated:- 16-10-2015 - SHRI I.C SUDHIR, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Revenue : Shri P. DAM Kanunjna, Sr. DR For The Assessee : Shri Arun Kushore, C.A. ORDER Per L.P. Sahu, Accountant Member: Out of above bunch of appeals, ITA Nos. 5477/Del./2012 & 6079/Del./2012 are cross appeals filed by the Revenue and the assessee against the order dated 27.07 .....

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in ITA No. 5477/Del./2012 (By Revenue for A.Y. 2008-09): 1. The order of the learned CIT(Appeals) is erroneous & contrary to facts & law. 2. On the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the Assessing officer to recomputed the disallowance u/s. 14A of the I.T. Act read with Rule 8D of the Income Tax Rules considering the interest amount of only ₹ 6,86,69,493/- instead of ₹ 11,69,94,410/-. 2.1 Whether the Ld. CIT(A) has erred in h .....

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s PF and ESI. Grounds in ITA No. 6079/Del./2012 (By Assessee for A.Y. 2008-09): 1. That on the facts and circumstances of the case, the order of CIT(Appeals) in appeal No. 101/10-11, to the extent mentioned hereunder is illegal, unjust and opposed to facts. 2. That learned CIT(Appeals) has erred in confirming addition u/s. 14A, the appellant denies its liability u/s. 14A of the IT Act. 3. That without prejudice to the above contention the working of the disallowance as directed by the CIT(Appeal .....

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; 1,31,52,337/- u/s. 14A of the IT Act, 1961. (ii). That the investments owned by the appellant are not covered with the ambit of Sec. 14A of the Act and rule 8D of the IT Rules. (iii). That the learned AO has not recorded his satisfaction in respect of the computation filed by the appellant. (iv). That the learned AO has applied the mechanical provisions irrespective of the circumstances of the present case. (v). That without prejudice to the above contention the working of the disallowance as .....

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ic goods. The return of income was filed on 10.02.2010 declaring total income of ₹ 1,46,95,200/-. The Assessing Officer completed the assessment u/s. 143(3) of the IT Act at an income of ₹ 4,00,73,910/-. In the assessment proceedings, the AO noticed that the assessee had incurred expenditure for earning such income which does not form the part of the total income and therefore, after relying upon the decisions of Special Bench of ITAT, Delhi in the cases of M/s. Daga Capital Manageme .....

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for non-payment of employees/employers contribution towards EPF/ESI in time, the Assessing Officer also disallowed a sum of ₹ 2,69,551/- on this account vide assessment order dated 07.12.2010. Aggrieved, assessee challenged this order in appeal before the learned CIT(A), who directed the AO to recomputed the disallowance under rule 8D considering the amount of interest paid of ₹ 6,86,69,493/-. While doing so, he observed that the AO while computing the disallowance u/s. 14A read with .....

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s and hire charges which do not fall in the ambit of rule 8D. The learned CIT(A), however, deleted the addition of ₹ 2,69,551/- made by Assessing Officer on account of non-deposit of EPF/ESI contribution in time, observing that the employees/employer contribution, if paid prior to the due date of filing of return would be eligible for deduction u/s 36(1)(va) read with section 2(24)(x) and 43B of the Act. Both the parties were not satisfied by the impugned order, hence, these cross appeals .....

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,823/- has been wrongly deleted by the ld. CIT(A). It was also submitted that late deposition of EPF/ESI contribution suggest the disallowance u/s. 2(24)(x), which the ld. CIT(A) has wrongly deleted. He therefore, contended that the appeal of the Revenue is liable to be allowed. 5. On the other hand, the ld. Counsel for the assessee contended that no disallowance u/s. 14A is called for. The AO has adopted the total block of financial expenses which is inclusive of discounting charges, bank charg .....

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decisions : (i). ITO vs. Narayan Prasad Dalmia(2015) 152 ITD 276 (Kol. Tri). (ii). ACIT vs. Four M. Maritime Pvt. Ltd. (2015) 152 ITD 557 (Chennai-Tri) (iii). CIT vs. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom) (iv). Karnataka Bank vs. ACIT (2015) 228 Taxman 212 (v). ACIT vs. Punjab State Co-op. Marketing Fed. Ltd. (2012) 14 ITR(Trib)69. (vi). CIT vs. Metal Man Auto Pvt. Ltd. (2011) 336 ITR 434 (P&H) (vii). CIT vs. Winsome Textile Industries Ltd. (2009) 319 ITR 204 (P&H) (viii). CI .....

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e disallowance of interest was also not justified in view of various judicial pronouncements, as the interest incurred was for the purpose of business transactions. He also submitted that ld. CIT(A) has rightly deleted the addition made on account of EPF/ESI after considering various judicial pronouncements. Accordingly, the ld. Counsel urged for allowance of assessee s appeal and dismissal of Revenue s appeal. 6. We have considered the rival submissions, perused the material available on record .....

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incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed1, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee .....

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e above provisions, the principles which emerge there from are that the provisions of section 14A are to prevent claims of deduction of expenditure in relation to income which does not form part of the total income of the assessee; that these provisions are enacted to ensure that only expenses incurred in respect of earning taxable income are allowable; that the principle of apportionment of expenses is widened by section 14A to include even the apportionment of expenditure between taxable and n .....

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essee in relation to income which does not form part of the total income under the Act. In other words, no deduction of expenditure incurred to earn exempt income are allowable under the Act; that the income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. The ld. CIT(A) while deciding the issue has observed that dividend income and income from mutual funds are incomes which by virtue of the provisions of section 10 do not form p .....

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r this section charge is not on income by way of dividend in the hands of the shareholder and that the tax on distributed profits is a charge on the company. The Company is chargeable to tax on its profits as a distinct taxable entity and it does not do so on behalf of the shareholder. The company does not act as an agent of the shareholder in paying the tax under section 115-O and in the hands of the recipient shareholder dividend does not form part of the total income. He also observed that se .....

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isions of sub-section (1) of section 14A. He therefore, affirmed the action of the Assessing Officer for working out the disallowable expenditure u/s. 14A, but modified the working of such disallowable expenditure as made by the Assessing Officer. 8. We have gone through the computation of income placed by assessee at page 27 of the paper book where it is seen that during the year no any exempt income is shown to have been received by the assessee. The income shown in the computation of income i .....

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not find any justification in the action of the ld. Authorities below while disallowing expenditure u/s. 14A of the Act, as none of the authorities below have pointed out receipt of any such income by the assessee which does not form part of the total income . For this proposition, we lay our hands on the principle of law laid down by Hon ble Jurisdictional High Court in the recent decision in case of Cheminvest Limited vs. CIT (ITA 749/2014) decided on 02.09.2015, wherein after setting aside th .....

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allowed on this issue. 9. As regards the issue relating to disallowance of interest, we find that the AO has disallowed a sum of ₹ 52,44,823/- being proportionate interest on account of interest free loans advanced by the assessee to three parties, viz., M/s. Boeing Investments Private Limited, M/s. M.K. Marketing and M/s. Brics Securities Ltd. of ₹ 62,99,375/-, ₹ 54,022/- and ₹ 3,73,53,462/- respectively. The AO has observed that the assessee had taken loans from the ba .....

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Besides, the ld. CIT(A) after considering various documentary evidences submitted before him by assessee u/r 46A, has elaborately discussed the advances given to above three parties He has rightly held that when the recovery of the principal amount itself was doubtful, there was no question of providing for interest on the same in the case of M/s. Boeing Investments Private Limited. Similarly, with respect to M/s. M.K. Marketing, after considering the copy of account found that the said concern .....

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making investments in stock exchange and the resultant profit, if any was agreed to be equally divided between the two entities and in case of loss, the same was to be entirely borne by M/s. MVL Ltd. Ultimately, the appellant suffered a loss of ₹ 4,66,43,500/- which was borne by the other joint venture partner as per the terms agreed between the two parties. Accordingly, the assessee suffered a loss to the extent of interest on capital employed for three to six months for stock market oper .....

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0. Adverting to the last issue regarding disallowance of ₹ 2,69,551/- on account of delayed payments of employees contribution to ESIC/EPF, we find that the learned CIT(A) relying upon the decisions of in the case of CIT vs. P.M. Electronics Ltd. (2009) 177 Taxman 1 (Delhi H.C.), CIT vs. Vinay Cement Ltd. (SLA No. 1934 of 2007 dated 07.03.2007, CIT vs. Dharmendra Sharma (2008) 297 ITR 320 (Del) and CIT vs. Nexus Computer Pvt. Ltd. (2009) 177 Taxmann 202, has rightly held that where payment .....

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