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2016 (1) TMI 415 - ITAT CHENNAI

2016 (1) TMI 415 - ITAT CHENNAI - TMI - Disallowance u/s 14A - contention of the assessee is that the investments were made for acquiring control of other companies which are in the similar business of the assessee and all those companies subsequent to acquisition of the shares has become the sister concerns of the assessee. Moreover, the investments made were out of non-interest bearing funds of the assessee company - Held that:- In the interest of justice, we hereby remit back the matter to th .....

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lectric Sub Assembly Pvt. Ltd.[2016 (1) TMI 322 - ITAT CHENNAI] - Decided in favour of assessee for statistical purposes - ITA No. 961/Mds./2015 - Dated:- 22-12-2015 - N. R. S. Ganesan, JM And A. Mohan Alankamony, AM For the Appellant : Mr R Venkatesan, Adv For the Respondent : Mr Milind Madhukar Bhusari, CIT, DR ORDER Per A. Mohan Alankamony, Accountant Member This appeal is filed by the assessee, aggrieved by the order of the Assistant Commissioner of Income Tax, Corporate Circle 3(1) Chennai .....

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f ₹ 11,79,079 as expenses attributable towards earning exempt income is not warranted." 3.1 The assessee is engaged in the business of providing logistics services and supply chain management, filed its return of income on 15.10.2010 admitting loss of ₹ 1,16,55,581/-. Subsequently the case was selected for scrutiny and reference was made U/s.92CA(1) of the Act on 11.02.2013 for determination of Arm s Length Price(ALP). Thereafter in the draft assessment order dated 31.03.2014 th .....

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. The above table indicates that against a substantial increase in investments, there is a corresponding increase in finance charges also. This clearly indicates that there is a direct nexus between the increase in investments and borrowed capital, with interest relating such investments being charged to P & L a/c. 2.3. Here, section 14A provides for the principles to be applied in such a situation. "14A(2) : The Assessing Officer shall determine the amount of expenditure incurred in re .....

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no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act." 2.4 Also reliance is placed on Memorandum explaining the provisions, Notes on clause relating to Finance Bill, 2001 by which the said provision was inserted into the Act. "….. the expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income…." 2.5 The assessee has not admitted any expenditure against th .....

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e is no exempt income earned during the year, section 14A can be invoked. Hence, invoking Sec.14A(3) read with Sub-rule 8D(2), the disallowance u/s 14A is quantified as under:- i) the amount of expenditure directly relating to income which does not form part of total income. Nil ii) A. amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year 7,02,070 B. The average value of investment, income from which does not or shall .....

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5,891 Total assets on the last day of the previous year 48,28,91,889 A X B/C 2,01,985 ii) One half per cent of average value of investment, income from which does not or shall not form part of the total income, as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year 9,77,094 Disallowance U/s.14A r.w.Rule 8D Aggregate *i), (ii) and (iii) 11,79,079 3.2 On further reference to the Dispute Resolution Panel (DRP), the assessee made the following submi .....

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diture had been incurred for the purpose of earning exempt income, if any. iv. The AO has erred in law by not considering that Rule 8D read with section 14A(2) can be invoked only 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 expenditure incurred in relation to tax free income. v. The AO has erred in facts by stating in his order that the Assessee had utilized borrowed funds for making fresh .....

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capital of the Company funds. ix. The AO has erred in facts and law by not considering that any income received by the Assessee from the foreign subsidiary company would he taxable in India and section 14A of the Act would not apply to such income. x. The AO has erred in law, by including the amount of investment made into the foreign company in the total investments while computing the value of average investments during the year. xi. AU has erred in facts and law while calculating the total va .....

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1.03.2010 as compared to investment as on 31.03.2009, the Assessing Officer finds that there is corresponding the increase in financial charges. This clearly indicates there is a direct nexus in increase in investment and borrowed capital and interest on borrowed capital charges to P&L A/c. Therefore, this panel does not find any flaw in the action of the Assessing Officer and therefore all objections raised by the assessee are hereby rejected. Accordingly, the final assessment order U/s.143 .....

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he shares of the sister s company. On the other hand Ld. D.R argued in support of the orders of the Revenue and pleaded that the order of the Ld.DRP may be sustained. 5. We have heard both the parties and carefully perused the materials available on record. The main contention of the assessee is that the investments were made for acquiring control of other companies which are in the similar business of the assessee and all those companies subsequent to acquisition of the shares has become the si .....

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- "7.2 In regard to applicability of Section 14A of the Act read with Rule 8D also; the above view will be applicable. Moreover in the case EIH Associated Hotels Ltd v. DCIT reported in 2013 (9) TMI 604 in ITA No.1503, 1624/Mds/2012 dated 17th July, 2013, it has been held by the Chennai Bench of the Tribunal as follows:- "Disallowance U/s. 14A rw Rule 8D - CIT upheld disallowance - Held that - investments made by the assessee in the subsidiary company are not on account of investment f .....

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