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Hema Engineering Industries Ltd. Versus ACIT, Range-12, New Delhi. and Vica-Versa

2016 (1) TMI 532 - ITAT DELHI

Disallowance u/s 14A - Held that:- The Hon’ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) has held that in the absence of any exempt income, there can be no disallowance u/s 14A. Recently, the Hon’ble jurisdictional High Court in Joint Investment Pvt. Ltd. Vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT ) has held that disallowance u/s 14A cannot exceed the exempt income. In view of the fact that the assessee did not admittedly earn any exempt income duri .....

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ay not remain consistent over the years. The generation of scrap depends on various factors, such as, quality of raw material, age of machine, quality of work force, etc. If good raw material is used, naturally, it will lead to lower scrap and vice versa. The relevant factors discussed above ultimately find their reflection on the gross profit rate. If the gross profit rate of the assessee is better than that of the preceding year, but, the generation of scrap is less, there cannot be any separa .....

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When the gross profit rate itself has registered an increase of over 1% in the current year, we fail to appreciate as to how any addition on account of lower scrap sale can be made as a percentage of turnover.- Decided in favour of assessee.

Disallowance of interest in respect of balance payable to M/s Tobu India Ltd. - addition on u/s 40A(2)(b) - Held that:- On a specific query to point out the balance of M/s Tobu India Ltd., in the assessee’s account for the preceding year as reflec .....

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responding figure of closing balance of this sister concern in the immediately preceding year, as such figure has been shown as Nil. As such, the entire basis on which the addition has been deleted by the ld. CIT(A), ceases to exist. We cannot countenance the impugned order on this line of reasoning which has not been shown to exist. Under such circumstances, we set aside the impugned order on this score and remit the matter to the file of CIT(A) for deciding this issue afresh, as per law, after .....

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eal and the first ground of the Revenue s appeal is against the disallowance u/s 14A of the Act. 3. Briefly stated, the facts of the case as recorded in the assessment order are that the assessee made investment of ₹ 18.95 crore in unquoted equity shares. However, no dividend was received during the year. Applying the provisions of section 14A read with Rule 8D, the AO computed disallowance at ₹ 1,40,28,358/-. The ld. CIT(A) reduced the disallowance to ₹ 74,15,767/-, thereby al .....

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CIT vs. Holcim India P. Ltd. (2014) 90 CCH 081 DEL-HC, has held that in the absence of any exempt income, there can be no disallowance u/s 14A. Recently, the Hon ble jurisdictional High Court in Joint Investment Pvt. Ltd. Vs. CIT (2015) 372 ITR 694 (Del) has held that disallowance u/s 14A cannot exceed the exempt income. In view of the fact that the assessee did not admittedly earn any exempt income during the year, there can be no question of making any disallowance u/s 14A of the Act in terms .....

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the last year s scrap sale of ₹ 4.39 crore @ 1.87% on turnover of ₹ 235.24 crore. The AO observed that there was no justification for accounting scrap generation at a lower level. Noticing 0.3% drop in the scrap sale, he made an addition of ₹ 83,53,148/- by applying this percentage to total turnover for the year. The ld. CIT(A) deleted the addition. 6. Having heard the rival submissions and perused the relevant material on record, we find that the way in which this addition ha .....

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nd vice versa. The relevant factors discussed above ultimately find their reflection on the gross profit rate. If the gross profit rate of the assessee is better than that of the preceding year, but, the generation of scrap is less, there cannot be any separate addition for lower generation of scrap because this would show the higher economies availed by the assessee due to better performance or good quality of raw material etc. Adverting to the facts of the instant case, we find that the assess .....

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ned order on this issue. 7. The only other ground which survives for consideration is deletion of disallowance of interest of ₹ 3,55,662/- in respect of balance payable to M/s Tobu India Ltd. The AO observed that M/s Tobu India Ltd., is one of the persons specified u/s 40A(2)(b) from whom a sum of ₹ 21,48,964/- was receivable. The AO noticed that there should be a nexus between the use of borrowed funds for the purpose of business for claiming deduction u/s 36(1)(iii). He held that t .....

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addition. 8. After considering the rival submissions and perusing the relevant material on record, we find that the assessee argued before the ld. CIT(A), which has been recorded on page 16 of the impugned order, that there was no fresh lending to Tobu India Ltd., during the current year and the balance was an opening balance. The ld. CIT(A) recorded a categorical finding that the AO had: not established any linkage between the amount borrowed for capital and the amount advanced to the sister co .....

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