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2016 (1) TMI 615 - ITAT KOLKATA

2016 (1) TMI 615 - ITAT KOLKATA - TMI - Disallowance u/s 14A read with Rule 8D - Held that:- As decided in assessee's own case for previous AY there is no satisfaction recorded by the AO for invoking Rule 8D of the Rules despite the fact that the assessee has disclosed huge expenditure for earning of exempted income and the same was disallowed himself, the correctness of which is not in doubt. The assessee has enclosed details of investment made in group concerns and subsidiary companies and det .....

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ment. In both the eventualities, no disallowance can made u/s. 14A of the Act read with Rule 8D of the Rules - Decided in favour of assessee

Proportionate disallowance of legal and professional fees and auditor's remuneration - Held that:- Legal and professional fee cannot be attributed to earning of management fee from Mena House Oberoi Hotel, Egypt, URA. Even otherwise, during this year, no legal service was provided to this concern for earning of management fees, hence, there is no .....

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appeal is partly allowed.

Addition made u/s. 2(22)(e) for deemed dividend - Held that:- The issue is covered by the order of the Tribunal in assessee's own case for AY 2007-08 and 2008-09 wherein held that the AO applied the provisions of section 2(22)(e) of the Act in case of loan taken by assessee from Oberoi Plaza Pvt. Ltd. and Bombay Plaza Pvt. Ltd. since Oberoi Plaza Pvt. Ltd. is a 100% subsidiary of the assessee and Bombay Plaza Pvt. Ltd. is a 100% subsidiary of Oberoi Plaza Pv .....

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Allowance of ALV of the house property by rejecting the expected rent and accepting the actual rent received by the assessee by CIT(A) - Held that:- The issue is covered by the order of the Tribunal in assessee's own case for AY 2007-08 and 2008-09 as held even as per the deeming provision of Section 23(1)(a), in the case of let out property, only the actual rent received was required to be considered as annual value of property. The AO failed to appreciate such estimation of annual let .....

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e confirm the order of CIT(A) on this issue - Decided in favour of assessee - ITA No.192/Kol/2013 & ITA No.321/Kol/2013 - Dated:- 20-11-2015 - MAHAVIR SINGH, JM AND M BALAGANESH, AM For the Petitioner : Shri R N Bajoria, Adv. For the Respondent : Shri G Mallikarjuna, CIT-DR ORDER Per: Mahavir Singh: Both these cross appeals by assessee and revenue are arising out of order of CIT(A)-VIII, Kolkata in Appeal No.187/CIT(A)-VIII/Kol/11-12 dated 19.11.2012. Assessment was framed by JCIT(OSD), Cir-8, K .....

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, 2 and 3: "1. For that the CIT(A) erred in confirming the disallowance under section 14A of the Act under Rule 8D(2)(iii) of the Act. 2. For that no expenses having been incurred for the purpose of earning the dividend income and there being no proximate and dominant nexus with the investment in shares of EIH Limited which was made in the earlier years and not in the year under consideration, the CIT(A) erred in confirming the disallowance as made by the AO. 3. For that the disallowance un .....

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see claimed to have following exempted income: Share of profit in partnership firm ₹ 55,932/- Dividend from mutual funds ₹ 8,70,776/- Dividend on shares Rs.169,445,830/- Total Rs.170,372,538/- The assessee suo moto offered disallowance u/s. 14A of the Act read with Rule 8D of the Rules out of interest expenses amounting to ₹ 13,92,21,233/- payable to various lending agencies and also de mat charges of ₹ 1,85,159/-. The AO without recording any satisfaction straightaway ap .....

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rival submissions and gone through facts and circumstances of the case. We find that the assessee company has already identified and disallowed interest on loan amounting to ₹ 14,21,35,269/- and de mat charges at ₹ 6,85,115/- under the provisions of section 14A of the Act read with Rule 8D of the Rules being expenses relatable to earning of exempted income. The assessee has earned total exempt income at ₹ 14,96,64,407/- and disallowance was made by invoking the provisions of se .....

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tion between the exempt income and that of the expenditure incurred, the provisions of section 14A read with Rule 8D of the Rules cannot be attracted or invoked. It is also a fact that there is no fresh investment made by the assessee during the year and these investments are primarily made in group companies with the intention to acquire and retain controlling stakes and even dividend is received through ECS. This practice assessee is following consistently and the same has not been disputed in .....

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uge expenditure for earning of exempted income and the same was disallowed himself, the correctness of which is not in doubt. The assessee has enclosed details of investment made in group concerns and subsidiary companies in its paper book at page 8 and details of dividend income earned at page 13. In view of the above facts and circumstances, we are of the view that the AO has not recorded any satisfaction about the correctness or otherwise of the accounts of the assessee wherein the assessee h .....

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above submission of the assessee by producing any contrary material in this regard. Hence, we allow this ground of appeal of assessee, since this issue is covered by the decision cited supra. 5. The next issue in this appeal of assessee is as regards to confirming the disallowance of ₹ 3,378/- being the provision for leave encashment. For this, assessee has raised following ground no. 4: "4. For that the CIT(A) erred in confirming the disallowance of ₹ 3,378/- being the provisio .....

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ment was made on the basis of the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India (2007) 292 ITR 470 = 2007-TIOL-429-HC-KOL-IT, but he fairly conceded that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court vide order 08-05-2009 by following observations:- "Pending hearing and final disposal of the Civil Appeals, Department is restrained from recovering penalty and interest which .....

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y stated that let Hon'ble Supreme Court decide the issue and by that time the matter can be remitted back to the file of AO for fresh adjudication in term of the decision of Hon'ble Supreme Court. On this, Ld. CIT DR has not objected to the same. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee's appeal is remitted back to the file of AO and allowed for statistical pu .....

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essee and revenue is as regards to proportionate disallowance of legal and professional fees and auditor's remuneration. For this, assessee has raised following ground nos. 5 and 6 and revenue has raised following ground no. 2: "Assessee's ground Nos. 5 & 6: 5. For that the CIT(A) erred in holding that the proportionate legal and professional fees and Auditor's remuneration should also be deducted while computing the income from foreign management fees received from Mena Hou .....

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. Brief facts are that during the year under consideration assessee received a sum of ₹ 5,06,73,892/- as management fee from Hotel Mena House Oberoi, Egypt, UAR. The assessee allocated pro-rata expenses amounting to ₹ 16,41,082/- towards earning of this income and balance receipt of ₹ 4,90,32,810/- was claimed as exempt under Article 24(1) of Indo-UAR DTAA. The AO was of the view that in view of agreement, Oberoi Hotels Pvt. Ltd., as a whole, is required to provide services for .....

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,248/- Passage & Travelling ₹ 22,46,726/- Printing & stationery ₹ 3,47,940/- Postage, telegram & telephone ₹ 4,25,511/- General charges ₹ 27,35,836/- Auditors' remuneration ₹ 19,20,000/- Legal, professional & consultancy fees Rs.2,61,97,774/- Total Allocable Expenses Rs.6,29,95,911/- Therefore, prorate expenses = ₹ 6,29,95,911 x (5,06,73,892/35,26,90,532) = ₹ 90,51,130/-" Aggrieved, assessee filed appeal before CIT(A), who added .....

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lant that these two items of expenditure have no nexus with the earning of foreign management fees from Mena House Oberoi, Egypt. Accordingly, I consider a part of the legal and professional fees and the auditor's remuneration and rework the proportionate expenditure relatable to foreign earning. A detailed working is provided in the Annexure-A to this order. Therefore, as per the detailed working, I direct the AO to consider the amount of ₹ 46,43,429/- as relatable to tax free foreign .....

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#39;s remuneration at ₹ 11.75 lac do not have any nexus with the earning of management fee from Mena House Oberoi Hotel, Egypt, URA. Accordingly, he urged that these two expenses should be allowed exclusively for the purpose of business of assessee. From the Schedule of legal and professional fee, it can be seen that expenses were mainly incurred for worldwide trademark registration of Oberoi and Trident Logos, which have no nexus with the earning of management fees for operating hotels. A .....

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w these expenses. As regards to other expenses no argument was advanced on behalf of assessee qua assessee's appeal. Even we could not find any contrary argument on the expenses allowed by CIT(A) from Ld. DR. Accordingly, the issue of revenue's appeal is dismissed and that of the assessee's appeal is partly allowed. 10. The next issue in this appeal of assessee is against the order of CIT(A) directing that the addition made u/s. 2(22)(e) of the Act should be considered as confirmed i .....

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addition on account of deemed dividend as considered and confirmed is erroneous and illegal." 11. Briefly stated facts are that the AO treated the advances of ₹ 7.65 cr. and ₹ 55,00,000/- received by assessee from Oberoi Investment Pvt. Ltd. and Oberoi Plaza Pvt. Ltd. respectively as deemed dividend u/s. 2(22)(e) of the Act. Before the AO, it was argued that in respect to Oberoi Investment Pvt. Ltd., that sister concern is in the business of money lending and qua that NDFC certi .....

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he time of hearing before us, Ld. Counsel for the assessee submitted that the issue is covered by the order of the Tribunal in assessee's own case for AY 2007-08 and 2008-09 vide order dated 15.10.2015, wherein the Tribunal vide para 14 to 16 has held as under: "14. We have heard rival submissions and gone through facts and circumstances of the case. We find from the findings of CIT(A) that he has admitted the additional evidence submitted before him in the shape of NBFC certificate of .....

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he provisions of section 2(22)(e) of the Act i.e. the deemed dividend. In terms of the above, we remit the issue to the file of AO to re-decide after considering the clauses of Memorandum of Association of the lender company and also NBFC certificate of Oberoi Investment Pvt. Ltd.. Accordingly, this issue of both the appeals assessee is set aside and allowed for statistical purposes. 15. Similar is the issue in AY 2008-09 of assessee's appeal in ITA No. 1030/Kol/2012 wherein the ground no. 4 .....

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e AO applied the provisions of section 2(22)(e) of the Act in case of loan taken by assessee from Oberoi Plaza Pvt. Ltd. and Bombay Plaza Pvt. Ltd. since Oberoi Plaza Pvt. Ltd. is a 100% subsidiary of the assessee and Bombay Plaza Pvt. Ltd. is a 100% subsidiary of Oberoi Plaza Pvt. Ltd. During the course of appellate proceedings, the assessee filed fresh evidence before CIT(A) in the shape of Memorandum of Association which establishes that the object ancillary to the main object includes money .....

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erial in this regard. Hence, following the decision cited supra, we set aside this issue to the file of AO to examine afresh and decide the same. Accordingly, this issue of appeal of assessee is set aside to the file of AO and allowed for statistical purposes. 13. The next issue in this appeal of revenue is against the order of CIT(A) in allowing ALV of the house property by rejecting the expected rent and accepting the actual rent received by the assessee. For this, revenue has raised following .....

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