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M/s Takshahila Academia of Economic Research Ltd. Versus Income Tax Officer-11 (3) -1, Erstwhile Income Tax Officer-Ward-8 (3) (3) , Mumbai

2016 (1) TMI 1080 - ITAT MUMBAI

Disallowance u/s 14A r.w.r. 8-D - Held that:- There is no dispute to the fact that own funds were invested by the assessee in earning the dividend income of ₹ 57,975/- and suo-moto disallowance of ₹ 8,895/-, towards expenses to earn the exempt income. So far as applicability of Rule-8D is concerned, since, assessment year involved is 2011-12, therefore, Rule-8D will be applicable. However, since, no borrowed funds were utilized for making the investment and the assessee suo-moto made .....

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order dated 14/11/2014 of the Ld. First Appellate Authority, Mumbai. Only ground raised in this appeal pertains to sustaining the disallowance of ₹ 2,31,140/- u/s 14A of the Income Tax Act, 1961 (hereinafter the Act) read with Rule 8-D of the I.T. Rules. 2. During hearing, nobody represented the assessee in spite of issuance of registered notice to the assessee, therefore, I have no option but to proceed ex-parte qua the assessee and tend to dispose of the appeal on the basis of material .....

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tune of ₹ 2,31,140/-, which is far more than the dividend income. The facts, in brief, are that the assessee company engaged in the activity of publication of commodity market reports, conducting seminars etc on economics and management of commodity trade etc. The assessee electronically filed its return. The assessee invested in mutual fund and earned short term capital gain/long term capital gains besides dividend income of ₹ 57,975/-. It was explained right from assessment stage .....

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ance in profit & loss account while calculating the total asset. Undisputedly, the assessee furnished the copy of bank statement before the ld. First Appellate Authority to prove that own funds were invested for generating the income and no borrowed funds/OD was used in buying the mutual funds. Thus, the decision from Hon ble Punjab & Haryana High Court in Hero Cycles Ltd. 323 ITR 518 (P &H) and jurisdictional High Court in K. Raheja Corporation Pvt. Ltd. (ITA No.1260 of 2009) comes .....

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00 have been held by the Income Tax Appellate tribunal to be out of assessee s own funds and not out of borrowed funds by its order dated 24th June 2011. Save and except contending that Section 14A was not on the statute book when the Income Tax Appellate Tribunal passed ord ers in the assessment years prior to the assessment year in questi on, Counsel for the Revenue could not point as to how interest on borrowed funds to the extent of ₹ 2.79 crores was attributable t o earning dividend i .....

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held/observed as under:- The revenue has preferred this appeal under Section 260A of Income Tax Act, 1961 (for short, the Act ) for the assessment year 2004- 05 against the order of Income Tax Appellate Tribunal, Chandigarh Bench 'B', passed in ITA No. 247/Chandi/2008 on 4.7.2008, proposing to raise following substantial question of law:- (i) Whether on the facts and in law, the Hon'ble ITAT was legally justified in deleting the disallowance of ₹ 3,48,04,375/- under Section 14 .....

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or earning this income and as a result of the said inquiry addition was made by way of disallowance under Section 14A (3), which was partly upheld by the CIT (A). The Tribunal held that there was no nexus with the expenditure incurred and the income generated. The finding recorded are as under:- We have perused the same and find that the plea of the assessee that the entire investments have been made out of the dividend proceeds, sale proceeds, debenture redemption etc., is borne out of record. .....

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e non-interest bearing funds have been utilized for making the investments. At pages 3 to 6 of the paper book are placed the details of the Bank accounts, wherein the amount of dividend, sale proceeds of shares, debenture redemption etc. have been received and later on invested in the investments in question. Such funds are ostensibly without any burden of interest expenditure. Thus, on facts we do not find any evidence to show that the assessee has incurred interest expenditure in relation to e .....

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the disallowance under Section 14A, unless there is evidence to show that such interest bearing funds have been invested in the investments which have generated the 'tax exempt dividend income.' As noted earlier, there is no nexus established by the Revenue in this regard and therefore, on a mere presumption, the provisions of Section 14A cannot be applied. Thus, we find that the CIT (Appeals) erred in part sustaining the addition. In fact, in the absence of such nexus, the entire additi .....

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hus disallowance was justified. We are unable to accept the submission. In view of finding reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the investment in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under Section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenu .....

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se finding on this aspect, against the revenue, is not shown to be perverse. Consequently, disallowance is not permissible. We have taken this view earlier also in ITA No. 504 of 2008 (Commissioner of Income Tax Chandigarh II vs. M/s Winsome Textile Industries Limited, Chandigarh), decided on 25.8.2009, wherein it was observed as under:- 6. Contention raised on behalf of the revenue is that even if the assessee had made investment in shares out of its own funds, the assessee had taken loans on w .....

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