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The Assistant Commissioner of Income-tax, Corporate Ci rcle 2 (1) , Chennai Versus M/s. Farida Shoes Pvt. Ltd.

Disallowance u/s 14A - excluding interest on bank loan and term loans for the purpose of computing disallowance - Held that:- As relying on Champion Commercial Co Ltd case [2012 (10) TMI 24 - ITAT, KOLKATA ] we uphold the order of the Commissioner of Income Tax (Appeals) in excluding the interest on bank loan and term loans for the purpose of computing disallowance under Rule 8D(2)(ii). - Decided in favour of assessee

Disallowance of foreign travel expenses - Held that:- on surmises a .....

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tive Act - Held that:- In the present case, the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income, thus no disallowance required - Decided in favour of assessee - ITA Nos. 2102, 2103/Mds/2015 - Dated:- 8-1-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Shri P. Radhakrishnan, JCIT For The Respondent : Mrs. S. Vidya, CA ORDER PER CHANDRA POOJA .....

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3.2012 respectively. The Assessing Officer by invoking the provisions of sec.14A r. Rule 8D of the IT Rules, worked out the disallowance at ₹ 63,78,704/- and ₹ 42,69,311/- for the assessment years 2011-12 and 2012-13 respectively. On appeal, the Commissioner of Income-tax(Appeals) though confirmed the invoking of provisions of sec.14A r.w. Rule 8D, he observed that interest paid to various parties is relating to packing credit, letters of credit and term loans, which are directly att .....

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us. 4. We have heard both the parties and perused the material on record. The ld. DR submitted that there is no documentary evidence available to show that the loans availed by the assessee were for the business purposes and the Commissioner of Income-tax(Appeals) has given a relief to the assessee after considering the details of the loans borrowed by the assessee though these documents were not before the AO for his examination. On the other hand, the ld. AR submitted that all financial statem .....

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e are part of return of income of the assessee. The details of loans, packing credit, letters of credit and term loans were available from the financial statements for the purpose of business and the details of interest paid out of borrowings were very much reflected in the P&L account. When the details are very much available in the returns of income, the Department is precluded from saying that there is admission of evidence before the Commissioner of Income-tax(Appeals). So, it cannot be .....

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of the IT Rules and the relevant portion is reproduced as below: 10. Heard both sides. Perused the orders of lower authorities and the decision of Calcutta Bench of this Tribunal relied on by the assessee s counsel. This issue has been considered elaborately by the Commissioner of Income Tax(Appeals) and deleted the interest on bank loan and term loans which were not utilized for making any investments having tax free income. While holding so, the Commissioner of Income Tax (Appeals) held as und .....

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ceipt, the AO has determined the amount at ₹ 1,04,38,000/. The AO has taken into account the entire interest expenditure of Rs. .5,79,46,000/- for computing the above disallowance. The Id.AR, in his submission, has given the break-Up of interest which includes (1) interest on bank loans: ₹ 67,92,000/- (2) interest on term loans ₹ 3,82,11,000/- and (3) interest on other accounts: ₹ 1,29,43,000/-. If loans have been sanctioned for specific projects/expansion and have been u .....

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zation of funds for purposes other than for the utilization for which they are sanctioned. From the ledger extract for the year ended 31.03.2008 for both loan accounts, it is seen that no amount has been utilized for investment in subsidiaries which earns tax-free income. The loan amounts were fully disbursed and utilized in the year ended 31.03.2008 (A.Y. 2008-09) itself. Taking into all the facts as stated above, I am of the considered opinion that if loans/borrowed amounts are granted for spe .....

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interest on other accounts amounting to ₹ 1,29,43,000/- for computing the proportionate disallowance under rule 80(2)(ii). 11. On going through the order of the Commissioner of Income Tax (Appeals), we find that the Commissioner of Income Tax (Appeals) excluded the interest on bank loan and term loans from the calculation of disallowance under Rule 8D(2)(ii) as the assessee has utilized the bank loan and term loan for the purpose of purchase of machineries and for expansion of projects and .....

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bunal had considered a situation when the loans were utilized for the purchase of machineries, interest arising out of such loans, whether such interest is to be excluded for the purpose of computing disallowance under Rule 8D(2)(ii), the Tribunal held that such interest has to be excluded. While holding so, it has held as under:- 11. There is no dispute about working of this method so far as rule 8D(2)(i) and (iii) is concerned. It is only with regard to the computation under rule 8D(2)(ii) tha .....

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diture by way of interest………..which is not directly attributable to any particular income or receipt and the only categories of income and receipt, so far as scheme of rule 8 D is concerned, are mutually exclusive categories of tax exempt income and receipt and taxable income and receipt . No other classification is germane to the context in which rule 8 D is set out, nor does the scheme of Section 14 A leave any ambiguity about it. 12. Ironically, however, the definition of .....

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butable to any particular income or receipt, plus interest which is directly attributable to taxable income (emphasis by underlining supplied by us). This incongruity will be more glaring with the help of following simple example: In the case of A & Co Ltd, total interest expenditure is ₹ 1,00,000, out of which interest expenditure in respect of acquiring shares from which tax free dividend earned is ₹ 10,000. Out of the balance ₹ 90,000, the assessee has paid interest of & .....

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axable income) will be A = amount of expenditure by way of interest other than the amount of interest included in clause (i) [ i.e. direct interest expenses for tax exempt income] incurred during the previous year . Let us say the assets relating to taxable income and tax exempt income are in the ratio of 4:1. In such a case, the interest disallowable under rule 8 D(2)(ii) will be ₹ 18,000 whereas entire common interest expenditure will only be ₹ 10,000/-. 13. The incongruity arises .....

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the rigid words of Rule 8D(2)(ii), the stand taken by the revenue authorities about its application, as was before Hon ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) when constitutional validity of rule 8 D was in challenge, is that It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is d .....

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indirectly relatable to taxable income and tax exempt income, can be computed. This is clear from the following observations made by Their Lordships of Hon ble Bombay High Court in the case of Godrej & Boyce (supra): 60. In the affidavit-in-reply that has been filed on behalf of the Revenue an explanation has been provided of the rationale underlying r. 8D. In the written submissions which have been filed by the Addl. Solicitor General it has been stated, with reference to r. 8D(2)(ii) that .....

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nt/machinery etc.)…………… The justification that has been offered in support of the rationale for r. 8D cannot be regarded as being capricious, perverse or arbitrary. Applying the tests formulated by the Supreme Court it is not possible for this Court to hold that there is writ on the statute or on the subordinate legislation perversity, caprice or irrationality. There is certainly no 'madness in the method'. 16. Once the revenue authorities have taken a .....

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amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.) . Accordingly, even by revenue s own admission, interest expenses directly attributable to tax exempt income as also directly attributable to taxable income, are required to be excluded from computation of c .....

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nt to rule 8D(2)(ii) or by adopting an interpretation as per plain words of the said rule, but even on the face of things as they are at present , in our humble understanding, revenue authorities cannot take one stand when demonstrating lack of perversity, caprice or irrationality in rule 8D before Hon ble High Court, and take another stand when it comes to actual implementation of the rule in real life situations. Therefore, even as we are alive to the fact that the stand of the learned Departm .....

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ssue. In view of the above, this ground of appeal of the Revenue is dismissed. 6. The next ground in ITA No.2103/Mds/15 is with regard to disallowance of foreign travel expenses of ₹ 2,61,898/-. 7. The facts of the issue are that the assessee has debited an amount of ₹ 41,89,798/- out of which ₹ 10,47,593/- was used for purchase of foreign currency by the Director during the period of foreign travel. The AO disallowed 25% of the foreign currency purchases of ₹ 10,47,593/- .....

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sister concern in the case of M/s. Farida Classic Shoes P. Ltd. v. DCIT in ITA No.1792/Mds/2015 dated 20.11.2015, the Tribunal vide its order dated 20.11.2015 observed as follows: 5. We have heard both the parties and carefully perused the materials available on record. From the facts of the case, it is apparent that both the Ld. Assessing Officer and the Ld. CIT (A) has not doubted the genuineness of the expenditure. They have made the addition and sustained the same, only for the reason that v .....

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urrency and no portion of the same is surrendered. From the meager amount of ₹ 15,02,047/- incurred towards foreign travel expenditure it cannot be presumed that any significant amount would have been spent for personal purpose. Therefore, we hereby direct the Ld. Assessing Officer to delete the addition made for ₹ 3,75,512/- towards disallowance of foreign travel expenses. 9. Considering the facts and circumstances of the case, we are inclined to hold that on surmises and presumptio .....

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of ₹ 2,29,048/-, by invoking the provisions of sec.43B of the Act in respect of employees contribution towards PF & ESI as it was not paid within due date under the respective Act. The Commissioner of Incometax( Appeals) observed that the employees contribution was remitted within due date of filing of return u/s.139(1) of the Act and allowed the claim of the assessee. Against this, the Revenue is in appeal before us. 12. We have heard both the parties and perused the material on recor .....

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