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2016 (2) TMI 422 - ITAT JAIPUR

2016 (2) TMI 422 - ITAT JAIPUR - TMI - Disallowance u/s. 14A read with Rule 8D - Held that:- It is undisputed fact that the assessee has reserved and surplus share capital to the extent of ₹ 5888.76 lacs. The assessee has mixed fund, the presumption for interest free fund is also applicable in the case of assessee but following the various decisions on this issue, Section 14A read with Rule 8D becomes redundant. It is also a fact that the management as well as staff and other office facili .....

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MEENA, AM & SHRI LALIET KUMAR, JM For The Assessee : Shri P.C. Parwal (CA) For The Revenue : Shri Kailash Mangal (JCIT) ORDER PER T.R. MEENA, A.M. This is an appeal filed by the assessee against the order dated 24/12/2013 of the learned CIT(A), Alwar for A.Y. 2010-11. The effective grounds of appeal are as under:- 1. That the learned Assessing Officer has erred in law as well as on facts and circumstances of the case in making the disallowance out of misc. exp of ₹ 463487.00 and ld CIT .....

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erred in sustaining of sum of ₹ 20000.00 out of the same. 4. Disallowance of interest of ₹ 2384269.00.00:- 4.1 That the learned Assessing Officer has erred in law as well as on the facts and circumstances of the case in giving a finding that the assessee company has invested its interest bearing funds in the investment in shares, whereas facts remains that assessee company has not invested the interest bearing funds in the form of reserve and surpluses have been invested in the shar .....

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rs and generation of electricity and also engaged in the activity alleged to its main activity like manufacturing of Tin container. The assessee filed return for the year under consideration on 13/10/2010 declaring total income of ₹ 5,87,85,887/- (before claiming deduction U/s 80IA of ₹ 1,65,35,380/-). The assessee had shown agricultural income of ₹ 50,500/-. The book profit U/s 115JB of the Income Tax Act, 1961 (in short the Act) had been calculated at ₹ 4,77,94,225/-. T .....

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ause notice on it. He held that the assessee had produced date wise details of Misc. expenses and submitted that these expenses included payment made for tea, refreshment, sweet and thanda etc. for the customers but admitted that these expenses are not vouched and booked through self made vouchers. These expenses were incurred to entertain customers and incurred wholly and exclusively for the business purposes. He further held that excess booking of office expenses through self made vouchers can .....

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order passed by the Id. CIT(A) in the case of the appellant for the preceding year i.e. A.Y. 2009-10, vide order dated 25- 03-2013 in Appeal No. 344/2011-12. My Id. Predecessor had upheld a disallowance of ₹ 1 lac under this head out of the total disallowance made by the AO of ₹ 4,26,890 in the last year. Since, during the period under consideration the turnover has declined by 15.75% and the claim of expenses under this head on the contrary have increased from 0.08% to 0.10% in the .....

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al before us. The ld AR of the assessee has submitted that the assessee during the course of assessment proceedings had submitted date wise complete details of Misc. Expenses. The Assessing Officer had not pointed out any expenses where the expenditure is excessively booked through self made vouchers. The total expenditure incurred through self made vouchers is only ₹ 3,59,202/-. The ld AR has drawn our attention on page No. 16 of the paper book. There cannot be any correlation of these ex .....

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d the addition in A.Y. 2007- 08 at ₹ 74,132/- and in A.Y. 2009-10 at Rs. One lac against the addition made by the Assessing Officer at ₹ 2,50,313/- and ₹ 4,26,890/- respectively. The appeal against the CIT(A) s order is pending before the Hon ble Bench for both the years. 5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the ld CIT(A) was quite reasonable to confirm the addition on the basis of evidence produced by the assessee. 6. .....

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assessee is partly allowed. 7. The second ground of the appeal is against disallowance out of repair and maintenance of ₹ 2,96,122/-. The Assessing Officer observed that the assessee had debited under this head a sum of ₹ 29,61,229/- and in preceding year, which was at ₹ 17,14,889/-. As mentioned in the preceding para, the assessee s turnover has declined. The Assessing Officer also gave reasonable opportunity of being heard on this issue. The assessee produced the bills/vouche .....

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ssing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing as under:- 6.3 I have perused the assessment order as well as submission made by the AR and find that AO had made the disallowance on the ground that the turnover during the period under consideration has declined by 15.75% as compared to the turnover in the preceding year, whereas, the expenses under this head have increased from 17,14,889 (last year) to ₹ 29,61,229 in this yea .....

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rther stated that in the case of the appellant, CIT(A) had in the preceding year upheld a disallowance of ₹ 30,000 (out of total disallowance of ₹ 1 lac) under this head. 6.5 I have gone through the details and find that the appellant has reiterated the same submissions which were filed before the AO and could not place any evidence to controvert the findings given by the AO. The appellant has not been able to convince on the reasons for increase of 72.67% in the expenses claimed und .....

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es in proportion to the turnover have increased from 0.03% (last year) to 0.067% in the period under consideration. Further, I do not agree with the argument that these expenses are more or less fixed in nature unless some evidence was produced to this effect. Even if this logic would have been found to be true than also the increase of 72.67% in the expenses claimed cannot be explained despite fall in the turnover. Thus, considering all these factors, I hold that the disallowance of ₹ 2,9 .....

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er book. There cannot be any correlation of these expenses with the turnover of the assessee. He further argued that there was a disallowance under this head in A.Y. 2007-08 and 2009-10 by the Assessing Officer at Rs. One lac each, which was confirmed by the ld CIT(A) at ₹ 47,952/- in A.Y. 2007-08 and ₹ 30,000/- in A.Y. 2009-10. Therefore, he prayed to delete the lump sum addition made by the Assessing Officer and confirmed by the ld CIT(A). 10. At the outset, the ld DR has vehementl .....

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4,50,698/-, which are not verifiable from the third party. The addition made by the Assessing Officer appears to be higher side, therefore, we uphold the disallowance at ₹ 1 lac. On this ground, the appeal of the assessee is partly allowed. 12. The third ground of the appeal is against confirming the addition under the head disallowance of travelling expenses at ₹ 20,000/-. The ld Assessing Officer observed that under this head, the assessee had debited ₹ 40,23,684/-. The asses .....

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carried out by the staff and others. Therefore, excess expenses booked cannot be ruled out. Thus, the ld Assessing Officer made lump sum addition of ₹ 50,000/- out of total travelling expenses. 13. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had partly confirmed the addition by observing that the assessee has not able to produce all the bills/vouchers before the Assessing Officer and purpose of travelling has not been men .....

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t disallowance made by the Assessing Officer and confirmed by the ld CIT(A) is nominal out of total travelling expenses of ₹ 40.23 lacs, accordingly, we dismiss the assessee s appeal on this ground. 15. The ground No. 4 of the appeal is against making disallowance of ₹ 23,84,269/- under Rule 8D of the Income Tax Rules, 1962 (in short the Rules). The ld Assessing Officer observed that the assessee had declared dividend income of ₹ 54,760/-. The assessee was asked to give the cal .....

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hares. The assessee had deliberately declared the aggregate investment of ₹ 6.65 crores out of reserved and surplus of ₹ 59.88 lacs. The assessee always had interest bearing fund in the form of making capital loan from bank and unsecured loan for day to day functioning and did not have surplus fund for investment in shares. In the instant case, neither there was question of commercial expediency nor loan/advances to its sister concerns but question of proving the nexus between the in .....

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ears to the total income of the company. The ld Assessing Officer further held that expenditures were incurred by the assessee company on the earning of the dividend income. She further held that earning of dividend and investment in shares, the management had utilized time in decision making process for selling the scripts for investment and other formalities also were made by the staff. There are incidental expenditures of collection, telephone, follow up etc. therefore, expenses in relation t .....

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ively and calculated the disallowance under Rule 8D of the Rules at ₹ 23,84,269/-. 16. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed by the addition by observing as under:- 10.11 The appellant has not provided details of the source of the investment in shares on a day to day basis before the AO in support of its claim that the interest free investments were out of non-interest bearing funds. In this regard ref .....

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h Court of Delhi has observed that prior to introduction of section 14A, the law was that if the assessee was having a composite and individual business which had elements of both taxable and non- taxable income, the entire expenditure was deductible. While introducing section 14A intention of the legislature was that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The basic object .....

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ing principles would emerge from section 14A and the decision in CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC): (a) the mandate of section 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) section 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (c) the principle of apportionment of expenses is widened by section 14A to includ .....

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ness of appellant is indivisible and the funds available in the business are mixed, the principle of apportionment of expenses, which stands widened by section 14A, have to be applied as per Rule 8D. Further, it may be mentioned that this issue has already been considered in detail by my Id. Predecessor in the case of the appellant in A.Y. 2009-10 in Appeal No. 344/2011-12 dated 25- 03-2013. I am inclined to agree with the findings of my Id. predecessor which pertain to AY 2009-10. 10.16 In view .....

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and the addition made on this account is confirmed. 17. Now the assessee in appeal before us. The ld AR of the assessee has submitted that the total share capital, reserve and surplus of the assessee as on 31/3/2010 was at ₹ 5888.76 lacs. As against investment in shares at ₹ 1685.20 lacs. The assessee had claimed that it had not incurred any expenditure by way of payment of interest for making investment in shares. The source of investment in shares is out of noninterest bearing fun .....

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d or available with the company. If the interest free fund were sufficient to meet the investment, no addition can be made. He relied on the following case laws:- (i) CIT Vs Tailisha Engineering India Ltd. (2015) 370 ITR 338 (HC). (ii) CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 0505 (Bom) (HC). (iii) CIT Vs. UTI Bank Ltd. (2013) 215 Taxman 8 (Guj)(HC) (Magz.) (iv) CIT Vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj)(HC). (vi) CIT Vs Reliance Utilities & Power Ltd. 313 ITR 340 (Bom)(HC). (vii) Saha .....

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