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The Assistant Commissioner of Income Tax, Circle 2 (1) (1) , Bangalore Versus M/s. Bhoruka Park Pvt Ltd. and Vica-Versa

2016 (2) TMI 618 - ITAT BANGALORE

Disallowance u/s 14A - CIT(A) allowed the claim - grievance of the revenue is that the Rule 8D should be followed and prorate interest payable on borrowings should disallowed, even if the Assessee had sufficient owned funds for making the investments - Held that:- As from a reading of the ratio of various High Courts on this aspect only actual expenditure which can be attributed to Investments and that too only investments from which exempt income has been earned and excluded in the assessment, .....

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free advance given to BSSL Ltd was not submitted before AO - Held that:- even if it is assumed that this advance was given out of borrowed funds, no part of the interest payable on such notional amount of borrowings cannot be disallowed as the advance was given in the course of business. Therefore on the facts of the case, Applying the ratio of the decisions of the Bombay High Court in the case of CIT v. Reliance Utilities And Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT ] we hold that the int .....

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JAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri Sunil Kumar Agarwala, Jt. CIT(DR) For The Respondent : Shri S. Ramasubramanian, CA ORDER Per Asha Vijayaraghavan, Judicial Member This appeal by the Revenue is against the order dated 27.08.2014 of the CIT(Appeals)-I, Bangalore relating to assessment year 2010-11. 2. The first ground of appeal by the Revenue is against the order of the CIT(A) s order deleting the disallowance of ₹ 13,67,830 .....

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had also disallowed ₹ 83,958/- being 0.5% of such investments towards administrative expenses under Rule 8D(2)(iii). This issue has not been agitated before us. 4. On appeal, the CIT(Appeals) examined the balance sheet as on 31.12.2009 and 31.12.2010 and non-interest bearing funds and interest bearing funds, the details of which are as follows:- Particulars 31/03/2010 31/03/2009 Share Capital 21,00,00,000 21,00,00,000 Reserve & Surplus 8,35,22,431 5,05,81,295 29,35,22,431 26,05,81,295 .....

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no interest is disallowable. 6. Aggrieved the revenue is in appeal. 7. The grievance of the revenue is that the Rule 8D should be followed and prorate interest payable on borrowings should disallowed, even if the Assessee had sufficient owned funds for making the investments. 8. We have heard both the parties. The Delhi High Court in the case of CIT v TAIKISHA ENGINEERING INDIA LTD (370 ITR 338) has held that under sub-section (2) of section 14A of the Income-tax Act, 1961, the Assessing Office .....

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expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, is he entitled to adopt the method as prescribed, i.e., rule 8D . Thus, rule 8D is not attracted and applicable to all assessees who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute the disallowance as per rule 8D. Where the disallowance or nil disallowance made by the assessee is found t .....

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Ltd v CIT (372 ITR 694) has held that Section 14A or rule 8D of the Income-tax Rules, 1962, cannot be interpreted so as to mean that the entire exempt income is to be disallowed. The window for disallowance was indicated in section 14A and was only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the exempt income surely cannot swallow the entire amount. 10. The Punjab & Haryana High Court in the case of CI .....

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xempt income during the relevant previous year which is excluded from computation of Total income in the Assessment. 11. The First Appellate Authority has found as a fact that the Assessee had sufficient funds for making the Investment in shares. There is no details as to the shares which had yielded exempt income for applying the provisions of sec 14A. However the CIT(A) has found as a fact that the Assessee had sufficient funds to make the entire investments. There was no new investment made d .....

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t income has been earned from such investments. 12. In our opinion, from a reading of the ratio of various High Courts on this aspect only actual expenditure which can be attributed to Investments and that too only investments from which exempt income has been earned and excluded in the assessment, has to be disallowed u/s 14A. In the circumstances we have no hesitation in upholding the decision of the CIT(A) deleting the notional disallowance of interest expenditure of ₹ 13,67,830/- made .....

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Acres 26 Guntas of land at Mahadevapura Industrial Area, K.R.Puram, Bangalore and It had entered into a Joint Development Agreement with the assessee company. As per the JDA entered into on 19/09/2006, the entire possession of the land was handed over to M/s. Bhoruka Park Pvt. Ltd., through the registered deed. Further as per the jade, M/s Bhoruka Park Pvt. Ltd has to retain 74% of the right over the land and constructed area of the property. The AO was of the view that It is clear from the JDA .....

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the land transferred. But as per the supplementary agreement dt. 1.11.2007, 26% of the built up area is retained by the assessee company and BSSL retained ₹ 7.5 crores which was given to it as security deposit. 17. From the above, the AO noticed that ₹ 7.50 crores is retained by BSSL and in lieu of this, the assessee company retained 26% of the built up area in Phase-I. But for the supplementary agreement, the assessee company would have received back ₹ 7.50 crores which is sho .....

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iven by the assessee as under:- 19. From the details given above, the CIT(A) observed that ₹ 7.50 crores was advance given to M/s Bhoruka Steel & Services Limited, the sister concern of the assessee. According to the AO, ₹ 7.50 Crores has been parked with M/s Bhoruka Steel Services Pvt. Ltd despite of the fact that transaction relating to immovable property (land) was finalised. However, the CIT(A) observed that since the assessee had sufficient non-interest bearing funds, no int .....

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the Revenue is in appeal before us. 22. We have heard both the parties. The only grievance of the Revenue is that the facts relating to the Interest free advance given to BSSL Ltd was not submitted before the AO. The CIT(A) has found that the Assessee had sufficient interest free owned funds which will cover the interest free loans to BSSL. This is not disputed by the department. The funds are available from the Financials of the Assessee and hence it cannot be said that this constituted fresh m .....

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en out of borrowed funds, no part of the interest payable on such notional amount of borrowings cannot be disallowed as the advance was given in the course of business. Therefore on the facts of the case, Applying the ratio of the decisions of the Bombay High Court in the case of CIT v. Reliance Utilities And Power Ltd. [2009] 313 ITR 340), we hold that the interest free advance of ₹ 7.5 Crores to BSSL was made by the Assessee out of own funds and the advance was for the purpose of the bus .....

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