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2016 (2) TMI 789 - ITAT DELHI

2016 (2) TMI 789 - ITAT DELHI - TMI - Disallowance u/s 14A - Held that:- In the absence of any tax free income the corresponding expenditure could not be worked out for disallowance. In the instant case also, the admitted fact is that assessee has not earned any tax free income, therefore, Circular No. 5 of 2014 dated 11.2.2014 issued by CBDT is contrary to the law laid down by the different High Courts directly on the issue in hand.

In view of the above discussion, and the decision o .....

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PILLAI, JUDICIAL MEMBER For The Appellant : Shri V.K. Sabharwal, Adv. For The Respondent : Shri Raman Kant Garg, Sr. DR ORDER PER BEENA A. PILLAI, JM The present appeal arises from the order of the ld. CIT(A)- XXXIII, New Delhi vide order dated 30.09.2013, for assessment year 2009-10, on the following grounds of appeal:- 1. That the Ld. Commissioner of Income Tax (Appeal) has passed the impugned assessment order without taking into consideration all the facts before him which make it unreasonabl .....

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egal, unjustified and required to be deleted. 2. Brief facts of the case as recorded by the ld. Assessing Officer are as under:- 2.1. The assessee filed its return of income for assessment year 2009-10 on 27.09.2009 declaring an income of ₹ 4,47,36,108/. The return was processed u/s 143(1) and the case was selected for scrutiny. Accordingly, notices were issued to the assessee. The assessee is engaged in real estate developer, building activity. 2.2. During the assessment proceedings, the .....

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assessee, the ld. Assessing Officer held that since the assessee has not disallowed the expenses incurred for earning of exempt income in view of the provisions of section 14A read with Rule 8D of the Income Tax Rules, and made an addition of ₹ 5,83,545/-. 3. Aggrieved by the order of the Ld.AO, assessee preferred an appeal before the Hon ble CIT(A). The Ld.CIT(A) held that though during the year, the assessee had net profits amounting to ₹ 4,29,51,263/-, use of borrowed funds for ma .....

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nting to ₹ 68,41,12,730/- and the investment during the year amounts to ₹ 1,75,77,400/- He further submitted that the assessee had earned a net profit of ₹ 4,29,51,263/- and the net surplus was ₹ 2,71,38,381/-. 4.2. The ld.AR submits that the assessee had also taken loan on which it has paid an interest amounting to ₹ 2,10,93,484/-. The ld.AR argued that the Ld.AO on his whims and surmises has assumed that the interest bearing funds have been utilised for the purpos .....

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xempt from tax. The further placed his reliance upon Circular No. 5 of 2014 dated 11.2.2014 wherein the Central Board of Direct Taxes (CBDT) clarified that Rule 8-D read with section 14A provides for disallowance of expenditure even where tax payer in a particular year has not earned any exempt income. 5.1. The ld.DR, submitted that the Assessee s stand in not disallowing any expenditure in this regard is not acceptable though no dividend income is earned during the previous year. The ld.DR subm .....

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is evident from the balance sheet of the assessee that, its investments in shares were only in its subsidiary companies from where the assessee has not earned any dividend income. The assessee over the previous years has made investment in its subsidiary companies and group companies to an extent of ₹ 2,50,51,420/-, under the sub head, Equity shares of subsidiaries Companies(unquoted) and an amount of ₹ 2,50,14,000/- under the sub head, Equity shares of other Companies(unquoted) . 6. .....

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the Act can be made a year in which no exempt income has been earned or received by the Assessee? 6.3. Hon ble High Court relying upon the case of CIT v. Holcim India (P) Ltd. in ITA No. 486/2014, vide order dated 05.09.2014, has answered the question in favour of the assessee. The Hon ble High Court has also relied upon the decisions of; i) Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl. in ITA No. 970/2008 vide order dated 02.04. 2014 (P7 H) ii) CIT v. Hero Cycles Limited .....

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t ascertained and in case, the assessee claimed that no expenditure was incurred, the Assessing Officer should verify the correctness of the claim. Hon ble Court held that where the Assessing Officer was satisfied that no expenditure was incurred, no disallowance should be made under Section 14A. In other cases, the Assessing officer would have to determine the amount of expenditure incurred in relation to the income which did not form part of the total income and the said basis had to be reason .....

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