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M/s. KBD Sugars and Distilleries Ltd. Versus Asst. Commissioner of Income Tax, Circle 11 (5) , Bangalore.

Disallowance made under Section 14A on account of indirect administrative expenses under Rule 8D(2)(iii) - Held that:- There is no movement in the investment portfolio except ₹ 20,000 which too in NSC. Accordingly when there is no movement in the investment portfolio, then, we are in agreement with the claim of the assessee that there is no expenditure incurred by the assessee on account of indirect expenditure for earning the dividend income. Even otherwise while applying the provisions o .....

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set aside the orders of the authorities below on this issue and delete the disallowance made by the Assessing Officer on account of indirect expenditure under section 14A by applying Rule 8D(2)(iii). - Decided in favour of assessee

Disallowance under section 36(1)(iii) being interest calculated at the rate of 10% on the increase in work-in-progress - Held that:- When there is no dispute that the interest expenditure was incurred by the assessee on the term loan used for expansion of i .....

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erest expenditure made - Held that:- We find that when there is no fresh investment during the year under consideration therefore, in view of our finding on this issue in the earlier assessment years, we do not find any error or illegality in the order of the CIT (Appeals) who has recorded that the assessee's own funds are more than ₹ 220 Crores. There is no dispute on this fact that the assessee's own fund as recorded by the CIT (Appeals) amounting to ₹ 220.52 Crores. Therefore, thi .....

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e interest free advance to the sister concerns are shown at ₹ 128.11 Crores which again is a reduction in the amount of advance to the related parties from the earlier years. Therefore when the assessee was having its own sufficient funds of more than ₹ 220 Crores which covers the advance given to the related parties, then the Assessing Officer is not justified in invoking the provisions of section 40A(2) of the Act in making the disallowance of interest expenditure - Decided against .....

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sment Years 2008-09 to 2010-11 respectively. 2. The assessee is a company registered under the Companies Act and is engaged in the manufacturing of Indian Made Foreign Liquor, manufacture of sugar and also generation of power through wind turbines. While completing the assessments under Section 143(3), the Assessing Officer has basically made disallowance under Section 14A on account of interest expenditure as well as on account of indirect expenditure apart from the disallowance made 40A(2) in .....

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regards, the disallowance made by the Assessing Officer 40A(2) in respect of interest free advances given to the related parties. The CIT (Appeals) deleted the said disallowance made by the Assessing Officer on the ground that the said advances made by the assessee from its own funds and not from the interest bearing fund. As regards the disallowance made by the Assessing Officer under Section 36(1)(iii) in respect of the interest on loan taken for expansion of business for the Assessment Year .....

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: 1. The order of the CIT (Appeals) - I, Bangalore to the extent which is against the appellant is opposed to law, weight of evidence, facts and circumstances of the appellant s case. 2. The appellant denies itself liable to be taxed over and above the total income reported by the appellant of Rs.NIL under the facts and circumstances of the case. 3. The learned CIT (Appeals) is not justified in law in restricting the disallowance made by the ld. Assessing Officer under section 14A of the Act re .....

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he statute under the facts and circumstances of the case. 5. Without prejudice to the above the appellant contends that the disallowance made by the ld. Authorities below is highly excessive and the same requires to be reduced substantially under the facts and circumstances of the case. 6. The appellant denies itself liable to be charged interest under Sections 234B and 234D of the Act under the facts and circumstances of the case. 7. The appellant craves leave to add, alter, substitute and dele .....

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ar under consideration the assessee has earned an dividend income of ₹ 63,477, the Assessing Officer apart from the disallowance under Section 14A on account of interest expenditure also made a disallowance of interest expenditure under Section 14A. On appeal, the CIT (Appeals) has confirmed the disallowance made by the Assessing Officer on account of indirect expenditure by applying Rule 8D(2)(iii) of I.T. Rules. 6. Before us, the learned Authorised Representative of the assessee has subm .....

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hat the assessee has incurred certain expenditure for earning the exempt income. In the case of the assessee, the Assessing Officer has not arrived at a proper satisfaction and directly applied Rule 8D(2)(iii) without even giving any finding on the claim of the assessee that no expenditure has been incurred by the assessee for earning the dividend income. The learned Authorised Representative has submitted that for the purpose of invoking the provisions of section 14A r.w. Rule 8D(2)(iii), recor .....

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e learned Authorised Representative has submitted that the disallowance made by the Assessing Officer and confirmed by the CIT (Appeals) on account of indirect expenditure by applying Rule 8D(2)(iii) is not sustainable when the assessee claimed that the assessee has not incurred any expenditure. He has referred to the schedule of investment and submitted that there is no fresh investment during the year under consideration and therefore when there is no change in the investment portfolio of the .....

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rage value of the investment shall be the amount of investment which has yielded the dividend income. Thus the investment which does not yield dividend income cannot be considered for the purpose of disallowance under Rule 8D(2)(iii). Alternatively, the learned Authorised Representative has submitted that the disallowance under Section 14A cannot be more than the exempt income during the year under consideration. In support of his contention, he has relied upon the decision of Bombay Benches of .....

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her hand, learned Departmental Representative has submitted that during the course of assessment proceedings, the Assessing Officer has asked the assessee to file the details regarding the expenditure to be disallowed under Section 14A. The assessee has not furnished any details and even the assessee has not made suo moto disallowance under Section 14A. Therefore the Assessing Officer was justified in making the disallowance under Section 14A. She has relied upon the orders of the authorities be .....

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free securities and dividend income is exempt from tax. Thus the Assessing Officer applied Rule 8D(2)(iii) for the purpose of disallowance under Section 14A. The Assessing Officer has not discussed anything about the indirect expenditure incurred by the assessee for earning the exempt income. The entire discussion is only with respect to the interest expenditure incurred by the assessee during the year under consideration on the loans taken for various purposes. Thus it is clear from the assess .....

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o far as the direct expenditure is concerned, there is no dispute on this issue, the dispute is confined only to the disallowance of the indirect expenditure. Section 14A mandates apportionment of an expenditure incurred for indivisible activities resulting taxable income as well as tax free income. Therefore, the expenditure which has been incurred for such a composite activity resulting both taxable and non-taxable income is required to be apportioned among the taxable and non-taxable income. .....

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and therefore the said expenditure is required to be apportioned. Only when the Assessing Officer is satisfied that there is an expenditure incurred by the assessee which can be apportioned and attributable to earning the exempt income, the provisions of section 14A can be invoked. Only after ascertaining and identifying such expenditure, the Assessing Officer can proceed further for quantifying the apportionment by applying the formula under Rule 8D. Thus the Rule 8D cannot be applied automati .....

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nder :- 9. Vis-à-vis the disallowance made under Rule 8D(2)(iii), a look at the assessment order clearly show that assessee, though it did not take specific plea it had stated that there was nothing which called for a disallowance under section 14A investment portfolio. Reply of the assessee on the proposed disallowance under section 14A of the Act given before the AO read as under : The question of disallowance u/s 14A r.w. Rules 8D will not arise since the company has not made investmen .....

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Drive in Enterprises, the said amount is on account of revaluation of lease hold right and hence no cash has been paid . Though, nothing specific has been mentioned about non-incurring of any indirect expenditure, it is clear that major part of the investments were done in FY: 2005-06. Incremental investment was only 4.80 lakhs. The investment which yielded the dividend income of ₹ 33,600/- claimed as exempt, came from shares worth ₹ 2,30,400/- held in M/s Indian Overseas Bank, whic .....

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not mean that an AO should presume what was in the mind of the assessee and express his approval or disapproval thereon. However, once assessee say that it had incurred no expense covered by section 14A of the Act for its investment portpolio, AO has to make a verification. Especially so, when incremental investments is negligible. In these circumstances, we are of the opinion that CIT(A) while he was justified in deleting the disallowances made under Rule 8D(2)(ii) and ought not have sustained .....

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e concur with the view of the co-ordinate bench of this Tribunal in the case of Subramanya Constructions & Development Co. Ltd. (supra) and accordingly delete this disallowance made by the Assessing Officer on account of indirect expenditure by applying Rule 8D(2)(iii). Further we note that there is no change in the investment portfolio of the assessee as it is evident from the record that except an investment of ₹ 20,000 in NSC, there is no other change in the existing investment of t .....

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eed the amount which is attributable for the earning the exempt income. Since the formula given in the Rule 8D does not recognize the actual expenditure incurred by the assessee but it calculates the disallowance being 0.5% of the average investment therefore, this computation of disallowance cannot disregard and over ride the actual expenditure attributable for earning the exempt income. Accordingly, we set aside the orders of the authorities below on this issue and delete the disallowance made .....

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of section 14A cannot be invoked in respect of the investment in the sister concern which is strategic in nature. In support of his contention, he has relied upon the decision of the Mumbai Benches of the Tribunal dt.26.3.2014 in the case of J.M. Financials Ltd. Vs. CIT in ITA 4521/M/2012 and submitted that the Tribunal in the said case has held that the investment in the subsidiary is for the purpose of holding the controlling state in the group concern and not for earning the income out of inv .....

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e of the assessee as in the said case the investment in the group company was made upto 98% and therefore it was an investment for holding the controlling stake which is not in the case of assessee where the investment is only of ₹ 2 Crores. The learned D.R. has thus contended that when there is a investment during the year, then, the provisions of section 14A r.w Rule 8D(2)(iii) are very much attracted. In rebuttal the learned A. R. has submitted that even otherwise when there is no divid .....

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o efforts to ascertain and identify the expenditure which is attributable to the activity which has resulted taxable and non taxable income and therefore can be apportioned under Section 14A r.w. Rule 8D. Therefore, so far as the requirement of recording the satisfaction the assessment order is lacking this requirement and consequently for want of the pre-requisite condition for making the disallowance under section 14A on account of indirect expenditure the action of the Assessing Officer is no .....

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in the sister concern has not yield any dividend income. The Assessing Officer has just speculated that investment in the shares can only yield dividend income without considering the history and past record of the sister concern of declaring any dividend or not. Therefore, when the purpose of investment is not for earning the dividend income and it is only for holding a controlling stake then the provisions of section 14A cannot be applied. The co-ordinate bench of this Tribunal in the case of .....

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on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case, the only dispute is regarding determination of disallowance of expenditure for earning tax free dividend income of ₹ 18,17,68,458/- the assessee disallowed on its own ₹ 16.50 lakhs u/s 14A. Despite being asked by the AO to furnish the disallowance under rule 8D, the assessee did not furnish the details. The provisions of rule 8D inserted by the IT (Fifth Amendment) Rules 20 .....

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specially in absence of non-furnishing of details for the purposes of calculation of disallowance at ₹ 16.50 lakhs by the assessee on its own. In this view of the matter and in absence of any distinguishable feature brought to our notice by the learned Counsel for the assessee against the order of the CIT(A), we do not find any infirmity in the same. Accordingly the same is upheld and the ground raised by the assessee is dismissed. 8. As it is clear from the finding of Tribunal that the as .....

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ut that these investments are long term investment and no decision is required in making the investment or disinvestment on regular basis because these investments are strategic in nature in the subsidiary companies on long term basis and, therefore, no direct or indirect expenditure is incurred. We find that the department has not disputed this fact that out of the total investment about 98% of the investment are in subsidiary companies of the assessee and, therefore, the purpose of investment .....

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pra) Hon ble Jurisdictional High Court while dealing with the issue of disallowance u/s 14A and application of Rule 8D has recorded the principles as laid down by the Hon ble Supreme Court in the case of Walfort Share and Stock Brokers P. Ltd. [2010] (326 ITR 1,) in para 31 as under:- (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. (b) Section 14A(1) is enacted to ensure that only expenses incurr .....

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ip of the expenditure with income which does not form part of the total income - a disallowance has to be effected. All expenditure under the provisions of the Act has to be disallowed under section 14A Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. 9. After considering these principles as emerged from the decision of Hon ble Supreme Court in the case of Walfort Share and Stock Brokers P. Ltd. (supra), Hon ble Jurisdicti .....

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aving regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this se .....

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f expenditure incurred by an assessee in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed. The method, having regard to the meaning of the expression "prescribed" in section 2(33), must be prescribed by rules made under the Act. What merits emphasis is that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of the total i .....

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scribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must-be arrived at on an objective basis. It .....

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recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Subsection (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the sec .....

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assessee is correct. 11. The assessee has relied upon various decisions of this Tribunal wherein an identical issue has been considered. In the case of Garware Wall Ropes Limited Vs. Addl. CIT (supra), the Tribunal while deciding an identical issue has held in para 2.4 as under:- We have considered the rival submission and carefully perused the relevant records. So far as the issue regarding disallowance u/s 14A in the case where no dividend has been received, the same is covered against the as .....

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ntention of the assessee on this point because the investment has been made by the assessee in the group concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe tha .....

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curred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. The object of section 14A is not allowing to reduce tax payable on the non exempt income by deducting the expenditure incurred to earn the exempt income. In the case in hand it is not the case of the revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure d .....

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e total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income, therefore, it was incumbent on the AO to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into b .....

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his Tribunal in the case of M/s Oriental Structural Engineers (P) Ltd (supra) which has been confirmed by the Hon ble Delhi High Court vide decision dated 15.01.2013 in para 6.3 as under:- '6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of ₹ 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner .....

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t for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A LW. Rule 8D because it cannot be termed as expense/ interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum ₹ 40,556/- calculated@2%ofthedividend earned is sufficie .....

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nce of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified, accordingly the same is deleted. In view of the facts and circumstances of the case and when the Assessing Officer has not expressed or recorded any satisfaction by identifying the expenditure which has been incurred by the assessee for earning the dividend income the disallowance for the Assessment Year 2009-10 under Section 14A on account of indirect expend .....

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6. The learned CIT (Appeals) is not justified in law in conforming the disallowance made by the ld. Assessing Officer under section 36(1)(iii) of the Act of ₹ 21,03,510 being interest calculated at the rate of 10% on the increase in work-in-progress amounting to ₹ 2,10,35,105 (i.e. ₹ 9,21,96,773 minus ₹ 7,11,61,668) instead of deleting the entire disallowance under the facts and circumstances of the case. During the course of assessment proceedings, the Assessing Officer .....

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e Assessing Officer has made a disallowance of ₹ 21,03,510 being the interest calculated at the rate of 10% on increase in the capital work-in-progress amounting to ₹ 2.10 Crores. On appeal, the CIT (Appeals) has confirmed the disallowance made by the Assessing Officer. 14. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. There is no dispute that the assessee has borrowed the term loan f .....

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for acquisition of an asset 58[for extension of existing business or profession] (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation.-Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall .....

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sed. 15. Now we will take up the revenue s appeal. 16. The revenue has raised common grounds in these appeals. The grounds for the Assessment Year 2008-09 are reproduced as under :- 1. The order of the learned CIT (Appeals) in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The CIT (Appeals) erred in deleting the disallowance of ₹ 34,23,969 calculated under rule 8D(2)(ii) holding that none of the interest payments cl .....

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at the interest payments on working capital and KSBCL advance indirectly were used for the purpose of making tax free investments. 5. The CIT (Appeals) erred in deleting the disallowance ofRs.34,23,969 calculated under Rule 8D(2)(ii) holding that no tax free investments are made during the year. 6. The CIT (Appeals) erred in not appreciating the fact that the assessee failed to prove that interest free advances were out of interest free funds. 7. The CIT (Appeals) erred in not appreciating the f .....

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prayed that the order of the CIT (Appeals) be reversed and that of the Assessing Officer be restored. 10. The appellant craves leave to add, to alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 17. Ground Nos.1 to 5 is regarding the deletion of disallowance made by the Assessing Officer under Section 14A r.w. 8D(2) on account of interest expenditure. The Assessing Officer noted that the assessee has invested more than ₹ 7 Crores in securities .....

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the interest expenditure of the assessee during the year is related to the specific loans used for specific purpose, the same cannot be attributed for earning the tax free income. Thus the CIT (Appeals) held that when the said payment cannot be attributable to the borrowings specifically used for tax exempt income and no tax free investment has been made during the year under consideration then the disallowance made by the Assessing Officer is deleted. 18. Before us, the learned Departmental Rep .....

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o disallowance on account of interest expenditure under Section 14A for the earlier assessment years when the investment was made. Since there is no investment made during the year under consideration, therefore, no disallowance on account of interest expenditure can be made under Section 14A. He has further submitted that whatever expenditure on account of interest has been incurred by the assessee during the year under consideration is in respect of specific loans taken by the assessee which h .....

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ord. There is no dispute that there is no fresh investment during the Assessment Year 2008-09 except a sum of ₹ 20,000 in the NSCs. Therefore there is no use of any fund whatsoever for the purpose of making the investment during the year under consideration. The entire investments were made in the earlier yeas and it is not the case of Assessing Officer that there was a disallowance on account of interest expenditure under Section 14A in the earlier assessment year. Further, the Tribunal f .....

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2,461 Interest on term loans 3,62,41,904 Interest on working capital 11,77,98,115 Interest on KSBCL Advance 81,36,431 Interest on vehicle loan (motor car) 5,86,253 Interest on vehicle loan (motor trucks) 11,33,490 Total : 17,84,58,674 It is clear from the details as recorded by the CIT (Appeals) and has not been disputed by the revenue that the entire expenditure during the year has been incurred in respect of the interest on term loans, interest on working capital, interest on specific other ad .....

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on account of interest expenditure under Section 40A in the earlier year and there is no fresh investment during the year under consideration as well as the interest expenditure during the year is on account of specific loans for specific purposes, we do not find any error or illegality in the order of the CIT (Appeals) in deleting the said disallowance made by the Assessing Officer under Section 14A on account of indirect interest expenditure. 21. The next issue raised by the revenue in the Gro .....

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the assessee was paying ₹ 17.84 Crores towards interest on borrowals. Accordingly the Assessing Officer invoked the provisions of section 40A(2) and made a disallowance of interest expenditure of ₹ 16.41 Crores. 22. On appeal, the CIT (Appeals) deleted the disallowance made by the Assessing Officer by noting the fact that the assessee's own interest free funds are more than the interest free advances given by the assessee to the sister concerns/related parties. The CIT (Appeals) .....

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erest by applying the rate of 15% which is being paid by the assessee on the borrowed fund and therefore the Assessing Officer was justified in applying the provisions of section 40A(2) of the Act while proportionately disallowing the interest expenditure on account of interest free advances given by the assessee to the related partied and sister concerns. When the assessee is paying a huge amount on account of interest expenditure then the advances given to sister concerns and related parties a .....

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r dt.22.11.2013 and the Tribunal has deleted the addition made by the Assessing Officer on account of interest free advances given to the sister concern on the ground that the assessee was having sufficient interest free funds for advancing to sister concerns. He has further contended that the CIT (Appeals) has recorded and reproduced the details of the assessee's own fund which is more than the funds advanced to the sister concerns. Therefore in view of the fact that the no interest bearing .....

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section 40A(2) and made a proportionate disallowance of interest expenditure. The CIT (Appeals) has deleted the disallowance made by the Assessing Officer. In para 4.4 to 4.7 of the impugned order as under : 4.4 I have carefully considered the appellant s submissions and the reasons given by the AO in the assessment order. The AO noted that the appellant had advanced interest-free loans to various sister concerns amounting to ₹ 179 crores. The AO also found that the appellant was paying &# .....

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t by the AO. There is a totalling mistake in this regard. It is also pointed out by the appellant that the AO considered the advance of ₹ 2,05,08,600/- given to Sapthagiri Enterprises, Bangalore was an interest-bearing loan and the appellant received interest at the rate of 10% and the same was offered for taxation. 4.5 The question isJ whether the AD is justified in making the interest disallowance. It is seen from the balance sheet that the interest-free advances given to various sister .....

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e loans to sister concerns amounting to ₹ 155.51 crores. Thus it can be concluded that the interest-free advances were out of the interest-free funds available with the appellant. The details of interest payment have already been extracted at para 3.6 above. A perusal of the said interest payment indicates that they were incurred for the purpose of business and they are allowable u/s 36(1) (iii) of the Act. There is no material available on record to show that interest -free funds are dive .....

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ssed interest-free funds generated or available with the company if the interestfree funds were sufficient to meet their investments. In the present case, the interst-free funds available with the appellant are ₹ 158.47 crores and whereas the interest-free advances were only ₹ 155.51Crores. Thus there cannot be any disallowance of interest on account of account of interest-free advances made to the sister concerns in the instant case. It is also not the argument of the appellant that .....

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ng decision in the Varinder Agro Chemicals Ltd. case cited above. It should be mentioned that the decision in the case of Abhishek Industries rendered by the Punjab & Haryana High Court was overruled by the Hon'ble Supreme Court in the case of Manjula sales Corpn. [298-ITR-298(SC)]. The decision in the case of Doctor & Co. is distinguishable on facts because there is a clear finding by the AO in the said case that the borrowed funds were diverted towards interest-free loans. In the i .....

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39;s own case and the Tribunal has given a finding in paras 9.5.1 & 9.5.2 are as under :- 9.5.1. As could be seen from the details furnished by the assessee during the course of hearing that the chunk of interest free loans to the tune of ₹ 117.39 crores were out of noninterest bearing funds, comprised of capital, reserves & surplus and interest free unsecured loans to the extent of ₹ 170.93 crores. Thus, the question of interest bearing funds being utilised to advance non-in .....

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that the interest bearing loans obtained from the banks were availed for specific purposes, namely, working capital, KSBCL Advance, vehicle loans [motor cars, trucks] etc., [Copies of Balance Sheet/Schedules to P & L a/c as at March 31, 2007 are placed on record]. ITA Nos.1362 & 1363 if 2011 JBD Sugars & Distilleries Ltd., Bangalore. 9.5.2 We shall now analyse the case laws as to whether the AO was within her realm to disallow the interest amount of ₹ 10.97 crores. (i) CIT v. R .....

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eted the addition which was subsequently upheld by the Tribunal. On appeal, the Hon ble Court had held that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case, this presumption was established considering the finding the fact both by the Commissioner (Appeal .....

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issue before the Hon ble Court, in brief, was that the AO noticed that the assessee had incurred heavy interest expenses of ₹ 59.83 lakhs and, on the other hand, it had given interest free loans to the parties to the extent of ₹ 19.45 crores. On examining the details furnished, the AO disallowed the interest to the extent of ₹ 18.66 lakhs of the interest -free loans advanced on the premise that the expenses were not incurred for business expenses. The CIT (A) set aside the orde .....

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to sister concerns and the borrowed money was not utilized for the purpose of advance to its sister concerns and the interest was not disallowable merely on account of the utilization of the funds for nonbusiness purposes. On appeal, the Hon ble Court held that when there was no evidence brought on record by the Department for the Tribunal to hold otherwise than what had been concluded by way of any material; the assessee was eligible for allowance of interest. 9.5.3. Taking all the above facts .....

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there is an increase in the interest free advances of about ₹ 37 Crores. Therefore to the extent of ₹ 117.39 Crores advanced in the earlier year the issue has been settled by the Tribunal that the assessee was having sufficient funds. The CIT (Appeals) has recorded that the assessee's own fund during the year is more than the advance given to the sister concern, therefore, we do not find any reason to interfere with the finding of the CIT (Appeals) that the assessee is having its .....

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; 2 Crores in the sister concern namely Green Food Park Ltd. 27. We have heard the learned Departmental Representative and learned Authorised Representative as well as considered the relevant material on record. The learned Authorised Representative of the assessee has pointed out that the investment is a strategic investment in the sister concern therefore provisions of section 14A are not applicable. Even otherwise the assessee was having its own fund for making the said investment of ₹ .....

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has relied upon the order of the Assessing Officer and submitted that when the assessee has made a fresh investment during the year, therefore, to the extent of said investment, the facts are distinguishable from the earlier years. 28. Having considered the rival submissions and careful consideration of the facts, we note that for the Assessment Year 2009-10, the interest free advance to the related parties amounting to ₹ 144.78 Crores in comparison to ₹ 155 Crores in earlier assessm .....

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sessing Officer on account of interest expenditure under Section 14A. 29. The next ground is regarding the disallowance of interest attributable to the diverted fund to the related parties by invoking the provisions of Section 40A(2). As we have discussed in the foregoing paras that during the year the interest free advances were shown at ₹ 144.87 Crores in comparison to ₹ 155 Crores in the earlier assessment year, therefore there is a reduction in the interest free advances to the r .....

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