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Hindustan Motors Limited, Versus Deputy Commissioner of Income Tax

Disallowance under section 14A of the Act read with Rule 8D - Held that:- In the absence of requisite satisfaction recorded by the Assessing Officer showing how the disallowance offered by the assessee under section 14A was not correct having regard to its books of account, it was not permissible to the Assessing Officer in law to invoke section 14A and make a further disallowance. As such, considering all the facts of the case, we are of the view that the disallowance made by the Assessing Offi .....

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by us of the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest under section 14A while deciding Ground No. 1 involved in this appeal of the assessee. Consequently this ground is treated as allowed. - Decided in favour of assessee

MAT credit against tax before levy of surcharge and education cess - Held that:- Assessee’s appeal is squarely covered against the assessee by the decision of the Hon’ble Supreme Court in the case of CIT - .....

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for the Respondent ORDER Per Shri P.M. Jagtap:- This appeal is preferred by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-VI, Kolkata dated 24.11.2011 for the assessment year 2008-09. 2. The issue involved in Ground No. 1 relates to the addition of ₹ 2,11,27,261/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules. 3. The assessee in the present ca .....

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A of the Act read with Rule 6D to the extent of ₹ 36,51,843/-. According to the Assessing Officer, the computation of the said disallowance as worked out by the assessee was not in accordance with the relevant provisions of the Income Tax Act. He noted that expenditure incurred on interest amounting to ₹ 14,40,52,291/- was claimed as deduction by the assessee, but the same was not considered for the purpose of computing the disallowance to be made under section 14A read with Rule 8D. .....

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er alia, were made by the assessee before the ld. CIT(Appeals) in support of its stand that there was no interest expenditure, which was required to be allocated under Rule 8D(ii) of the Income Tax Rules for the purpose of computing disallowance under section 14A of the Act :- "The appellant also produced copies of bank accounts and submitted that from the details of interest paid and claimed in the return, it will be clear that the entire borrowings were for the purpose of business and no .....

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of its own funds and not out of any borrowings. The appellant filed evidence before the AO in support of its contention that no part of the interest paid during the year on the borrowings related to investment made during the year. In the income-tax assessments of the appellant for earlier years (assessment years 2006-07 and 2007-08), the AO himself has accepted similar contention of the appellant that interest expenses paid on borrowings for business should not be allocated against exempt divi .....

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dividend. The assessee has loans of ₹ 189.23 crores as on 1.4.2007 and ₹ 112.32 crores as on 31.3.2008 as per the statement of accounts. The assessee has its own assets as per audited accounts amounting to ₹ 174.49 cores as on 31.3.2008. The assessee has submitted that all the loans are for specific purposes. None of the loan money has been utilised for the investments. There is no separate account maintained by the assessee for investments. The funds are used from the common k .....

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cility used from the same or other banks and loans outstanding in the name of the assessee. 6. The loans may have been taken for purchase of machinery but out of the use of the machinery the manufacturing process is carried out and the manufactured goods are sold. The said sale price on receiving may be going for investment. Therefore, it can. b.e said that there is no relation between the loans taken by the assessee and the investments made by the assessee but it cannot also be established that .....

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ure of Capital and Reserve & Surplus have been arrived at. The plea of the assessee is not acceptable since the Income Tax Act provides depreciation on real use basis and the market value of the asset normally is same office such use. While in the Companies Act, 1956 the depreciation is provided at fixed rate irrespective of the year of purchase. Therefore, the business loss as per income tax is real loss to look into the capital of the assessee and to compute income of the assessee or real .....

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les 1962 Provides any expenditure by way of interest which is not directly attributable to any particular income or receipt then the interest has to be calculated as per formula provided therein. Now, the law has provided a specific method of calculation of interest expenditure on exempted income from AY. 2008-09 and it is applicable directly in the case of the assessee. In this case, it can not be said that the loans have been taken for specific purposes and that money is entirely being used th .....

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al, investments, loans and business expenditure. In absence of any presumption in favour of the assessee and specific rule i.e. Rule 8D(2)(iii) being applicable from assessment year 2008-09 the expenditure by way of interest has to be calculated as per the specific provision provided in Rule 8D". 6. For the reasons given above and relying on the decision of the Hon ble Calcutta High Court in the case of ISG Traders Ltd. -vs.- CIT (ITA No. 264 of 2003) and in the case of Dhanuka & Sons - .....

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e s case for assessment year 2006-07 (copy placed at pages no. 60 to 66 of the paper book) to point out that the entire interest expenditure claimed by the assessee in that year was allowed by the Assessing Officer after recording a finding that no interest expenses was found to have been incurred by the assessee for the purpose of making investment. He also pointed out from the assessment order passed by the Assessing Officer under section 143(3) for assessment year 2007-08 that no disallowance .....

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sallowance on account of interest under section 14A in view of the finding already recorded by the Assessing Officer in the assessments completed for the earlier years, i.e. A.Ys. 2006-07 and 2007- 08 that interest bearing borrowed funds were not utilized by the assessee for making investment in shares. He also invited our attention to the written submissions filed before the Assessing Officer as well as before the ld. CIT(Appeals) to point out that it was specifically contended on behalf of the .....

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wance as worked out by the assessee was not accepted by the Assessing Officer and the same was further enhanced without recording any reason for having not satisfied with the correctness of the claim of the assessee in respect of such expenditure having regard to the accounts of the asseessee. Relying inter alia on the decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited -vs.- DCIT reported in 144 ITD 141, as affirmed by the Hon ble Calcutta High Court in ITAT No. 16 .....

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icer in assessee s own case for A.Ys. 2006-07 and 2007-08 making no disallowance under section 14A on account of interest has no relevance to decide the issue relating to disallowance under section 14A in the year under consideration where Rule 8D is now made applicable. 10. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the investment in shares on which the exempt dividend income is earned by the assessee during the year .....

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under section 14A on account of interest was made by the Assessing Officer thereby accepting that the investment in shares was made by the assessee out of its own funds and there was no utilization of interest bearing borrowed funds for making such investment. As pointed out by the ld. Counsel for the assesese from the relevant documentary evidence, the investment made in shares by the assessee-company in the earlier years has continued substantially in the year under consideration and there be .....

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ngle and the view taken by the Assessing Officer in the earlier years has no relevance. We are unable to accept this contention of the ld. D.R. Once it is found that the investment in shares is made by the assessee out of its own funds and there is no utilization of borrowed funds for making such investment, we are of the view that no disallowance on account of interest under section 14A can be made even by applying Rule 8D as the said Rule 8D will have application only in such cases where there .....

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by applying Rule 8D as the assessee had sufficient own fund to make investment in shares and the interest bearing borrowed funds were not utilized for making such investment. 11. It is also observed that in the computation of total income, disallowance of ₹ 2,47,79,104/- was offered by the assessee under section 14A in relation to the expenditure incurred in relation to earning of exempt income and there was no reason given by the Assessing Officer, having regard to the accounts of the as .....

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e is not correct having regard to the accounts of the assessee. It was held that if there is no such satisfaction recorded by the Assessing Officer, no disallowance could be made by him by invoking the provisions of section 14A. Keeping in view this decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited, which has been affirmed by the Hon ble Calcutta High Court, we hold that in the absence of requisite satisfaction recorded by the Assessing Officer showing how the dis .....

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ow Ground No. 1 of the assessee s appeal. 12. As regards the issue raised in Ground No. 2 relating to the addition to be made on account of disallowance made towards interest under section 14A while computing book profits of the assessee-Company under section 115JB of the Act, we find that this issue no more survives for consideration independently on merit as a result of deletion by us of the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest .....

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