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2016 (4) TMI 463 - ITAT DELHI

2016 (4) TMI 463 - ITAT DELHI - TMI - Disallowance u/s 14A read with Rule 8D - Held that:- We find that the assessee has earned exempt income to the tune of ₹ 17,56,369/- and has suo motu disallowed ₹ 61,666/- u/s 14A of the Act. We find that the AO has invoked Rule 8D without pointing out any reason for not being satisfied with the computation made by the assessee in respect of expenditure incurred for earning exempt income. The Hon’ble jurisdictional High Court in CIT vs. Tikisha E .....

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envisaged by the statute before invoking the computation provided for under Rule 8D has vitiated the impugned order.

Therefore, we direct deletion of the addition made by the AO and which was sustained by the CIT (A) in his impugned order. - Decided in favour of assessee - ITA No.6291/Del./2013 - Dated:- 11-3-2016 - SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER For The Assessee : Shri Ved Jain, Advocate For The Revenue : Shri S.K. Jain, DR ORDER PER A.T. VA .....

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ny was engaged in the business of sale and purchase of shares and securities. The assessee filed a return on 15.10.2010 declaring NIL income with a loss of ₹ 14,18,360/-. The assessee has earned exempt income in the form of dividend of ₹ 17,56,369/- on the investment of shares and the same was claimed as exempt u/s 10(34) of the Act. The AO observed that Rule 14A is applicable in assessee s case and has also observed that the assessee has incurred direct expenses on account of intere .....

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he appellant has incurred direct interest expenses of ₹ 2,35,16,7801- The AO has applied Rule 80. The Hon'ble Mumbai High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom) has held that the AO is duty bound to make the disallowance where the assessee has made investment income from which is exempt from tax. Similarly, Hon'ble Mumbai ITAT in the case of Stream International Services P. Ltd. v ACIT [2013] 023 ITR (Trib.) 0070 has held that the dis .....

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is rejected. 5. The assessee, being aggrieved, is in appeal before us. 6. Ld. AR for the assessee submitted that the assessee has made investment in shares and securities for earning capital appreciation and earning dividend income is incidental to such activities. He submitted that the assessee has incurred interest expenses to earn taxable income such as trading profit and capital gains. He submitted that the dividend income was not arising on all investment held by the assessee and earning of .....

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ome. He submitted that Section 14A is applicable only if some expenditure has actually been incurred by the recipient of tax free income. He further submitted that only expenditure which has been proved to have been incurred in relation to the earning of tax-free income can be disallowed and the section cannot be extended to disallow even expenditure which is assumed to have been incurred for the purpose of earning of tax free income. The word "incurred" refers to the actual spending o .....

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s :- (i) CIT vs. Taikisha Engineering India Ltd. -370 ITR 338 (Del.); (ii) ACIT, Circle II, Faridabad vs. NHPC Ltd. - ITA No.424/Del/2013 dated 26th August, 2015 He also relied on a number of decisions in the written synopsis filed by him. Thus, ld. AR pleaded that the orders of the authorities below be set aside and the addition be deleted. 7. Ld. DR for the revenue relied on the orders of the authorities below. 8. We have heard both the sides and perused the records. We find that the assessee .....

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exempt income. However, we find that the AO did not agree with the expenditure shown by the assessee and has stated in the order that, the contention of the assessee is gone through and it is not accepted as the interest on the loans taken have been paid by the assessee company and went ahead with the calculation as per Rule 8D and disallowed ₹ 1,13,77,730/-. The CIT (A) has upheld the addition made by the AO by stating that the assessee had incurred direct interest expenses of ₹ 2,3 .....

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taken to arrive at ₹ 61,666/-. The Hon'ble jurisdictional High Court in the case of CIT vs. Taikisha Engineering India Limited reported in 370 ITR 338 (Del.) has held as under :- "Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examin .....

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at no 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, that he is entitled to adopt the method as prescribed i. e. Rule 80 of the Rules. Thus, Rule 80 is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 80 of the Rules. Where the disallowance or "nil" di .....

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under Rule 8D, which vitiates the impugned order. We also find that in assessee's own case for the previous year also, the Tribunal has deleted the addition made by the AD on this account. Therefore, we uphold the order of the CIT (A) on this issue. This ground of revenue's appeal is dismissed." We find that the assessee has earned exempt income to the tune of ₹ 17,56,369/- and has suo motu disallowed ₹ 61,666/- u/s 14A of the Act. We find that the AO has invoked Rule 8 .....

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