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2016 (4) TMI 662 - ITAT BANGALORE

2016 (4) TMI 662 - ITAT BANGALORE - TMI - Disallowance u/s 14A - Held that:- It should be presumed that the assessee used own funds for making investments where assessee had both own funds as well as borrowed funds. The ld.CIT(A), on the same parity of reasoning, directed the AO to delete the addition under rule 8D(2)(ii). Therefore, we do not find any reason to interfere with the order of the ld.CIT(A)

Once exempt income is earned, it means that some expenditure being incurred in rel .....

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MA RAO, AM : These cross appeals by the revenue as well as the assessee are directed against the order of the ld.CIT(A)-I, Bangalore, dated 25/8/2014 for the assessment year 2010-11. 2. The assessee raised the following grounds of appeal in its appeal bearing ITA No.1429/Bang/2014: 1) The Learned Commissioner of Income Tax erred in confirming the addition of 0.5% of tax-exempted investment under the provisions of section 14A r.w.s. 8D of the Income Tax rules amounting to ₹ 5,25,381/- 2) Th .....

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ome Tax failed to note that as there was no investment made during the year, the dividend is received without incurring any expenditure and no expenditure should have been disallowed. 5) However, without conceding, the disallowance should have been restricted to only the dividend received based on the decision of Hon'able ITAT, Chandigarh Bench in the case of ACIT v/s. Punjab State Cooperative Marketing Federation Ltd. (25 Taxman.com 434) and Sahara (India) Finance Corporation Ltd. v/s. DCIT .....

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when the nexus between the interest expenditure incurred for earning the exempt income was not established during the assessment proceedings, which attracted the applicability of provision of Sec. 14A read with Rule 81D. 3) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 4) The appellant craves for permission to add, modi .....

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time on 31/03/2011 declaring total income of ₹ 2,17,07,860/-. Against the said return of income, assessment was completed u/s 143(3) by the DCIT, Circle 11(4) vide order dated 25/03/2013 on a total income of ₹ 3,03,12,532/-. While doing so, AO made a disallowance of ₹ 80,93,286/- under the provisions of sec.14A of the Income-tax Act,1961 [ the Act for short] with which we are concerned in the present appeals. 5. During the course of assessment proceedings, the AO observed that .....

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l 22,13,68,681 The AO inferred that the amount of ₹ 15,85,72,947/- interest incurred on working capital and other...should be treated as interest and subjected to disallowance u/s 14A read with rule 8D(2)(ii) apart from disallowance of ₹ 5,25,381/- and thus made a total disallowance of ₹ 80,93,286/-. 6. Being aggrieved by the assessment order, an appeal was preferred before the CIT(A) who, vide impugned order dated25/08/2014 deleted the addition made under the provisions of sec .....

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unjab State Co-operative Marketing Federation Ltd. (25 Taxmann.com 434) (ITAT-Chandigarh) (ii) Sahara (India) Finance Corporation Ltd. vs. DCIT (41 Taxmann.com 251)(ITAT Delhi). 3.5 A perusal of the annual statement of Account for year ending 31.03.2009 and 31.03.2010 following facts emerged. Particulars As on 31.03.2010 As on 31.03.2009 Share capital 22,81,28,330 19,00,80,000 Reserves & Surplus 23,60,18,057 24,48,24,713 Total 46,41,38,387 43,49,04,713 Loan Funds Secured loan 93,48,17,250 10 .....

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served that investment appears as on 31.03.2009 for ₹ 28,76,32,516 and the same investments appears as on 31.03.2010 it shows that no new investments were made during the previous year relevant to A.Y. under consideration. 3.7 Further, the appellant pleaded that disallowance should be restricted to ₹ 29,000 being earned dividend income during the previous year relevant to A.Y. under consideration by relying on the decision in the case of ACIT vs. Punjab State Cooperative Marketing Fe .....

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elation to income which does not form part of the total income under the Act and accordingly method of working out of such expenditure has been formulated under rule 8D of I.T. rules. However section does not envisage restriction of disallowance except as applicable under rule 8D of I.T. Rules. In Chennai invest Ltd. vs. ITO (2809) 121 ITD 318/124 TTJ (Delhi-Trib) 577 (SB) held that disallowance under section 14A can be made even in a year in which, no exempt income has been earned or received b .....

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ue is in appeal before us in ITA No.1565/Bang/2014 and the assessee-company is contesting the finding of the CIT(A) confirming the addition of ₹ 5,25,381/- under the provisions of rule 8D(2)(iii). 7. Before us, learned AR of the assessee submitted that during the previous year relevant to assessment year under consideration, no fresh investments were made. All the investments are carried forward from the earlier years. He had filed a chart, from perusal of which clearly shows that no fresh .....

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of the assessee-company. He has drawn our attention to the chart filed during the course of hearing wherein it was shown during previous year ended 31/3/2009 paid up capital and reserve and surplus stood at ₹ 43,49,04,713/- and as on 31/3/2010 it was ₹ 46,41,38,387/- wherein value of investments made in subsidiary company i.e. Chitalia Distilleries is ₹ 28,75,39,716/-. Therefore, he submitted that the investments were made out of free reserves of the company and not out of borr .....

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epresentative vehemently opposed the submissions of the learned AR and pleaded that unless nexus is established between investments and pre-reserve, disallowance has to be confirmed. As regards applicability of rule 8D(2)(iii), the contention of the learned Departmental Representative is that no dividend income was earned without incurring any expenditure and therefore, he submitted that the working adopted by the AO should be adopted. 9. We have heard rival submissions and perused material on r .....

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