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M/s. Overseas Carpets Ltd Versus Asstt. Commissioner of Income Tax, Circle-13 (1) , New Delhi

2016 (5) TMI 108 - ITAT DELHI

Disallowance u/s 14A - Held that:- The investment as on 31stMarch 2008 was ₹ 3,65,32,450/- whereas the reserve and surplus of the company as on 31st March 2008 was of ₹ 18,60,41,748/-which is much higher than the investment in exempt income earning assets. The assessee demonstrated the similar situation in the earlier years when the investment was made. Thus the facts of the case of the assessee are identical to the facts of the case of HDFC Bank Ltd (2014 (8) TMI 119 - BOMBAY HIGH C .....

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For The Appellant : Ms. Charu Goyal, CA For The Respondent : Sh. P. DAM Kanunjana, Sr. DR ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed against order dated 13/07/2011 of the Commissioner of income tax (Appeals)-XVI, New Delhi for assessment year 2008-09 raising following grounds: 1. That the CIT appeals has erred in determining the total income at ₹ 1,63,91,923/-. 2. That the Ld. CIT appeals of income tax has erred in making disallowance of ₹ 13,91,082/- under se .....

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,00,841/- on 17/12/2008. The case was selected for scrutiny and the assessment under section 143(3) of the Income-tax Act,1961( in short the Act ) was completed on 27/12/2010 making disallowance of ₹ 13,91,082 under section 14A of the Act. Aggrieved, the assessee filed appeal before the Ld. Commissioner of Income-tax(Appeals). Before the Ld. Commissioner of Income-tax(Appeals), the assessee submitted that the disallowance under section 14A should not be made with respect to the dividend in .....

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the Tribunal, Mumbai bench in the case of M/s Daga Capital Management Private Limited 312 ITR 1 and judgment of the Hon ble High Court of Calcutta in the case of M/s Dhanuka and sons v/s CIT Central-1 in ITA No. 633 of 2004, confirmed the disallowance made by the AO under section 14A of the Act. Aggrieved, the assessee in appeal before the Tribunal. 3. The only effective ground of appeal is in respect of disallowance of ₹ 13,91,082/-under section 14A of the Act. 4.1 Before us, the Ld. Aut .....

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stment was made in business ventures, which the assessee company started with other entities and failed to take off. The investment in shares of such companies was a purely strategic business move and not an investment decision. The AO cannot disallow expenditure relating to investment which has not yielded any exempt income during the previous year relevant to the assessment year under dispute. (ii) No disallowance could be made if there is no exempt income during the year. Reliance was placed .....

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rticular invoice or bill, in such a scenario to assume that interest expenditure must have been incurred to raise funds for investment is unfair. (iv) The assessee company is a profit-making entity and had sufficient reserve and surplus during the years in which investment was made. Therefore to conclude that same were done out of interestbearing funds is unfair. That the assessee company had a reserve and surplus to the tune of ₹ 18,60,41,748/- as on 31/03/2008 whereas total investments w .....

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en submission. The Ld. Senior Departmental Representative, on the other hand, relied on the order of the lower authorities and submitted that the disallowance has been made by the Assessing Officer in accordance with law as the rule 8D of the Rules is held to be effective from the assessment year 2008-09 i.e. the year under consideration. 5.1 We have heard the rival submissions and perused the material on record. The Assessing Officer invoked rule 8D of the Income-tax Rules and computed the disa .....

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ed reliance on the judgment of Hon ble Allahabad High Court in the case of CIT v/s M/s Shivam motors Private Limited (supra), wherein it is held that in the absence of any tax-free income, the corresponding expenditure could not be worked out for disallowance. But the assessee has shown tax-free income of ₹ 9,03,478/- during the year under consideration, and therefore the ratio of the cited case is not applicable over the facts of the assessee. 5.3 We have observed that the Assessing Offic .....

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hearing and a copy of which was provided to the Sr DR also, it is seen that interest has been paid in respect of secured loans for the purpose of specific export orders of manufacturing. We find that once the interest is identifiable towards particular income and which is not exempt income, the interest paid cannot be held disallowable under the rule 8D(2)(ii) of the rules. The Hon ble High Court of Allahabad in the case of Additional Commissioner of Income- tax versus Dhampur sugar Mills privat .....

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der Rule 8D(2)(ii), a proportionate disallowance out of interest expenditure would be made in respect of interest expenditure which is not directly attributable to any particular income or receipt. Since the entire interest expenditure, in the present case, was attributable to business in which the resultant income was assessable to tax, a disallowance could not be made. The Tribunal, consequently, deleted a disallowance to the extent of ₹ 66.79 lacs out of a total disallowance of ₹ .....

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e no reason to differ with the view which has been taken by the Commissioner (Appeals) and which has now been affirmed by the Tribunal. Under sub-section (1) of Section 14A, no deduction can be allowed in respect of expenditure incurred by the assessee in relation to income which does not form a part of total income under the Act. Sub- section (2) of Section 14A enables the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of th .....

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e Tribunal is consistent with the provisions of Section 14A and does not warrant any interference. 5.4 Further we find that Hon ble Bombay High Court in the case of CIT versus HDFC bank Ltd (supra) has held that: 5. We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd (supra). The finding of the fact given by the ITAT in the present case is that the assessee s own funds and other interest-bearing funds were more than the .....

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