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M/s. Thakur Prasad Sao and Sons Pvt. Ltd Versus DCIT, CC-XVII, Kolkata

2016 (5) TMI 316 - ITAT KOLKATA

Disallowance u/s 14A - Held that:- The addition u/s 14A of the Act could not be made without recording satisfaction in terms of Rule 8D(1) of the IT Rules - Decided in favour of assessee. - ITA No.1560/Kol/2013 A.Y 2009-10 - Dated:- 23-3-2016 - Hon ble Shri N.V.Vasudevan, JM and Shri M.Balaganesh, AM For The Appellant : Shri Amit Kumar ACA For The Respondent : Shri Sallong Yaden, Addl.CIT, ld.DR ORDER SHRI.M.BALAGANESH, AM This appeal of the assessee arises out of the order of the Learned CIT(A) .....

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penditure incurred in relation to such exempt income was made by the assessee. Therefore, the Learned AO invoked the provisions of section 14A of the Act read with Rule 8D of the IT Rules. The Learned AO applied Rule 8D(2)(iii) being 0.5% of average value of investments and disallowed a sum of ₹ 9,89,313/- u/s 14A of the Act. It was argued by the assessee that the investments were made out of surplus fund in mutual funds. It was argued that number of transactions of purchase and redemption .....

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a routine manner without properly considering the facts of the case. The disallowance was made in respect of the investments made in mutual funds. Such investments require hardly any expenses. Hence, the disallowance, so made, needs to be deleted. 2) The appellant craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing. 4. The Learned AR argued that the lower authorities erred in directly invoking Rule 8D(2) of the IT Rules without recordin .....

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the assessee had mechanically applied the provisions of Rule 8D(2)(iii) of the IT Rules without recording his satisfaction in terms of Rule 8D(1) of IT Rules as to why the contention of the assessee that no expenditure was incurred for earning exempt income is incorrect having regard to the accounts of the assessee. The language of Rule 8D(1) is very clear in this regard. We place reliance on the following decisions in this regard:- (a) Decision of the co-ordinate bench of Mumbai Tribunal in th .....

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nment, entails some degree of cerebral activity. There is, however, no corresponding expenditure, or claim in its respect, while the issue at hand is the apportionment of such expenditure. Income, which may or may not arise on incurring expenditure, and again with no certainty as to its quantum, cannot by itself form the basis of either incurring or allocation of expenditure. So however, we consider the Revenue s reading of r.8D as equally misplaced. The estimate per r. 8D(2) is only qua expendi .....

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ounts, duly audited and, further, bases his claim of having incurred a lower expenditure than that per the statutory prescription of r. 8D, thereon. The expenditure observed as relatable to the income not forming part of the total income by the Revenue are : salary (Rs. 3.54 lacs); printing and stationery (Rs. 0.11 lacs); and bank charges (Rs. 0.10 lacs), without specifying the relationship, so that the same is inferably casual. Even the claim of depreciation (Rs. 7.26 lacs) we observe as princi .....

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e rival submissions. A perusal of the provisions of section 14A, more specifically sub-section (2), shows that if the AO is not satisfied with the correctness of the claim of the assessee, then the AO shall determine the amount of expenditure incurred in relation to such income, which does not form part of total income under the Act. For this the method is prescribed in rule 8D. The provision of section 14A, sub-section (3) specifies the provision of 14A(2) would also apply where the assessee ma .....

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voke the section 14A, he is to record a satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It is to be done with regard to accounts of the assessee. In the present case, there is no satisfaction by the AO and consequently, in view of the decision of the Coordinate bench of this Tribunal in the case of Balarampur Chini Mills Ltd. referred to supra, no disallowance under section 14A can be made. 7. Now coming to the merits of the issue. A perusal of the .....

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or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. The first sub-part i.e. (i) deals with the amount of expen .....

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r income or receipt, such interest expenditure is not to be considered under rule 8D(2)(ii). In the assessee s case here the interest has been paid by the assessee on the loans taken from the banks for its business purpose. There is no allegation from the banks nor the AO that the loan funds have been diverted for making the investment in shares or for non-business purposes. Further rule 8D(2)(ii) clearly is worded in the negative with the words not directly attributable . Thus for bringing any .....

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in relation to such income in accordance with the provisions of sub-rule (2). In the assessee s case, admittedly, the assessee has substantial capital. The increase in the capital itself is to an extent of ₹ 4 crores and in respect of reserves and surplus, the increase is ₹ 112 crores. The loans taken during the year admittedly are for the letters of credit and the assessee is bound to provide the bank stock statement and other details to show the utilization of the loans. No bank w .....

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