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2016 (5) TMI 815 - ITAT CHANDIGARH

2016 (5) TMI 815 - ITAT CHANDIGARH - TMI - Disallowance u/s 14A - Held that:- For the purpose of disallowance of other expenses, we do not find any satisfaction recorded by the Assessing Officer in his order explicitly or implicitly to the fact that the claim of the assessee that no expenses have been incurred for earning exempt income is wrong. Reliance on the judgment of Punjab & Haryana High Court in the case of CIT Vs. Deepak Mittal (2013 (9) TMI 764 - PUNJAB & HARYANA HIGH COURT ), whereby .....

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on 14A of the Act, the same has to be calculated as per Rule 8D w.e.f. assessment year 2008-09. However,, as per the facts of the present case, we have already held that there is no occasion to make disallowance under section 14A of the Act - Decided in favour of assessee

Disallowance of bad debt/business loss being the amount forfeited by BHEL on account of termination of contract - Held that:- The enduring benefit derived at by the assessee at the time of foregoing the buying agreem .....

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saving itself from incurring further huge losses. This act goes further to prove that the losses are incurred on a decision of prudence taken for the business. Since no capital asset came into existence, the loss is allowable as a business loss.- Decided in favour of assessee - ITA No. 771/Chd/2011, ITA No. 790/Chd/2011 - Dated:- 25-4-2016 - Shri H. L. Karwa, Vice President And Ms. Rano Jain, Accountant Member For the Petitioner : Shri Subhash Aggarwal For the Respondent : Shri S. K. Mittal, DR .....

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1961, read with Rule 8D(2)(iii). 2. That in any case the addition sustained is against the law and facts of the case." 3. Briefly, the facts are that the Assessing Officer disallowed a sum of ₹ 55,55,801/- by applying provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules. The assessee had earned dividend income of ₹ 1,28,316/- during the year. 4. Before the learned CIT (Appeals), the assessee contended that the provisions of section 14A of the Act read .....

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of section 14A and Rule 8D do not apply. Reliance was placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles Ltd. (2010) 323 ITR 518 and Mumbai High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Mum). After considering the submissions of the assessee and the case laws relied on by it, the learned CIT (Appeals) has held that since the assessee has earned exempt income under sections 10(34) and 10(35) of the .....

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is in appeal against the disallowance to the extent of ₹ 10 lacs sustained by the CIT (Appeals), while the Department is in appeal against the relief of ₹ 45,55,801/- provided by the learned CIT (Appeals) to the assessee. 6. The learned counsel for the assessee while arguing before us made elaborate submissions to the fact that the assessee has huge funds which have been used for investments made by it. Therefore, in such circumstances, no disallowance under section 14A of the Act c .....

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o.192/Chd/2013, dated 29.10.2015, copy of which was placed on record. 7. The learned D.R. vehemently argued relying on the order of the Assessing Officer and stated that after insertion of Rule 8D of the Income Tax Rules w.e.f. assessment year 2008-09, the disallowance under section 14A of the Act is mandatorily to be computed under this Rule if there is some exempt income earned by the assessee. The assessment year being 2008-09, the disallowance made by the Assessing Officer is quiet as per la .....

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uthorities below and considered the material available on record. The only issue to be decided by us is whether the disallowance sustained by the learned CIT (Appeals) to the extent of ₹ 10 lacs or made by the Assessing Officer as per Rule 8D is applicable to the facts of the present case. From the perusal of the documents brought on record, we observe that the assessee has total owned funds to the tune of ₹ 214,46,46,911/- as on 31.3.2008, while the investments as on that date are a .....

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ana in the case of Bright Enterprises Pvt. Ltd. Vs. CIT in ITA No.624 of 2013 dated 24.7.2015 and also in the case of CIT Vs. Kapsons Associates, ITA No.354 of 2013 (O&M). Though we are aware of the fact that the presumption has been laid down by the Hon'ble High Court in the context of disallowance under section 36(1)(iii) of the Act, however, we only intend to borrow presumption that in the presence of sufficient owned funds, it can be taken that the investments have been made out of t .....

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b & Haryana High Court in the case of CIT Vs. Deepak Mittal (2014) 361 ITR 131 (P&H), whereby it has been held that in the absence of any satisfaction recorded by the Assessing Officer, no disallowance of administrative expenses under section 14A can be made. As regards the act of the learned CIT (Appeals) in upholding the disallowance to the extent of ₹ 10 lacs, we do not find any substance in such an act on the part of the learned CIT (Appeals) since we are in agreement with the .....

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ee reads as under : "3. That the learned C1T- (A) has erred in confirming disallowance of ₹ 2.51 Crores claim as bad debt/business loss being the amount forfeited by BHEL on account of termination of contract. 4. That in the alternative the amount being in nature of capital expenditure, the appellant was entitled to depreciation on the same. 5. That the Appellant craves leave for permission to add, amend or alter any ground of appeal at the time of hearing." 11. The facts of the .....

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or supply of same machinery at a cheaper rate, the assessee forgone to acquire the machine and as a result ₹ 2.51 crores were forfeited by BHEL. The Assessing Officer disallowed the said claim of the assessee stating that any payment made by the assessee for purchase of plant and machinery is a capital expenditure as per the accounting principles. The amount of ₹ 2.51 crores given as advance for purchase of machinery forfeited by BHEL has to be treated as capital expenditure. Relianc .....

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sessee was able to get a power plant of higher capacity at a lower price. It was also submitted that the reliance placed by the Assessing Officer on the judgment of Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra) is mis-placed as in that case, the assessee had to pay compensation for breach of contract while in assessee's case the advance had already been made and the same was cancelled as per the clause 19 of the agreement. In the alternative, if the amount i .....

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us. The learned counsel for the assessee while arguing before us, first drew our attention to various pages of Paper Book to show that an agreement was entered into by the assessee with M/s BHEL as on 4.8.2015, whereby the acquisition of machine at a price of ₹ 24.75 crores was agreed upon and price for supervision was ₹ 0.35 crores. As per the terms of payment, 10% was to be given as advance and the balance as per terms of agreement. As per the completion schedule, the work was to b .....

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y of the minutes of meeting was also placed on record, whereby it was stated that the BHEL had stated that on the date on which the project was put on hold i.e. 16.12.2005, substantial progress had already taken place in terms of engineering and procurement. Therefore, BHEL did not immediately put on hold the various activities related to the project resulting in built up of inventory. It was also stated that the BHEL had clarified that expenses on account of engineering charges, procurement of .....

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mber of judgments of various High Courts as under : i) CIT Vs. Majestic Auto Ltd. (2009) 315 ITR 445 (P&H) ii) Idea Cellular Ltd. Vs. Addl.CIT (2014) 65 SOT 15 (Mum) iii) Reliance Footprints Vs. ACIT (2014) 29 ITR (Trib) 82 (Mum) iv) ACIT Vs. Anjani Kumar Co. Ltd. (2003) 259 ITR 114 (Raj) v) ACIT Vs. Am Kryon International Pvt. Ltd. ITA No. 474/2014 dated 29.10.2015 (Chd.Trib). 14. The judgment of the Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra) as relied o .....

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t of the CIT (Appeals) and further submitted that the issue is squarely covered in favour of the Department by the order of the Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra). 16. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that some advance was given for acquisition of machinery, but because of some commercial exp .....

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umber of case laws have been quoted by both the parties even before us. 18. However, before proceeding further, we would like to remind ourselves the words of the Hon'ble Apex Court administering caution in the case of Abdul Kayoom Vs. CIT (1962) 44 ITR 689 (SC), whereby Justice Hi Dayatullah, in the majority judgment observed as follows : "What attributable to capital and what to revenue has led to a long string of cases here and in the English courts. The decisions of this court repor .....

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. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of an another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the gene .....

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y, i.e. a capital asset. The amount incurred on acquisition of an asset of enduring nature are capital in nature. However, presently, the question is not the allowability of expenditure on acquisition of machinery, but that of loss occurring on forfeiture of advance given for machinery, the agreement for which had to be shelved as a matter of business expediency. The case of the Revenue is that the amount which has been forfeited by the other person, was originally given to it to acquire an asse .....

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