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2016 (5) TMI 863 - ITAT CHENNAI

2016 (5) TMI 863 - ITAT CHENNAI - TMI - Disallowance u/s. 14A - Held that:- It is admitted fact that the assessee has diverted interest bearing funds to the subsidiaries and the Bench asked a specific question with the ld.A.R to show whether there is any case wherein decided the similar issue in favour of assessee, when the assessee has diverted interest bearing funds to the subsidiaries while invoking the provisions of the section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. .....

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ndra Poojari, Accountant Member This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals-8) dated 29.02.2016 pertaining to assessment year 2012-13. 2. The assessee has raised the following grounds. 1. The order of the Ld.CIT(A) is contrary to the law, facts and circumstances of the case. 2. The Learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of ₹ 2,61,96,790/- u/s.14A of Income Tax Act, 1961 read with rule 8D(2)(iii) .....

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Mad HC) c. Simpson & Co Ltd Vs. DCIT in TCA No.2621 of 2006 (Mad HC) d. ACIT Vs. The Nungambakkam Saswatha Ohana Rakshaka Nidhi Ltd in ITA No.1138/Mds/2013 (Chennai ITAT) 4. The Learned Commissioner of Income Tax (Appeals) erred in confirming disallowance u/s.14A of Income Tax Act, 1961 read with rule 8D(2)(iii) of Income Tax Rules, 1962 ignoring various other pleas raised by the appellant during the appeals and dealing with only one of the plea, i.e., 14A disallowance cannot be made when in .....

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ch does not or shall not form part of total income. 3. The facts of the case are that the assessee is a Public Limited Company engaged in the business of Construction and related services in the relevant previous year. The assessee filed its return of income for the assessment year 2012-13 on 1st December, 2012 electronically returning Gross Total Income of Rs.l,40,06,74,516/-. The assessee company declared a net profit of ₹ 1,62,61,40,388/- against the income from operations valued at  .....

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AO, the assessee preferred an appeal against the assessment order before the CIT(A). On appeal the CIT(A) had confirmed the disallowance u/s. 14A of the Act, 1961. Aggrieved with the order of CIT(A), the assessee is in appeal before the Tribunal. 4. ld.A.R submitted that though the issue was decided by this Tribunal in assessee's own case in ITA Nos.344 to 346/Mds./2016 dated 06.04.2016, the Tribunal had failed to consider the following points:- 1) Interpretation of Rule 8D(2)(iii) was chall .....

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considered various decisions where it is was held that disallowance cannot be made for investment in subsidiary companies. 4) ITAT has not considered decisions where it was held investment in companies which have not yielded any dividend during the year should not be considered for the purpose of calculation of disallowance u/r. 8D(2)(iii) 5) ITAT has not considered whether CIT(A) has applied in mind in answering various /contentions raised by the appellant during the appellate proceedings befor .....

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ssessee's own case for assessment years 2009- 10 to 2011-12 in ITA Nos.344 to 346/Mds./2016 vide order dated 06.04.2016 wherein held as follows:- 6. We have heard both the parties and perused the material on record. The assessee made total investment in the assessment year 2009-10 as follows : Subsidiaries ₹ 2,38,89,48,500/- UTI Infrastructure Advantage Fund Series ₹ 10,00,000/- Investment in sister concerns ₹ 1,59,39,000/- 6.1 For the assessment year 2010-11, the total inv .....

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s follows : 2009-10 ₹ 1,96,32,20,750/- 2010-11 ₹ 3,39,69,83,166/- 2011-12 ₹ 4,78,02,04,127/- The AO disallowed 5% of the average investment as follows: 2009-10 ₹ 98,16,104/- 2010-11 ₹ 1,69,84,915/- 2011-12 ₹ 2,39,01,020/- The assessee dividend income received and claimed as exempt for these assessment years are as follows : 2009-10 ₹ 41,024/- 2010-11 NIL 2011-12 ₹ 74,000/- 6.4 Now, the contention of the ld. AR is that disallowance u/s.14A r.w.Rule .....

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D of the I.T.Rules, are applicable as held by the Tribunal in the case of M/s. Lakshmi Ring Travellers in ITA No.2083/Mds/2011 dated 2.3.2012, wherein it was held as under: 6. We considered the arguments of both the sides in detail. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act shall not be allowed as a deduction in computing the taxable income of the assessee. Sec.14A(2) provides for .....

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ssee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub-sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a dee .....

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, we are unable to agree with the argument of the learned CA. 7. In result, this appeal filed by the assessee is dismissed. 6.5 This view of ours is also fortified by the judgment of the Karnataka High Court in the case of Pradeep Kar v. ACIT (319 ITR 416), wherein it was observed as under : The claim of the assessee for deduction of interest on the amounts borrowed by him for purchase of shares is disallowed by the Assessing Officer. In the appeal filed by him against the assessment order, the .....

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by filing this appeal framing substantial questions of law and urged the grounds in support of the same. Smt. Anuradha, learned counsel for the appellant relied upon the decision reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519 wherein, it is held that interest paid on money borrowed for investment in shares is deductible under section 57(iii) of the Income-tax Act, which requires that the expenditure must be laid out or expended wholly and exclusively for making or earning income. .....

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of law framed in the appeal are extracted as hereunder. "(i) Whether or not the Tribunal was right in not allowing the interest incurred by the assessee as expenditure in computing income of the assessee? (ii) Whether or not the Tribunal was right in reversing the findings of the Commissioner of Income-tax (Appeals), which was based on a Supreme Court's decision by relying on the decision of other Tribunals? (iii) Whether or not the Tribunal was justified in not affording an opportunit .....

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w to find out as to whether the substantial questions of law framed in this appeal would arise for consideration of this court. It is not in dispute that the assessee had borrowed loans and invested the same in shares. Deduction is claimed by him of the interest amount paid on the borrowed loans. The amounts borrowed by the appellant were invested in shares and dividend is earned. When deduction for the interest paid is claimed, the dividend earned cannot be excluded from income. Computation of .....

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es to an assessment year where dividend income was taxable in the hands of the assessee. With the introduction of section 10(33) of the Income-tax Act from the assessment year 1998-99 the position of law in regard to taxability of dividends has been changed since such income becomes a part of income which do not form a part of total income of the assessee. The provisions of section 14A introduced by the Finance Act, 2001, with effect from April 1, 1962, retrospectively bars allowing any expendit .....

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laim of the assessee. The first appellate authority reversed the order of the assessing authority by applying the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC), referred to supra, which was rendered prior to introduction of section 14A of the Act and which has no application to the fact situation. The Tribunal has rightly set aside the order of the first appellate authority. It cannot be disputed that dividend income is exempted under section 10(33) of the Act from the tax .....

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the first appellate authority. For the reasons stated supra, interference with the impugned order of the Tribunal is not warranted in this case. No substantial questions of law much less the questions of law framed by the appellant will arise for consideration of this court. The appeal is devoid of merit and liable to be dismissed. Accordingly, the appeal is dismissed. 7. Similarly, in the case of CIT v. Smt. Leena Ramachandran 7339 ITR 296, the Hon ble Kerala High Court has held as under: Durin .....

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uction of interest under section 36(1)(iii) of the Income-tax Act, 1961. The Assessing Officer held that the assessee made investments by utilising the borrowed funds ill the form of acquisition of shares in the company and the only benefit the assessee got was dividend income of ₹ 3 lakhs. Since section 14A of the Act bars any deduction pertaining to any expenditure incurred by the assessee for earning any income which did not form part of the total income, the Assessing Officer disallowe .....

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me was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. The reasoning given by the Tribunal for disallowance of ₹ 2 lakhs, i.e., by applying section 14A, squarely applied to the interest paid on the borrowed funds because it was on record that the entire funds borrowed were utilised for the acquisition of shares by the assessee in the .....

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