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2016 (4) TMI 1135 - ITAT CHENNAI

2016 (4) TMI 1135 - ITAT CHENNAI - TMI - Disallowance of expenditure u/s.14A - Held that:- 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 determining the quantum of such expenditure which shall not be allowed as a deduction. That is the machinery provision as far as sec.14A is c .....

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ec.(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 deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by .....

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of the Act, at the time of making payments in foreign exchange towards any business asset after the acquisition of the asset - if there is any fluctuation in the rate of exchange leading to an increase or decrease in the liability of the assessee, then the amount of expenditure would have to be considered to be of capital nature, and shall be taken into account in computing the actual cost of the asset as per the provisions of section 43A. The expenses claimed by the assessee were incurred in .....

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:- 6-4-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For the Appellant: Shri K. Ravi, Advocate For the Respondent: Mrs. Vijayalakshmi, CIT O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER The appeals by the assessee are directed against different orders of the Commissioner of Income-tax(Appeals) dated 31.12.2015. The assessee has also filed Stay Petitions. Since, the issues involved in these appeals .....

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rs 2009-10, 2010-11 and 2011-012 respectively. Against this, the assessee went in appeal before the CIT(Appeals), who confirmed the finding of the AO. Aggrieved, the assessee is in appeal before us. 4. The ld. AR submitted that in these asst. years, the exempt income is as follows : 2009-10 ₹ 41,042/- 2010-11 Nil 2011-12 ₹ 74,000/- He placed reliance on the order of the Tribunal in the case of ACIT vs. M/s. The Nungambakkam Saswa .....

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.2012 held that 2% would be the exempted income. The ld. AR also relied on the decision of the Jurisdictional High Court in the case of Simpson & Co. Ltd. v. DCIT in TCA No.2261 of 2006 dated 15.10.2012 to support his argument. The ld. AR further placed reliance on the judgment of the Delhi High Court in the case of Joint Investments Pvt. Ltd. v. CIT (372 ITR 694) wherein it was observed as under : This Court in Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., had .....

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tation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee was not satisfactory, computation under sub Rule (2) to Rule 80 of the Rules was to be made. In the present case, the AO had not firstly disclosed why the appellant/assessee's claim for attributing ₹ 2,97,440/- as a disallowance under Section 14A had to be rejected. .....

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me is ₹ 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., ₹ 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income was to be disallowed. The window for disallowance was indicated in Section 14A, and was only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exemp .....

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ein it was clarified that Rule 8D read with sec.14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. According to the ld. DR, the above Circular is binding on the Department and it should be followed. 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/-

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ries ₹ 5,17,41,16,895/- UTI Infrastructure Advantage Fund Series ₹ 8,53,000/- Investment in sister concerns ₹ 1,59,39,000/- 6.3 In this case, the assessee made average investment which yields no income or exempted income is as 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 &# .....

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o merit. The assessee used the amount in the investment which yields no income or exempt income and u/s.14A of the Act. The expenditure relating to exempt income is not allowable. The assessing authority considered the above and disallowed the expenditure as per sec.14A r.w. Rule 8 D of the I.T.Rules and it was the right action of the AO, as in our opinion, the provisions of sec.14A r.w. Rule 8D of the I.T.Rules, are applicable as held by the Tribunal in the case of M/s. Lakshmi Ring .....

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ction. That is the machinery provision as far as sec.14A is concerned. In that provision, it has been provided that if the Assessing Officer is not satisfied with the correctness of the computations made by an assessee, he shall compute the quantum in accordance with the method that may be prescribed. For this matter, Rule 8D has already been prescribed. Sub-sec.(3) further provides that even in a case where an assessee claims that no expenditure was incurred, the assessing authority has to pres .....

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sumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned CA.

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he order of the assessing authority by applying the decision of the Supreme Court reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519. The Revenue took up the matter in second appeal before the Income-tax Appellate Tribunal, hereinafter called as "the Tribunal" in short. The Tribunal reversed the decision of the first appellate authority and restored the order of the assessing authority. Being aggrieved by the same, the assessee is before us by filing this appeal framing subst .....

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her decision in the case of CIT Vs. Smt. Sushila Devi Khadaria [2009] 319 ITR 413 (Bom); [2009] TIOL 171 HC (Mum-IT) and submits that the orders passed by the assessing authority and the Tribunal are erroneous and contrary to the aforementioned decisions. Therefore, she submits that substantial questions (i) and (ii) framed in the appeal memorandum arise for consideration of this court and requested to set aside the order passed by the Tribunal. The substantial questions of law framed .....

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rding an opportunity of hearing to the assessee before deciding the issue on hand by placing reliance on judgments, which were not cited by either side? (iv) Whether or not the Tribunal was right in relying on the decisions inapplicable to the facts on hand by distinguishing the decision of the Hon'ble Supreme Court, which is squarely applicable?" With reference to the contentions urged, we have perused the orders passed by the assessing authority, the first appell .....

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be excluded from income. Computation of income has to be made taking the amount of dividend income earned by the appellant. The assessing authority considered the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC) relied upon by the learned counsel and held that it is not applicable to the fact situation. The reasons assigned for such a conclusion in the assessment order are extracted hereunder: "The decision is with reference to deduction allowable .....

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from April 1, 1962, retrospectively bars allowing any expenditure in respect of income which is not includible in the total income. Considering this change in the position of law the decision of the Supreme Court relied upon by the assessee does not apply to the assessee's case." Therefore, the dividend income is exempted from the tax liability under section 10(33) of the Act. Under section 14A of the Act, expenditure relating to exempted income is not allowable. The assessi .....

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isputed that dividend income is exempted under section 10(33) of the Act from the tax liability and the same cannot be computed for income under the head "Other sources". Exempted income is not allowable for deduction in view of section 14A of the Act. In view of these two provisions, the claim of the assessee is wholly untenable and the decisions relied upon by the learned counsel on behalf of the appellant are not applicable to the fact situation. We are in agreement with .....

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rly, in the case of CIT v. Smt. Leena Ramachandran 7339 ITR 296, the Hon ble Kerala High Court has held as under: During the previous year relevant to the assessment year 2001-02, the assessee paid interest at 24 per cent. per annum on funds borrowed for purchase of shares in a company. Her claim was that the acquisition of shares with the borrowed funds was for the purpose of controlling the company and since the borrowed funds were utilised for the acquisition of shares of the compa .....

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any expenditure incurred by the assessee for earning any income which did not form part of the total income, the Assessing Officer disallowed the claim to deduction of interest. The Commissioner (Appeals) confirmed the assessment. The Tribunal allowed the claim but made a disallowance of ₹ 2 lakhs being the interest stated to be attributable to the dividend income of ₹ 3 lakhs earned by the assessee from the leasing company during the previous year. On appeal: Held, allow .....

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st 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 company. The assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilised for the acquisition of shares only if shares were held as stock-in-trade and that would arise only if the assessee was engaged in trading in shares. So far as the acquisition of shares was in the form of investment .....

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e applied to the facts and circumstances of the present case. Accordingly, this ground of appeal is dismissed. 7. The next ground for the asst. year 2009-10 is with regard to the direction of the CIT(Appeals) to the Assessing Officer not to allow the claim of forex loss as revenue expenditure. 8. The facts of the issue are that the assessee had purchased a dredging machinery and incurred forex liability. The assessee paid 4 instalments during the asst. year 2009- .....

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efore disallowed the loss. According to the ld. AR, if the above loss is treated as capital in nature, then depreciation @ 20% has to be provided for the same. The AO has not grant that. Further, the short term capital gain computed in the next asst. year i.e. 2010-11 on account of sale of this asset will get reduced to that extent. However, the above adjustments are not made by the AO in his assessment order for both these years. If this loss is to be treated as capital loss, then di .....

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t - if there is any fluctuation in the rate of exchange leading to an increase or decrease in the liability of the assessee, then the amount of expenditure would have to be considered to be of capital nature, and shall be taken into account in computing the actual cost of the asset as per the provisions of section 43A. The expenses claimed by the assessee were incurred in connection with the purchase of spares for the Dredging Machine and as rightly observed by the Assessing Officer these expens .....

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