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2016 (5) TMI 1017 - ITAT CHENNAI

2016 (5) TMI 1017 - ITAT CHENNAI - TMI - Disallowance u/s 14A - contention of ld.D.R being the restriction of interest component as per Rule 8D(2) is not viable and supported with the arguments relying on the various decisions - Held that:- Assessee being the NBFC and it is regular practice to make investments in the shares and securities and assessee also disallowed amount suo moto under Rule 8D. So considering the provisions and submissions of Counsels we are of the opinion that the Ld.CIT(A) .....

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sessee for giving interest free loan and on perusal of the statement revealed that the assessee has surplus funds and loans are advanced out of internal accruals and profits made from sale of shares and were reflected in the balance sheet. The Ld.D.R though accepted the contention, did not accept the notional interest, which has not arised to the assessee’s case. Therefore, the findings of Ld.CIT(A) in deleting the addition is proper and accordingly,we upheld the order of Ld.CIT(A) on this groun .....

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n ITA No.266/12-13/A-1 dated 24.03.2014 pertaining to the assessment year 2010-11 passed u/s.143(3) of the Act. 2.1 The Revenue has raised the following grounds:- 1. The order of the Ld.CIT(A) is contrary to law and facts and circumstances of the case. 2. The CIT(A) erred in restricting the disallowance made u/s 14A to the extent of limb (ii) of Rule 8D(2). 2.1 The CIT(A) failed to treat the impact of the interest accrued on interest free loan given to M/s.Hitech Housing Projects Pvt.Ltd. as in .....

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owing mercantile system of accounting, interest accrued therein had to be assessed in the hands of the assessee even though the assessee had not received any amount as the principal amount itself was not a bad debt. 3. The CIT(A) erred in deleting the Disallowance of notional interest on interest free loan given to M/s.Hitech Housing Pvt.Ltd amounting to ₹ 1.55 crores. 3.1 The CIT(A) failed to appreciate that in the business of Non Banking Finance Companies, determining the activity of bus .....

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Madras in the case of M/s.United Nilgiris Tea Estate Company (210 Taxman 62) dated 17/07/2012 wherein it is held that when the assessee is following mercantile system of accounting, interest accrued therein had to be assessed in the hands of the assessee even though the assessee had not received any amount as the principal amount itself was not a bad debt. 3.4 The CIT(A) ought to have upheld the disallowance in the absence of the evidences of the business and non-business activity of the NBFC an .....

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Respondent is incorrect. 1.2. The learned CIT(A) has failed to appreciate the fact that the dividend earned by the Respondent were incidental to trade investments and out of investments in mutual funds which were bought and sold during the year amounting to ₹ 20,20,846/- and ₹ 30,21,718/- respectively. 1.3. The learned CIT (A) has erred in upholding the disallowance made under section 14A of the Act by applying Rule 8D(iii) of the Rules to the extent of ₹ 20,50,543, which is e .....

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21,718/-. 1.5. Without prejudice to the above, in the entire disallowance made under Rule 8D of the Rules, should be allowed as additional cost of acquisition of those securities held as investment. 2. Adjustment to book profits under section 115JB of the Act. 2.1. The learned CIT (A) have erred in upholding the adjustment to book profits computed in accordance with section 115JB of the Act, towards disallowance ₹ 32,05,094 made under section 14A of the Act by applying the provisions of Ru .....

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y, the return was selected for scrutiny and notice u/s.143(2) of the Act was issued to the assessee due to change in jurisdiction. In response to the notice, the Authorised Representative of assessee appeared from time to time and furnished the details called for during assessment proceedings. 3.1. The AO made disallowance u/s.14A of the Act of ₹ 29,52,927/-. On perusal of the balance sheet, the investments are ₹ 31.99 crores as on 31.03.2010 and also ₹ 2.72 crores were debited .....

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d that assessee has disallowed ₹ 2,52,167/- towards expenditure for earning dividend income, but the ld. Assessing Officer, based on the decision of M/s.Godrej & Boyce Vs. DCIT [ 234 DTR 01 (Bom.) ] calculated the disallowance under Rule-8D(ii) of the I.T. Rules,1961 and made disallowance of ₹ 29,52,927/-. The ld.A.R has furnished detailed explanations about the dividend income and the investments, and also cited case laws in support of his submissions at pages 3 & 4 of asses .....

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ent interest free advances of 21.50 crores to M/s.Hitech Housing Projects Ltd., and called for explanations why the interest was not accrued on advances to M/s.Hi-tech Housing Projects Ltd., as the company is following Mercantile System of Accounting. On perusal of P&L A/c, 2,72,69,000/- was claimed and can be disallowed u/s.36(1)(iii) of the Act as the company has given interest free advance to his sister concerns. Ld.A.R filed detailed submissions at para 5.2 of assessment order and ld. As .....

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ut to ₹ 1,54,82,876/-. The ld. Assessing Officer with the above disallowances passed assessment order u/s.143(3) of the Act on 19.12.2013. Aggrieved by the order of the AO, the assessee has filed an appeal before the Ld.CIT(A). 4.1. In the appellate proceedings, on the issue of disallowance u/s.14A, ld.A.R vehemently argued the grounds raised in its appeal and supported his arguments with the decisions as referred at pages 3 & 4 of the CIT(A) s order. The basic issue being that the ass .....

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. M/s.Hero Cycles Ltd. [ (2010)(323 ITR 518 (P&H) ] wherein it has been clearly explained that the disallowance u/s.14A requires finding of incurring of expenditure, where it is found that for earning exempted income, no expenditure has been incurred, disallowance u/s.14A cannot be warranted. Further, Ld.CIT(A) relied on the decision of Special Bench of Mumbai Tribunal in the case of Daga Capital Managmenet P. Ltd. (2008) (117 ITD 169) and also various decisions of High Courts and Tribunals. .....

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balance ₹ 1,76,68,025/- was incurred towards the interest for trading purpose. Considering the loan aspect of JMF, balance sheet of the assessee wherein the assessee has sufficient own funds of ₹ 59.13 crores against the investment of ₹ 31.99 crores. The Ld.CIT(A) allowed the ground by observing as under:- 4.2.8 However, the disallowance made by the AO by invoking limb(iii) of Rule 8D(2) is in order in view of the fact that this scientific formula needs t be applied from A.Y 20 .....

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wed. 4.2 On the issue of notional interest of ₹ 1,54,82,876/-, Ld.CIT(A) perused the findings& observations of AO and submissions by ld.A.R in his order and found that the assessee has advanced ₹ 21.5 crores to its sister concerns out of the fund generated from interest accruals. On perusal of the balance sheet and financial statements, assessee has only one loan facility in form of Demand Loan from JMF and the same was utilized for the purpose of purchase and sale of shares only .....

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t limit and not in the form of cash, it cannot be construed that these funds were diverted to any other concerns. On the other hand, the appellant is also having sufficient own funds out of internal accruals as seen from the balance sheet (Reserve & Surplus as on 1.4.2009 of ₹ 21.29 crores were increased to ₹ 59.13 crores as on 31.03.2010) which could be used for advancing to other concerns. In view of the above facts, the notional interest disallowed by the AO is not called for. .....

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iness of trading shares, disallowance has to be considered, for the average of value of the investments as they take the characteristics of trading asset and appear in the balance sheet. The transaction of purchase and sale is meant for business of the assessee and such investments are only for the purpose of commercial expediency and prayed for setting aside the CIT(A) s order. 5.2. Contra, ld.A.R substantiate his arguments that in case of trading in shares only Rule 8D(2) shall apply and also .....

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ering the other two limbs. 6.1. We have heard the rival submissions, perused the material on record and judicial decision cited. The main contention of ld.D.R being the restriction of interest component as per Rule 8D(2) is not viable and supported with the arguments relying on the various decisions. The ld.A.R submitted that assessee being the NBFC and it is regular practice to make investments in the shares and securities and assessee also disallowed amount suo moto under Rule 8D, but the AO a .....

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IT Vs.Farida Shoes Pvt Ltd. in ITA No.359/Mds./2013 for assessment year 2008-09 vide order dated 11.04.2013. So considering the provisions and submissions of Counsels we are of the opinion that the Ld.CIT(A) had dealt with the issue in detail and also considered the submissions and explanations of the assessee, Therefore, we are not inclined to interfere with the order of the Ld.CIT(A) and confirm the same. 6.2 On the issue of notional interest, the ld.D.R submitted that assessee company has pro .....

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nd also the activity could not be distinguished by the assessee. The Ld.D.R has dealt with only Ld.CIT(A) s observations in para 5.9 of his order where adjustments was made considering the disallowance. The fact that the assessee has obtained loans only for the purpose of purchase and sale of shares from M/s.J.M.Financial Products P. Ltd. The Ld.CIT(A) assumed the principle of commercial expediency and directed the AO to delete the addition, which is not in accordance with law. Therefore, prayed .....

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of the case is that assessee has provided interest free advances to its sister concern, which is not disputed by the lower authorities and during the assessment proceedings, the assessee provided the particulars of income of the assessee for giving interest free loan and on perusal of the statement revealed that the assessee has surplus funds and loans are advanced out of internal accruals and profits made from sale of shares and were reflected in the balance sheet. The Ld.D.R though accepted th .....

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