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M/s Hero Cycles Ltd., Versus The A.C.I.T., Circle-V, Ludhiana

2015 (10) TMI 2499 - ITAT CHANDIGARH

Disallowance u/s 14A - Held that:- From the perusal of the balance sheet and other documents filed in the Paper Book, we see that the total investment in shares and mutual funds as on 31.3.2007 was of ₹ 3,83,82,47,226/- while the investment as on 31.3.2008 is of ₹ 4,64,37,73,922. Therefore, there was an increase of around ₹ 80 crores in the investment during the year. While reserves and own funds of the assessee company as on 31.3.2008 are amounting to ₹ 6,24,18,74,854/-. .....

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Officer under Rule 8D of the Income Tax Rules, in view of our finding that no disallowance on account of interest under section 14A an be made, we do not find any need to adjudicate these issues. - Decided against revenue. - Administrative expenses disallowance under Rule 8D - Held that:- It is a fact on record that the assessee himself had disallowed an amount of ₹ 2,73,13,827/- on account of expenses incurred for earning tax free income and the Assessing Officer has nowhere recorded .....

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ome Tax Rules is not as per law. In view of the above disallowance made by the Assessing Officer under section 14 of the Act read Rule 8D of the Income Tax Rules is deleted. - Decided against revenue. - Capitalization of interest - Held that:- The disallowance has been made by the Assessing Officer on account of proportionate interest for three months, on the premises that interest bearing funds are used for the purposes of acquisition of the paint shop. The reply filed by the assessee was t .....

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orm of paint shop which was imported from Germany. This shop clearly adds to the business of the assessee. No evidence is there on record that this is in replacement of an existing assets. As regards the alternative contention of allowing depreciation on such capitalization, we see that the disallowance itself has been made after providing depreciation. - Decided against assessee. - ITA No.192/Chd/2013 - Dated:- 29-10-2015 - SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER

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on 14A of the Income Tax Act, 1961 (in short the Act ) 3. Briefly, the facts of the case are that during the year, the assessee had earned dividend income of ₹ 38,88,83,362/- and Long Term Capital Gain of ₹ 14,64,10,504/-, which were claimed as exempt. The assessee had investment of ₹ 3,84,34,37,861/- and ₹ 4,64,39,13,422/- as on 31.7.2007 and 31.3.2008 respectively and had incurred interest expenditure of ₹ 13,07,63,450/-. After considering the detailed .....

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ted that all the expenditure incurred in relation to investment have been suo moto disallowed by the assessee being ₹ 2,73,13,827/-. Further, it was argued that the Assessing Officer has wrongly considered the investment, the income from which are taxable for calculating the average value of investment for Rule 8D of the Income Tax Rules. It was also submitted that the Assessing Officer has wrongly treated the gross interest of all units at ₹ 13,07,63,450/- irrespective of the purpos .....

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deduce the interest expenses which have been capitalized by him applying the Explanation-8 to section 43 (1) of the Act at ₹ 20,24,929/-. On the basis of these submissions, it was prayed to delete the disallowance made by the Assessing Officer. However, the learned CIT (Appeals) found himself not in agreement with the submissions of the assessee and held that the provisions of section 14A of the Act are clearly applicable to the assessee and the Assessing Officer was fully justified in di .....

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nder section 14A of the Act, the Assessing Officer has taken total interest paid by all units at ₹ 13,07,63,450/- while the investment had been made only by the main unit where the interest paid was ₹ 6,59,91,716/-. For this, reliance was placed on the order of the Punjab & Haryana High Court in assessee s own case for assessment year 2004-05, reported in 323 ITR 518, whereby it was held that only main unit has made investments and as far as other units are concerned, none of the .....

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placed on the order of the Chandigarh Bench of the Tribunal in assessee s own case for assessment year 2007-08 in ITA No.1297/Chd/2010 dated 19.10.2011, whereby it was held that the interest received are to be set off against the interest paid for making disallowance under section 14A of the Act. Further, it was argued that the Assessing Officer has capitalized interest amounting to ₹ 20,24,929/- on an investment of ₹ 7,29,70,438/- in Paint shop, which was commissioned in January, 20 .....

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f the year. Our attention was invited to page Nos. 42 and 45 of the Paper Book filed by the assessee to show that the reserves and own funds of the assessee company as on 31.3.2008 are ₹ 6,24,18,74,854/-. In this way, it was prayed that no disallowance of interest under section 14A of the Act can be made and as regards administrative expenses, it was submitted that the assessee having suo moto disallowed an amount of ₹ 2,73,13,827/-, no disallowance under section 14A of the Act be su .....

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Chadha Super Cars P. Ltd. in ITA No.1241/Chd/2011, dated 28.12.2012 to the effect that even in the absence of specific utilization of funds, Rule 8D of the Income Tax Rules will be applicable. 8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. From the perusal of the balance sheet and other documents filed in the Paper Book, we see that the total investment in shares and mut .....

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such a scenario, it can be very conveniently presumed that all the investment have been made out of own funds. For this purpose, reliance is placed on the judgment of Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. Vs. CIT in ITA No.624 of 2013 (O&M) dated 24.7.2015, whereby it has been held as under : "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of ₹ 10.2 .....

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isallowance under section 14A of the Act on account of interest can be made. Though the learned counsel for the assessee has made alternative submissions on the computation made by the Assessing Officer under Rule 8D of the Income Tax Rules, in view of our finding that no disallowance on account of interest under section 14A an be made, we do not find any need to adjudicate these issues. 10. As regards administrative expenses, it is a fact on record that the assessee himself had disa .....

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e by the assessee is not correct, the disallowance made by him on account of administrative expenses under Rule 8D of the Income Tax Rules is not as per law. In view of the above disallowance made by the Assessing Officer under section 14 of the Act read Rule 8D of the Income Tax Rules is deleted. 11. The ground No.9 raised by the assessee relates to the capitalization of interest amounting to ₹ 20,24,929/- 12. The brief facts of the case are that the assessee insta .....

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He accordingly, computed the interest on investment of ₹ 7,29,70,438/- for three months @ 12% per month, which worked out to ₹ 21,80,113/-. After allowing depreciation @ 7.5% a disallowance of ₹ 20,24,929/- was made. 13. Before the learned CIT (Appeals), two fold submissions were made on behalf of the assessee, firstly it was submitted that no interest bearing funds were used for acquisition of paint shop and secondly, the paint shop was just a replacement and not a .....

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