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M/s. Sunrays Properties and Investment Co. Pvt. Ltd. Versus DCIT, Circle 9 (1) , New Delhi.

2016 (6) TMI 1082 - ITAT DELHI

Disallowance u/s 14A - whether section 14A read with Rule 8D is applicable when the assessee company has neither borrowed any money to be invested in shares nor earned any exempt dividend income during the year under assessment? - Held that:- Merely, on the basis of fact that during the preceding years as well as succeeding years, assessee company has earned the dividend income, the disallowance u/s 14A read with Rule 8D cannot be made because earning of dividend on investment in shares depends .....

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ntion of the assessee that no dividend income has been received during the year under assessment nor it has borrowed any funds to invest in the share to earn the dividend income, the question of making disallowance by invoking provisions u/s 14A read with Rule 8D does not arise. - Thus when the assessee company has not incurred any expenditure to earn the exempt income, no disallowance can be made u/s 14A of the Act read with Rule 8D of the Rules, hence the impugned order passed by the ld. C .....

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d order dated 03.10.2013 passed by the Commissioner of Income-tax (Appeals)-XI, New Delhi qua the assessment year 2008-09 on the grounds inter alia that :- 2. That the learned Commissioner of Income Tax (Appeal), erred in rejecting assessee's contention that the sections 14A r. w. rule 8D was not applicable to the appellant company, because the company neither borrowed any amounts nor earned any Dividend Income during the year by the assessee company, thereby confirming the addition of ͅ .....

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ncome Tax act, 1961 read with Rule 8D of the Income Tax Rules, 1962, since the assessee has not earned dividend income during the year under assessment which has been claimed as exempt u/s 10(34) of the I.T. Act, 1961. 2. Briefly stated the facts of this case are : in response to the notice issued under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short 'the Act') along with questionnaire issued during the scrutiny proceedings, Shri Anil Srivastava, FCA/AR put in appearance .....

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e of earning exempt dividend income and thereby computed the disallowance u/s 14A of the Act read with Rule 8D of the Income tax Rules, 1962 (for short the Rules ) to the tune of ₹ 1,72,92,279/- and added the same to the total income of the assessee. 3. Assessee carried the matter before the ld. CIT (A) who has dismissed the appeal. Feeling aggrieved, the assessee has come up in appeal before the Tribunal by way of filing the present appeal. 4. We have heard the ld. Authorized Representati .....

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ment to be exempted u/s 10 of the Act, provisions contained u/s 14A read with Rule 8D of the Rules are not applicable. 6. During the appellate proceedings, the assessee company was called upon to file copy of annual accounts, tax audit report, computation of income and copy of acknowledgement for filing the return of income qua the year under assessment, which it has filed along with following reply :- It may be relevant to mention that the assessee company is an investment and finance company a .....

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f trading in shares, the provisions of section 14A are not applicable to the assessee company. It may further be relevant to mention that the assessee company has not earned any dividend income during the year under assessment which has been claimed as exempt u/s 10(34) of the Income Tax Act and since no income has been claimed to be exempt u/s 10 of the assessee company, the disallowance made by the assessing officer u/s 14A is totally unwarranted and uncalled for and requires to be deleted. Re .....

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e-tax Act, 1961 (for short 'the Act') accordance with sub-rule (2) and (3) read with Rule 8D of the Rules to the following effects :- 8. Ld. CIT (A) affirmed the findings returned by the AO by making following observations :- 9.1. …….On examination of the facts of the case, it is observed that the appellant company has received dividend income during immediately preceding year as well as in the next assessment year succeeding the year under consideration. The perusal of bal .....

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xempt income in the shape of dividend is received by it. Therefore, a portion of financial expenses claimed by the appellant company is definitely attributable to the exempt income. Thirdly, the appellant is utilizing its administrative as well as managerial machinery to maintain the investments in a prudent manner. These administrative and managerial expenses are also inseparable from the expenses relating to earning of taxable income. Thus, all the three components of Rule 8D are applicable in .....

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the appellant has incurred direct and indirect expenses in managing the investments which shall yield exempt dividend income…… 9. Now, the sole question arises for determination in this case is, as to whether section 14A read with Rule 8D is applicable when the assessee company has neither borrowed any money to be invested in shares nor earned any exempt dividend income during the year under assessment? 10. Bare perusal of the impugned order passed by the ld. CIT (A) shows that he .....

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asis and as such, the portion of financial expenses claimed by assessee company is attributable to the exempt income. 11. Identical issue has come up for consideration before the Hon ble jurisdictional High Court in case cited as Cheminvest Ltd. vs. CIT - (2015) 378 ITR 33 (Delhi) wherein it is held as under :- Held, that no exempted income was earned by the assessee in the relevant assessment year and since the genuineness of the expenditure incurred by the assessee was not in doubt, no disallo .....

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