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Assistant Commissioner of Income-tax, Circle-36, Kolkata Versus Shri Rikhab Chand Jain and Vica-Versa

Disallowance made u/s 14A - Held that:- No disallowance u/s 14 A of the Act need to be made by invoking the provisions of Rule 8D(2) of the Rules as the investments admittedly are business expediency investments and strategic investments. Since the investments were held to be business expediency investments, there is no case for making any disallowance by adopting Rule 8D(2)(iii) of the Rules also - Decided against revenue - Disallowance on account of depreciation - Held that:- We find that .....

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allow the depreciation based on the opening written down value. Assessee is entitled to entire amount claimed as depreciation on windmill. - Decided against revenue - Disallowance made on account of advertisement expenses - assessee produced the copy of the bill of M/s Adsun Advertising Agency and CIT(A) deleted the addition - DR argued that the bill of M/s Adsun Advertising Agency was never subjected to verification by the ld AO and accordingly prayed for setting aside of this issue to the .....

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admittedly not supplied the materials to the job worker and hence the same would not fall under the definition of ‘work’ as per section 194C of the Act.Hence there is no violation of section 194C warranting any disallowance u/s 40(a)(ia) of the Act. - Decided in favour of assessee - Addition being notional interest @ 13.5% on trade advance - Held that:- As already held while dealing with the issue of disallowance u/s 14A that the assessee is having sufficient own funds at its disposal which .....

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their families in order to maintain harmonious relation with the staff members. We hold that there is no personal element involved therein and has been incurred in the ordinary course of his business. We hold that the said expenditure is only in the nature of staff welfare and is squarely allowable as a deduction. Accordingly, we have no hesitation in directing the ld AO to delete this addition - Decided in favour of assessee - I.T.A No.907/Kol/2013, C. O. No.62/Kol/2013 - Dated:- 8-7-2016 - Sh .....

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ed to as the Act ) for AY 2009-10 vide his order dated 29.12.2011. Both the appeal and the Cross Objection are taken up together and disposed of by a common order for the sake of convenience. 2. The first issue to be decided in the appeal of the revenue is as to whether the ld CITA is justified in deleting the disallowance made u/s 14A of the Act in the sum of ₹ 1,19,10,124/- in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee is an Individua .....

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nergy which is sold wholly to Tamil Nadu Electricity Board which also is assessed as Business Income. The assessee has Dividend Income ₹ 51.68 Lacs on Shares in TT Ltd. above which has been claimed as exempt u/s 10(34) of the Act. The assessee borrowed secured loans ₹ 10.63 Crores & unsecured Loans ₹ 5.57 Crores on which he paid interest ₹ 1.87 Crores (including ₹ 42.04 Lacs on Wind Mill) during this year. The assessee paid interest on unsecured loan of ₹ .....

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business is allowable as deduction u/s 36(1)(iii) of the Act. The assessee claimed that the borrowed funds were not utilized for the purpose of making the investments. He claimed that no expenditure has been incurred for the purpose of earning any exempt income and hence no disallowance u/s 14A of the Act could be made. It was also submitted before the ld AO that assessee s business activity consisted of acquiring shares for managing, controlling, administrating, financing the controlled compan .....

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ubmitted that acquiring controlling interest in managed company is for purpose of business and/or vocation & for controlling managing the company & thus interest expenses are allowable as business expenses u/s. 36(1)(iii) of I.T. Act. The Ld. CIT while raising the point of Section 14A during the course of proceedings u/s 263 vide his order dated 27.12.2007 has accepted the explanation of assessee & allowed the interest claimed against borrowed funds to acquire controlling stake in th .....

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of ₹ 1,19,10,124/- on account of addition u/s. 14A whereas the AO was rightly disallowed expense in relation to dividend income earned by the assessee which he claimed as exempt. 2.2. The Ld DR stated that the borrowed funds as on 31.3.2009 as per the books were outstanding at ₹ 16.19 crores and whereas the own funds available with the assessee were only ₹ 15.467 crores. Hence it could be presumed that the investments were made out of borrowed funds and accordingly disallowanc .....

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8-09 (Rs 0.06 crores) ; loan availed for acquisition of Karol Bagh Office building (Rs 2.15 crores) and working capital for business during Financial Years 2007-08 & 2008-09 amounting to average of ₹ 2.22 crores, whereas, the investments in TT Ltd were made in the earlier years prior to Financial Year 2006-07 which is quite evident from the fact that the ld CIT had passed an order u/s 263 of the Act for the Asst Year 2004-05 wherein the investments in TT Limited made by the assessee we .....

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d that the earning of dividend income is only incidental to the main business income derived out of making this business expediency investments in TT Ltd. Accordingly he prayed that no interference is called for in the order of the ld CITA with regard to the impugned issue. 2.3 We have heard the rival submissions and perused the materials available on record. We find that the assessee had furnished as an abundant caution the statement of secured and unsecured loans as on 31.3.2009, purpose of ut .....

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tual profits made in the earlier years. No part of the investments were made out of loan funds. Hence we find that the ratio laid down by the Hon ble Calcutta High Court in the case of Dhanuka & Sons Ltd vs CIT reported in 339 TIR 319 (Cal) which was heavily relied upon by the ld DR actually supports the case of the assessee. Hence it could be safely concluded that no interest expenditure has been incurred for the purpose of making investments. 2.3.1. We also find that the investments were m .....

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not controverted by the revenue before us. Accordingly we hold that the investments made in shares of TT Limited out of own funds of the assessee take the character of strategic investments in order to protect the business interest and was not made with a view to earn dividend income. The reliance placed by the ld AR on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs Rajeeva Lachan Konaria reported in 208 ITR 616 (Cal) is well founded. Though this decision was rendere .....

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imited had to acquire its shares so as to have controlling power over it and that his act of controlling and managing the company is nothing but his profession or vocation which is nothing but his business and is, therefore, interest claimed against borrowed fund to acquire controlling stake in a company is allowable relying on the decision of CIT vs Rajeeva Lachan Konaria (208 ITR 616) of Hon ble Calcutta High Court. We find that the Ld CIT after considering the submissions of the assessee and .....

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.3. We also place reliance on the decision of the Hon ble Apex Court in the case of S A Builders Ltd vs CIT reported in 288 ITR 1 (SC) which has been further affirmed by subsequent decision of the Apex Court in the case of Hero Cycles (P) Ltd vs CIT reported in (2015) 63 taxmann.com 308 (SC) dated 5.11.2015. Hence the proposition the ld AR was trying to advocate that the business expediency investment made by the assessee in TT Limited had been accepted by the revenue in section 263 proceedings .....

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re is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63% of the shares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37% of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which, the asses .....

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has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside. Accordingly, we pass the following: ORDER (i) Appeal is allowed. (ii) Impugned orders are hereby set aside. (iii) The substantial question of law is answered in favour of the assesse .....

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ue is dismissed. 3. The next issue to be decided in the appeal of the revenue is as to whether the ld CITA is justified in deleting the disallowance on account of depreciation in the sum of ₹ 4,54,080/- in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee has acquired a windmill during the second half of Financial Year 2006-07 which admittedly included the following towards acquisition of land :- Purchase of land as per .....

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as appreciation value. Accordingly, the depreciation on the land portion included in the entire cost of windmill was disallowed in the sum of ₹ 4,54,080/- in the assessment. The assessee stated that all the expenses constituted expenses essentially required for constructing specialized foundation fit for high speed rotation of windmill blades, turbines, generation, insulation and distribution of electrical energy generated. It was argued that the land and foundation are integral constituen .....

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lowance. Aggrieved, the revenue is in appeal before us on the following ground:- 2. On the facts & circumstances of the case, the Ld. CIT(A)-XX, Kolkata has erred in deleting the addition of ₹ 4,54,080/- on account of depreciation claimed on land. 3.2. The Ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 3.3. We have heard the rival submissions. At the outset, we find that the action of the ld AO in trying .....

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e opening written down value. This action would only result in the ld AO allowing the depreciation on the cost of land in Asst Years 2007-08 and 2008-09 but would disallow only in Asst Year 2009-10. In any case, we find that the co-ordinate bench decision of Chennai Tribunal in the case of Asian handlooms vs DCIT in ITA No. 176/Mad/2010 dated 6.7.2012 had held as below:- 5. We have heard the submissions made by the parties and have gone through the orders of the authorities below as well as the .....

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uses like pumping water, driving of saw mill, grinding cone and/or driving electrical turbines. A typical wind mill, as installed by the assessee, which is of Suzlon Corporation, would consist of a specialized foundation, on which the wind blades are attached through a post. The Blades connected in the top is a revolving apparatus to which different numbers of arms are attached. When it is used for producing electricity, these are called wind ITA No.176/Mds/2010 turbines and serves as a signific .....

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specialized area specifically earmarked to facilitate a flow of wind without hindrance, and specialized electrical fittings and high tension lines are all basic requirements for a wind mill plant. None of these requirements including the premises can be seen detached from what is called a wind mill since a wind mill to work these are essential. All these are necessary inputs going into ultimate cost of such wind mill. The foundation structure or the specially demarcated appurtenant thereto canno .....

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act that the building has been so planned and constructed as to serve the assessee s ITA No.176/Mds/2010 6 special technical requirement, it would qualify to be treated as a plant. In our opinion, the expenses relating to the land and foundation specially incurred with a view to serve the technical requirements would also become a part of the plant in a case that of a wind mill. If we look at Appendix I to the Incometax Rules, prescribing the rates of depreciation, it can be seen that Legislatur .....

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eat the very purpose for which such enhanced depreciation was provided for. Therefore, in our opinion, assessee s claim for depreciation should not be restricted in the manner made by the Assessing Officer. Therefore, disallowance of ₹ 1,17,00,000/-, 13 lakhs, 23,51,576/- and ₹ 5,73,824/- on account of depreciation claim stands cancelled. Ground Nos. 5 to 19 of the assessee stand allowed. Respectfully following the above decision of the co-ordinate Bench of the Tribunal, we allow the .....

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the disallowance made in the sum of ₹ 7,93,379/- on account of advertisement expenses in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that the advertisement expenditure had increased from ₹ 1,27,900/- to ₹ 16,89,313/- whereas the income earned under the head advertisement pool account had decreased from Rs. 3,36,34,356/- to ₹ 1,30,85,924/-. Accordingly, the ld AO directed the assessee to produce the bills of adver .....

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has shown an amount of ₹ 7,93,379/- paid to M/s Adsun Advertising Agency which was disallowed by him in the assessment. Before the ld CITA, the assessee produced the copy of the bill of M/s Adsun Advertising Agency. The ld CITA observed that all the payments were made by account payee cheques and accordingly deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:- 3. On the facts & circumstances of the case, the Ld. CIT(A)-XX, Kolkata has erred .....

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de the same in the light of evidences submitted by the assessee in this regard. Accordingly, the ground no 3 raised by the revenue is allowed for statistical purposes. 5. The last issue to be decided in the appeal of the revenue is as to whether the ld CITA is justified in deleting the disallowance made u/s 40(a)(ia) of the Act in the sum of ₹ 11,18,698/- for violation of section 194C of the Act in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the ld A .....

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11,18,698/- T. T. Pad & Dairy The ld AO observed that the assessee has failed to deduct TDS against the payments made towards such advertisement materials. It has already been discussed that the assessee is earning Royalty Income for his T.T. Brand. Whatever be the articles or things made by the parties i.e. the Banner, Diary, Pad, Poster, Calender etc. are meant for the TT. Brand . The assessee is the owner of T.T. Brand and for protection of his brand he has claimed various expenses which .....

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ded back the same to the total income of the assessee. The assessee submitted that the ld AO has treated the cost of printed materials purchased for advertisement purposes for sale of products under brand name T.T. Knitwear as payments for contract of printing warranting deduction of tax at source u/s 194C of the Act. The assessee claimed that payment was made for outright purchase of materials and not for execution of any contract. The ld CITA held on perusal of the details and documents that t .....

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disallowance u/s. 40(a)(ia) read with section 194C on advertisement materials. 5.2. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR stated that the assessee has not supplied materials to the job worker and hence does not fall within the definition of work as per section 194C of the Act. The assessee has purchased only diaries, calenders etc for which the bills are available in pages 36 to 40 of the paper book filed by the assessee. 5.3. We have heard the ri .....

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t for the sake of convenience :- work shall also include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering. (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, But does not include manufacturing or supplying a product according to .....

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n sustaining an addition of ₹ 39,375/- being notional interest @ 13.5% on trade advance of ₹ 7,00,000/- in the facts and circumstances of the case. 6.1. The brief facts of this issue is that the assessee advanced a sum of ₹ 7,00,000/-to his wife Smt. Kala Devi Jain towards repairs, renovation and amenities to business premises which could not be materialized. The assessee argued that no interest could be assumed to have been earned in as much as the repairs could be executed fo .....

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7; 7,00,000/- although no interest whatsoever was receivable or received thereon. 6.2. The ld AR argued that this advance was made with a bona fide belief to carry out certain repair works in the business premises. In any case, he argued that there cannot be any addition towards notional interest income. He further argued that the ld CITA had held while dealing with the issue of disallowance u/s 14A of the Act that the assessee had enough own funds at its disposal and having held so, it has to b .....

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