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2016 (7) TMI 1041 - ITAT AHMEDABAD

2016 (7) TMI 1041 - ITAT AHMEDABAD - TMI - Disallowance u/s 14A - Held that:- We find that Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. reported at (2009 (1) TMI 4 - BOMBAY HIGH COURT ) has held that if there are funds available, both interest-free and overdraft and / or loan taken, then a presumption would arise that investments would be out of interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investme .....

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ty of the aforesaid facts, we are of the view that in the present case, no disallowance u/s.14A is called for and thus direct the deletion of addition made by the AO. Thus, the ground(s) of assessee are allowed. As far as the appeal of Revenue for AY 2009-10 is concerned, since in AYs 2008-09 & 2009-10 the ground of assessee is decided in assessee’s favour, the ground raised by Revenue has become academic and, therefore, requires no adjudication and therefore dismissed. - Decided in favour of as .....

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als)-XI Ahmedabad ( CIT(A) in short) dated 02/07/2012 & 27/04/2012 pertaining to Assessment Years (AYs) 2008-09 & 2009-10 respectively. 2. Before us, at the outset the Ld AR submitted that though there are two appeals of the assessee and appeal for Revenue in different assessment years but the issue involved in all the two years are identical except for the assessment year and the amount involved and therefore the submission made by him while arguing the appeal for one year would be appl .....

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2009-10 on 25.9.2008 declaring total income of ₹ 44,76,490/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the I.T. Act, 1961 vide order dated 08/11/2010 and the total income was determined at ₹ 75,55,030/-. Aggrieved by the order of AO, assessee carried the matter in appeal before ld.CIT(A) who vide order dated 02/03/2012 (in Appeal No.CIT(A)-XI/204/DCIT Cir.5/10-11 - AY 2008-09) dismissed the appeal of the assessee. Aggrieved by the order of .....

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dered for the purposes of making disallowance, if any, u/s.14A. 2.2. Grounds raised by assessee in ITA No.1091/Ahd/2012 for AY 2009-10 read as under:- 1. On the facts and in the circumstances of the case, the CIT(A) erred in confirming disallowance of ₹ 71,29,024/- made by the Assessing Officer u/s.14A of the I.T. Act. 2. On the facts and in the circumstances of the case, the CIT(A) erred in rejecting the claim of the assessment proceedingscompany that only net interest expenditure can be .....

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uch investment. 4. On the facts and in the circumstances of the case, the CIT(A) erred in confirming disallowance addition of ₹ 71,29,024 to book profit u/s.115JB. 2.3. Ground raised by the Revenue in ITA No.1455/Ahd/2012 for AY 2009-10 reads as under: 1) The Ld.Commissioner of Income-tax(A) has erred in law and on facts in directing the Assessing Officer not to make adjustment of disallowance of ₹ 71,29,024/- u/s.14A of the Act, while computing MAT profits u/s.115JB of the Act. 2.4. .....

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llowed u/s 14A of the Act to which assessee inter alia submitted that assessee had sufficient interest free funds and had also received interest income to the tune of ₹ 50,58,840/- and therefore the interest expenses was only to the extent of ₹ 41,891/-. It was also submitted that assessee had not incurred any expenditure for earning exempt income and therefore no disallowance u/s.14A of the Act was called for. The submissions of the assessee were not found acceptable to AO. AO there .....

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me from equity shares and mutual funds are exempt as per the provisions of I.T.Act, 1961. This way, as per the provisions of section 14A, the A.O. was required to disallow expenditure incurred on these investments. The statute has also provided schemes to make such disallowance and the schemes are prescribed under rule 8D of Income-tax Rules, 1962. It is clearly held by the Mumbai High Court in the case of Godrej Boyce Mfg.Co.328 ITR 81 that provisions of rule 8D are applicable from A.Y. 2008-09 .....

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by provisions of section 14A r.w. rule 8D of income-tax Rules, 1961. The appellant has also placed reliance on the case of ACG Associated Capsules Pvt.Ltd. v/s. CIT, Central-IV, Mumbai (Civil Appeal No.1914 of 2012). In this case, Hon ble Supreme Court was considering provisions of Explanation baa to section 80HHC. Thus, ratio of this case law will also be not applicable while considering provisions of section 14A. The appellant has also contended that disallowance of interest u/s.14A should be .....

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ofit & Loss account. This way, I am inclined to agree with the disallowance made by the ld.A.O. In view of the above, disallowance of ₹ 30,78,541/- made by the A.O. is confirmed. This ground of appeal is dismissed. 3. Aggrieved by the order of ld.CIT(A), the assessee is now in appeal before us. 3.1. Before us, the ld. A.R. reiterated the submissions made before lower authorities and submitted that against the investment of ₹ 21.67 crores, assessee had interest-free funds to the e .....

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interest expenditure, he submitted that as against the interest expenses of ₹ 51,00,731/-, assessee has earned interest income of ₹ 50,58,840/- and therefore the net interest expenses is only to the extent of ₹ 41,891/- and in such a situation, if at all, disallowance of interest expenses could be made under Rule 8D by considering the net interest expenses. For the proposition of net interest to be considered for disallowance he relied on the decision of ITAT Ahmedabad in the c .....

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de before AO and ld.CIT(A) and supported the order of ld.CIT(A). He further submitted that if the assessee s ground in its appeal is decided in assessee s favour the ground raised in Revenue s appeal would not survive. 3.2. On the other hand, the ld.Sr.D.R. submitted that the assessee has not proved that interest-free funds have been utilized for making the investments. He further submitted that the Hon ble Bombay High Court in the case of Godrej & Boyce Mfg.Co. reported at 328 ITR 81 has he .....

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.14A of the Act. The undisputed fact is the assessee has earned tax free amounting to ₹ 58,41,551/- and has also incurred interest expenses. It is assessee s submission that it has interest-free funds which are more than the amounts invested from which it has earned exempt income and in such a case the presumption is that investments are out of interest-free funds and, therefore, no disallowance on account of interest can be made. This submission of the assessee has not been controverted b .....

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