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2016 (7) TMI 1132 - ITAT MUMBAI

2016 (7) TMI 1132 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Double deduction - Held that:- As observed that the assessee company has made investments of ₹ 1.47 crores in shares yielding exempt income which is same as in the preceding year as no fresh investment has been made during the year, while net owned funds of the assessee company comprising share capital and reserves are to the tune of ₹ 1.86 crores as on 31-03-2009 and ₹ 1.91 crores as on 31-03-2008 which are far in .....

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ns of Hon’ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) and in the case of HDFC Bank Ltd. v. DCIT (2014 (8) TMI 119 - BOMBAY HIGH COURT ) and decision of HDFC Bank Limited v. DCIT [2016 (3) TMI 755 - BOMBAY HIGH COURT] and hence no disallowance is warranted for interest paid by the assessee company under Section 14A of the Act read with Rule 8D(2)(ii) of Income Tax Rules, 1962 . - Also as the assessee company had made disa .....

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of Income Tax Rules, 1962. It is also not brought on record that the Revenue is in appeal against the appellate orders of the learned CIT(A) - Decided in favour of assessee - I .T.A. No.7383/Mum/2012 - Dated:- 14-6-2016 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri N. Jayendra For The Revenue : Shri Vishwas Jadhav,DR ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee company, being ITA No. 7383/Mum/2012, is directe .....

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h the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- 1. The Commissioner of Income tax (Appeals) - 18, Mumbai, ([CIT(A)] erred in confirming the disallowance of Expenses of ₹ 7,45,425/- made by the Income-tax Officer, Ward 8(3)(2), Mumbai (AO) u/s.14A of the Act, as against ₹ 73,740/- disallowed by the appellant in the return of income. 2. The AO erred in taking finance cost of ₹ 25,75,333/- for the purpose of working of indirect expens .....

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wance of expenses u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 for earning exempt income. It was asked by the A.O. that the assessee company had obtained loans and paid interest of ₹ 25,75,333/- and the assessee company had invested ₹ 1,47,38,012/- in the quoted shares, while in computing disallowance u/s 14A of the Act , the assessee company has not considered the interest either under Rule 8D(2)(ii) or 8D(2)(iii) of the Income Tax Rules, 1962. The assessee com .....

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It was observed by the A.O. that the opening and closing balance of investment shown by the assessee company was at ₹ 1,47,48,012/- and ₹ 1,47,48,012/- respectively, however, the assessee company had not attributed any expenditure which had been incurred for earning exempt income from investments yielding exempt income. Thus as per the AO, the assessee company has not made disallowance of any expenditure incurred for earning exempt income as the assessee company cannot earn any inco .....

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de even if no exempt income is actually earned or received during the year from the investments in stock, stares tax free bonds etc. The A.O. in support, relied upon the decision of Hon ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. v. DCIT in ITXA No. 626/2010 & writ petition No. 758/2010 and not being satisfied with the correctness of the claim made by the assessee company that no expenditure has been incurred by the assessee company in relation to the incom .....

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ne-half percent of the average of the value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and last of the previous year. 0.5% of ₹ 1476,48,012/- ₹ 73,741/-. iv) Total expenditure disallowed u/s 14 A ₹ 7,45,425/- Note i) A= Interest (finance cost) debited to P&L A/c ₹ 25,75,333/- ii) B= Average of exempt income bearing investments = ₹ 1,47,48,012/- iii) C= Av .....

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om which does not form part of the total income of ₹ 73,741/- was disallowed under Rule 8D of Income Tax Rules, 1962, vide assessment orders dated 29.12.2011 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment orders dated 29.12.2011 passed by the A.O. u/s 143(3) of the Act, the assessee company carried the matter before the learned CIT(A) in first appeal. 5. Before the learned CIT(A), the assessee company submitted that the interest expenses of ₹ 25,13,455/- incur .....

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d net worth of ₹ 1.9 crores as on 1st April, 2008 and the amount of investment in shares were ₹ 1.47 crores. The assessee company relied on the decision of Hon ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd., (2009) 313 ITR 340(Bom. HC) whereby the Hon ble Bombay High Court held that if there be interest free funds available to an tax-payer sufficient to meet its investments and at the same time the tax-payer raises an interest bearing loan, it can be .....

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ss of the claim of the tax-payer . The assessee company submitted that the finance cost of ₹ 25,13,455/- is not be considered as indirect expenses for the purpose of disallowance u/s 14A of the Act. It was also submitted that while computing the indirect expenses for the purpose of disallowance u/s 14A, the A.O. has taken average total assets at ₹ 5,65,45,990/- as against ₹ 8,34,70,490/- for which no working has been provided to the assessee company for taking average total ass .....

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,70,490 2 The assessee contended that based upon the correct working, the total disallowance u/s 14A of the Act would work out to ₹ 5,17,831/- as under:- 1. Expenditure directly related to dividend income Rs.4,44,091 2. Interest not directly attributable A*B/C A. Interest 25,13,455 B. Avg. value of investment 1,47,48,012 Opening bal. 1,47,48,012 Closing balance 1,47,48,012 C Avg. of total assets 8,34,70,490 Opening bal. 7,66,67,080 Closing Bal. 9,02,73,899 3. 0.5% of Av. Value of investmen .....

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7; 4,000/- (iii) Inspection charges ₹ 12,000/- ₹ 61,878/- Hence , the learned CIT(A) held that the amount of ₹ 61,878/- has to be excluded from the total interest payment of ₹ 25,75,333/- and interest will become ₹ 25,13,455/- on which the disallowance has to be worked out. The learned CIT(A) also observed that the A.O. has erred in taking the average of total assets on 1st and last day of previous year at ₹ 5,65,45,990/- whereas the correct figure is ₹ .....

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arned CIT(A) vide appellate orders dated 27-08-2012. The other contention of the assessee company was with regard to 0.5% of the average value of investments, which was dismissed by the ld. CIT(A) because as per learned CIT(A) the AO has followed Rule 8D of Income Tax Rules, 1962 correctly and disallowance of ₹ 73,741/- was confirmed by learned CIT(A) vide appellate orders dated 27-08-2012. 6. Aggrieved by the appellate orders dated 27-08-2012 of the learned CIT(A), the assessee company fi .....

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disallowance u/s 14A of the Act of ₹ 73,740/- was made by the assessee company of its own while filing return of income with Revenue which has not been considered by the AO and the learned CIT(A). It is stated that the investments are very old and no fresh investments were made during the previous year. It is submitted that the net owned funds of the assessee company comprising of reserves and surplus and share capital are much more than the investments made by the assessee company in the .....

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v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340(Bom HC) and in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505(Bom HC) and decision of Hon ble Bombay High Court in writ petition in HDFC Bank Limited v. DCIT(2016) 67 taxmann.com 42(Bom. HC) . The assessee company submitted that the it has made investment in the group companies which comes to ₹ 1,43,50,400/- which are unquoted shares out of total investments of ₹ 1,47,48,012/-. All the investments are old investments. Th .....

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ned CIT(A) has already given the relief to the assessee company. He further relied upon the order of the learned CIT(A). 7. We have considered the rival contention and also perused the material available on record including the case laws relied upon by the assessee company . We have observed that the assessee company has made investments of ₹ 1.47 crores in shares yielding exempt income which is same as in the preceding year as no fresh investment has been made during the year, while net o .....

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