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Nirma Industries Pvt. Ltd. Versus Dy. CIT, Circle-5, Ahmedabad and Asst. CIT, Circle-5, Ahmedabad Versus Nirma Industries Ltd., Ahmedabad

2016 (8) TMI 404 - ITAT AHMEDABAD

Disallowance of expenses u/s.14A - Held that:- On perusing the copy of the Balance Sheet as at 31/03/2008 it seen that the total interest-free funds as at 31/3/2008 comprising of Share Capital and Reserves and Surplus is ₹ 25,39,21,834/- as against Investment of ₹ 15,84,13,764/-. Further the investments have reduced from ₹ 19,10,66,009/- as at 31/03/2007, meaning thereby that there are no new investments at the year end and the interest-free funds in the form of Share Capital & .....

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in the tax free securities, then a presumption arises that the investments were made from its interest-free funds. Before us, Revenue has not placed any contrary binding decision in its support. In view of the aforesaid facts and relying on the decision of Hon’ble Bombay high Court referred to hereinabove, we are of the view that no disallowance of expenditure u/s.14A other than that offered by assessee is called for in the present case. - Decided in favour of assessee - ITA No(s) 912/Ahd/2012, .....

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respectively. Revenue is in cross-appeal for AY 2008-09 in ITA No.1211/Ahd/2012. Since these appeals relate to same assessee, these are being disposed of by way of this consolidated order for the sake of convenience. 2. First, we take up assessee s appeal in ITA No.912/Ahd/2012 for AY 2007-08. 2.1. The relevant facts as culled out from the materials on record are as under:- 2.2. Assessee is a company stated to be engaged in the business of manufacturing of soap, stone powder, agricultural produc .....

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dated 20/03/2012, granted partial relief to the assessee. Aggrieved by the order of ld.CIT(A), assessee is now in appeal before us and has raised following grounds;- 1) In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in the points of law and facts. 2) In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in dismissing appellant s ground regarding allowing of interest expenses ₹ 8,25,42,400 pa .....

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allowed. The ld.CIT(A) dismissed the ground of the assessee by noting that AO had not made any disallowance in respect of interest paid in the impugned assessment year and therefore the assessee was not aggrieved on that issue and, accordingly, as per the provisions of section 246 of the Act, assessee cannot be agitating the issue in appeal and that in many earlier years, the matter in appeal has been decided in its favour. Aggrieved by the order of ld.CIT(A), assessee is now in appeal before u .....

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ferred appeals before the appellate authorities and the status of those appeals is reflected on page No.9 of ld.CIT(A) s order. From chart which is reproduced by the ld.CIT(A), the ld.AR submitted that as far as the issue in AY 2003-04 is concerned, in the second round the matter is pending before the Tribunal. For AY 2006-07 the Department s appeal is pending before the Tribunal. As far as issue in AYs 2004-05 and 2005-06 are concerned, he submitted that the Hon ble Tribunal had allowed the app .....

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. 4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present appeal is with reference to allowance of interest expenses. It is assessee s submission that assessee had issued OFCPN in earlier years and had debited the interest payable on those OFCPNs as expenses but the claim of expenses was negated by AO for the reason that the claim of expenses was contingent in nature as no amount was paid in t .....

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ed Allowed 2005-06 2006-07 2,25,28,895 Disallowed Allowed Department Appeal Pending 4.1. During the year, assessee had claimed before ld.CIT(A) the expenses be allowed on payment basis, but the claim of deduction of expense was denied for the reason that the ground does not emanate from the order of AO and that in many years, the claim of assessee was allowed in appeal. 5. From the table which is reproduced hereinabove, it can be seen that AYs 2003-04 & 2006-07, the matter is pending before .....

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ing by the higher Forum and consider the claim in accordance with law. Thus, this ground of assessee is allowed for statistical purposes. 6. Now we take up Assessee s appeal in ITA No.913/Ahd/2012 and Revenue s appeal in ITA No.1211/Ahd/2012 for AY 2008-09. 6.1. Assessee electronically filed its return of income for AY 2008-09 on 30/09/2008 declaring loss of ₹ 24,62,005/-. Subsequently, assessee revised its return of income on 19/03/2009 declaring loss of ₹ 24,62,005/-. The case was .....

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atter before the ld.CIT(A), who vide order 22/03/2012 (in Appeal No.CIT(A)-XI/98/Cir.5/10-11) granted partial relief to the assessee. Aggrieved by the order of the ld.CIT(A), assessee and Revenue are now in appeals before us. The grounds raised by the assessee in ITA No.913/Ahd/2012 read as under:- 1) In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in the points of law and facts. 2) In law and in facts and circumstances of the Appellant s case, .....

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.T.Act for ₹ 54,207. 5) In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in dismissing appellant s ground regarding withdrawing of interest u/s.244A of I.T.Act for ₹ 2,12,330. 6.2. On the other hand, Revenue has raised the following ground in ITA No.1211/Ahd/2012:- 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 ₹ 42,97,474/- u/s .....

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claimed as exempt. He further observed that assessee had disallowed ₹ 50,000/- u/s.14A of the Act. Assessee was asked to furnish working of disallowance u/s.14A of the Act and was show-caused as to why proportionate disallowance of interest expenditure not be made to which assessee inter alia submitted that no disallowance of interest was required as no interest expenditure was incurred for earning tax-free income. The submission of the assessee was not found acceptable to the AO in view .....

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-, he made addition of differential amount of ₹ 42,97,474/-. Aggrieved by the order of AO, assessee carried the matter before ld.CIT(A), who confirmed the order of the AO by holding as under:- 3.3. I have carefully considered rival submissions. I have also perused various case laws relied upon by the ld.AR. It is a clear proposition of law that provisions of section 14A(2) & 14A(3) are effective w.e.f. 1-4-2007 and provisions of rule 8D is effective from 24- 3-2008. This way, provision .....

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ons of sub section (2) shall a/so apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act." 3.4 Perusal of the above mentioned provisions makes it very clear that provisions of section 14A r.w. rule 8D will be applicable even in the case where appellant claims that no expenditure has been incurred in investment of equities, income from which is exempt as per provisions .....

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e above, I am of the considered view that the A.O. had rightly applied provisions of rule 8D and I entirely agree with the disallowance made by the A.O. u/s.14A of I.T.Act. In view of above, disallowance of ₹ 42,97,474/- made by the A.O. u/s.14A is confirmed. 6.6. Aggrieved by the order of the ld.CIT(A), assessee is now in appeal before us. 6.7. Before us, ld.AR reiterated the submissions made before the AO and ld.CIT(A) and further submitted that in assessee s own case for AYs 2004-05 &am .....

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unds. He also submitted that during the year the investments have reduced from that of earlier years and in support of the aforesaid arguments, he pointed to the copy of the Balance Sheet which is placed at page Nos.11 to 21 of the paper-book. He further placed reliance on the judgement in the case of India Gelatine reported in 376 ITR 553. He therefore submitted that no disallowance other than that which has been offered by the assessee is required in the present case. 6.8. With respect to Reve .....

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other hand, supported the orders of AO and ld.CIT(A) and further submitted that in the year under appeal, the provisions of Rule 8D of I.T.Rules, 1962 were mandatory and, therefore, in view of the fact that assessee was having common pool of funds, the AO was fully justified in making the disallowance. As far as Revenue s appeal is concerned, he submitted that in view of the Explanation-1 of section 115JB of the Act, the AO had rightly considered the disallowance made u/s.14A of the Act while co .....

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ion provisions of Section 14A r.w. Rule 8D of I.T.Rules are applicable. Before us, it is assessee s submission that assessee has enough funds in the form of Share Capital and Reserves and Surplus and therefore no disallowance u/s.14A of the Act is called for. On perusing the copy of the Balance Sheet as at 31/03/2008 which is placed at page No.11 of the paper-book, it seen that the total interest-free funds as at 31/3/2008 comprising of Share Capital and Reserves and Surplus is ₹ 25,39,21, .....

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