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2016 (8) TMI 411 - ITAT MUMBAI

2016 (8) TMI 411 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- AO is directed to restrict the administrative disallowance to 5% of the dividend income. Effective ground of appeal is decided in favour of the assessee in part. - Disallowance under the head interest expenditure - Held that:- While deciding the appeal of the assessee, we have held that assessee had sufficient own funds to make investments and therefore, there was no justification for disallowance under the head intere .....

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nder consideration. Assessee-company, engaged in the business of manufacturing and export of textile and other goods, filed its return of income on 14. 10. 2010, declaring total income of ₹ 7. 18 crores. The AO finalised the assessment, u/s. 143(3)of the Act, on 26. 03. 2013, determining the income of the assessee at ₹ 16. 97 crores. ITA/7102/Mum/2014 : 2. Effective ground of appeal, raised by the assessee is about addition made by the AO, u/s. 14 A of the Act, r. w. r. 8D of the Rul .....

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it was suffering from legal infirmity, that it had disallowed indirect expenses of ₹ 99. 65 lakhs when interest free funds were available to it, that the disallowance on account of interest expenditure should be restricted to ₹ 25. 62 lakhs. It relied upon number of orders of the Tribunal in its support. After considering the submissions of the assessee, the FAA held that it has raised the issue of restricting the interest expenditure to ₹ 25. 62 lakhs before him for the first .....

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argued that the Tribunal had held that the assessee had sufficient own funds for making investment, that the Hon ble High Court had also endorsed the above view of the Tribunal, that there was no justification for not admitting the additional claim by the FAA especially after the judgment of the Hon ble Bombay High Court delivered in the case of Pruthvi Brokers and Shareholders P. Ltd. (349ITR336), that in the earlier years the then FAA had allowed the appeal filed by the assessee holding that i .....

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eads as under :- 2. During the assessment proceedings, AO found the assessee had received dividend income of ₹ 12, 17, 147/- which was exempt u/s 10(34) of the Act, that in its computation of total income, assessee had disallowed expenditure of ₹ 7, 89, 633/- for earning this exempt income. He directed the assessee to explain as to why the expenditure relating to exempt income should not be calculated as per rule 8D. After considering the submissions of the assessee. AO worked out di .....

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see was having its own interest free funds to the extent of ₹ 7962. 05 Lacs, that the investment made by it was of ₹ 6774. 33 Lacs. Following the decision of the Hon ble Bombay High Court in the case of Reliance Utilities (313ITR340), he held that it could not be said that the interest expenditure was incurred by assessee on the borrowed funds which were used for earning of exempt dividend income when the sufficient interest free funds are available with the company. Referring to the .....

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ely out of its own interest free funds, that no further disallowance out of the interest expenses was called for, that as per the balance sheet of the assessee as on 31. 03. 2008 the shareholder s fund, in the form of share capital, was ₹ 1286. 11 lacs, that the Reserve and Surplus amounting to ₹ 6, 675. 94 lacs were also available with the assessee during the year, that the investment made by the assessee in shares and securities was only ₹ 6774. 33 lacs, that the company had .....

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held that since the assessee was holding sufficient own funds to make the investments in shares and securities, no disallowance u/s 14A read with Rule 8D was called for. As regards, the disallowance of ₹ 30. 58 lacs out of administrative expenses, he contended that the same was quite unreasonable, that the dividend income earned by the assessee was only ₹ 12, 17, 147/-, that in the earlier years Tribunal had restricted the disallowance to the 5% of dividend income earned. 2. 3. We ha .....

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sessee company on 31st, March, 2006, shareholders fund in the form of share capital and reserve and surplus aggregating to ₹ 71. 16 crores were available with the assessee company as on 31st, March, 2006. Out of the reserves and surplus, revaluation reserves was to the extent of ₹ 10. 41 crores whereas remaining reserves available to the assessee to the extent of ₹ 47. 89 crores were free reserves. Thus own funds to the extent of ₹ 60. 75 crores were available with the as .....

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rt of textiles and other products. However, as held by the Hon ble Bombay High Court in this context in the case of Reliance Utilities and Power Ltd. (supra), if there are funds available, both interest free and interest borrowing, then a presumption would arise that investment would be out of interest free funds generated or available with the company. Relying on the said decision of Hon ble jurisdictional High court, we hold that the assessee having sufficient own funds to make investment in s .....

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nvestments made in shares and securities, no disallowance u/s. 14A on account of interest expenditure was warranted. It is also observed that the AO himself did not make disallowance u/s l4A on account of interest expenditure in assessee s own case for assessment year 2005-06 in the assessment completed u/s 143(3) vide an order dated 20-12-2007 holding that the assessee having sufficient shareholders fund including internal accruals to make investments in shares and securities, no disallowance u .....

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g the amount of dividend income earned by the assessee to the extent of Rs. l, 06, 50, 514/-. In one of the decisions rendered in the case of ACIT vs. Vinod Chopra Films P. Ltd. vide its order dated 29th July, 2011 passed in ITA No. 4019/Murn/2010, the Tribunal has found it fair and reasonable to sustain a similar disallowance to the extent of 5% of the total dividend earnings. Respectfully following the said decision of the coordinate bench of this Tribunal, we sustain the disallowance made by .....

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t its disposal, in form of share capital and reserves, than the investment made during the year. Therefore, respectfully, following the orders of the Tribuanl, for the earlier years, we confirm the order of the FAA for the interest expenses. As far as administrative expenses are concerned;following the order of the Tribunal for the earlier years;we direct the AO to restrict the same to 5% of dividend income. Grounds of appeal taken by the AO are allowed, in part. Respectfully following the above .....

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