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2016 (10) TMI 986 - ITAT DELHI

2016 (10) TMI 986 - ITAT DELHI - TMI - Disallowance u/s 14A - computation of amount - Held that:- When the assessee has come up with a categoric plea that there is no increase in investment during the year under assessment and has not incurred any expenditure, the question of resorting to estimation by the AO does not arise particularly when AO has neither disputed the audited books of account maintained by the assessee in respect of investment and dividend income nor AO has recorded his dis-sat .....

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ion 14A read with Rule 8D does not arise. - Disallowance of interest - loans were utilized for non-business activities - Held that:- The complete nexus has been established between the funds borrowed and fund parked in the FDRs to be utilized for business purpose at the time of opportune time. So, in these circumstances, the revenue authority was not justified in disallowing the interest claimed by the assessee both in AY 2008-09 and AY 2009-10. - Decided in favour of assessee - ITA No.993/M .....

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red to as the assessee ), by filing the aforesaid appeals, sought to set aside the impugned order dated 28.11.2011 passed by ld. Commissioner of Income-tax (Appeals)-19, Mumbai and dated 21.11.2013 passed by ld. Commissioner of Income-tax (Appeals)- XVII, New Delhi qua the assessment years 2008-09 and 2009-10 respectively on the grounds inter alia that :- ITA No.993/Mum./2012 (AY 2008-09) 1) In the facts and the circumstances of the case and also in law, the learned Assessing Officer erred in ma .....

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516/- on the loan taken for the purpose of business, however to optimize the interest cost of' borrowing, a part of' the same was parked in Term Deposit of a Bank to achieve the objective of liquidity and therefore no disallowance could have been made. 3) In the facts and circumstances of' the case and in law, the learned Assessing Officer erred in wrongly treating Interest received and paid as "Income from other Sources" instead of Profits and gains from "Business and .....

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ure of fees paid to the ROC for increasing the share capital of the company which is the statutory requirement and allowable as revenue expenditure. 5) In the facts and circumstances of' the case and in law, the Commissioner of' Income Tax (A) erred in confirming the above additions made by the Assessing Officer. [B] Relief Prayed: 1) To delete the addition or ₹ 2,14,34,865/- u/s 14Act the Act. 2) To delete the disallowance of ₹ 84,99,516/- u/s 36(1)(iii) or the Act. 3) To tr .....

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9-10) 1. The Ld. CIT(A) has erred in law and on facts in confirming disallowance of ₹ 47,36,853/- on account of interest alleged as not incurred for business purposes u/s 36(1)(iii). The disallowance made by the AD and upheld by the CIT(A) is wrong and bad in law and deserves to be deleted. 2. The CIT(A) has failed to appreciate that the AD has disallowed some portion of interest which means part of the interest he is considering as for business purposes and partly as for non-business. Thi .....

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made deserves to be deleted. 4. Without prejudice, the appellant contends that the interest income should be set-off against the interest expenditure completely. Therefore the disallowance made of ₹ 47,36,853/- is on assumptions and presumptions and hence deserves to be deleted. 5. The Ld. CIT(A) has erred in law and on facts in confirming the alleged disallowance of estimated expenditure by invoking provisions of section 14A of the Income Tax Act, 1961 read with Rule 8D. The disallowance .....

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ove grounds that no disallowance should be made u/s 14A, the appellant contends that the working under Rule 8D is wrong, excessive and requires to be revised. The disallowance if any should be restricted to ₹ 20,064/-. 8. The above grounds are independent and without prejudice to one another. 9. The appellant contends that he may be allowed to add, amend, alter forgo any of the grounds at the time of hearing. BRIEF FACTS OF ITA NO.993/MUM./2012 3. Briefly stated the facts of this case are .....

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redited were at ₹ 4,67,79,389/- inclusive of net income from trading at commodity exchange of ₹ 82,49,630/-, interest on loans and FDs amounting to ₹ 3,84,81,941/-, dividend income of ₹ 28,666/- and profit on sale of mutual fund unit of ₹ 19,151/-. Assessee claimed total expenditure debited to P&L account at ₹ 4,76,67,736/- on account of interest paid and share issue expenses of ₹ 5,32,200/-. Assessee has huge investment in the quoted and non-quoted .....

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; 2,14,34,865/- and made an addition thereof. AO noticed that assessee has received and lent unsecured loan to the tune of ₹ 46,19,15,339/- and ₹ 46,62,12,735/- respectively. Assessee availed the loan of ₹ 1,34,84,19,840/- out of which returned ₹ 1,08,70,12,639/- during the year under assessment leaving outstanding balance of ₹ 46,19,15,359/-. Assessee has paid interest of ₹ 4,69,81,457/- @ 11% or 12% but has failed to prove the direct nexus of utilization of .....

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ot be disallowed. Finding explanation furnished by the assessee not tenable, AO disallowed the differential interest of ₹ 82,49,630/- and assessed the total income at ₹ 2,28,83,520/-. BRIEF FACTS OF ITA NO.781/DEL./2014 4. Briefly stated the facts of this case are : during scrutiny proceedings, it was noticed by the AO that assessee, though into the business of trading of sugar, but as per P&L account, it has earned income only from interest and dividend. As per balance sheet, th .....

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the utilization of the loan accepted and the major component of the loan was utilized for advancing loans and advances and investing in the fixed deposit/investment out of which most of the money advanced was on interest free basis. Interest from FDR was received at average rate of 10%. AO noticed that during the year under assessment, assessee has not carried out any business activity and claimed that the assessee was preparing for entering the market at opportune time by restructuring its fina .....

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income of ₹ 28,666/-. From the computation of income, it is noticed that the assessee has disallowed only a sum of ₹ 1,235/- being demat charges as expenses pertaining to exempt income. He was called upon to explain as to why Rule 8D be not invoked to calculate the disallowance u/s 14A. Assessee filed a working of expenses attributed to the dividend income amounting to ₹ 20,064/-. Finding explanation furnished by the assessee not tenable, AO disallowed the expenses to the tune .....

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evenue authorities below in the light of the facts and circumstances of the case. 8. Ld. AR for the assessee challenging the impugned order contended inter alia that since there is no increase in the investment made by the assessee during the years under consideration, disallowance u/s 14A read with Rule 8D cannot be made; that AO has illegally invoked the section 14 read with Rule 8D and relied upon judgment cited as Maxopp Investment Ltd. vs. CIT 247 ITR 272 (Del.); that at the most disallowan .....

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upon the order passed by the ld. CIT(A). GROUND NO.1 OF ITA NO.993/MUM./2012 & GROUNDS NO.5 TO 7 OF ITA NO.781/DEL./2014 9. Undisputedly, there is no increase in the investment during the years under assessment i.e. 2008-09 and 2009-10; that the assessee has received dividend income of ₹ 28,666/- and claimed as exempt u/s 10(34); that the assessee has made investment in the quoted and non-quoted shares of ₹ 26,73,81,446/- in the sister/ associate concerns; that the annual accoun .....

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ection 14A read with Rule 8D is applicable when the assessee company has neither borrowed any money to be invested in shares nor earned any exempt dividend income during the year under assessment? 11. So far as, assessment order qua 2008-09 is concerned, the AO proceeded on the premise that assessee has made huge investment in quoted and unquoted shares to the tune of ₹ 26,73,81,446/- in the sister/associate concerns and is bound to incur some expenditure to earn the said dividend income o .....

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he investment at the start and close of the previous year was pegged at ₹ 26,74,81,446/- and ₹ 26,73,81,446/-. The average of it comes to ₹ 26,74,31,446/-. The one half percent of the average investment comes to ₹ 13,37,157/-. Thus, the total disallowance u/s 14A r.w.r. 8D works out to ₹ 2,14,34,865/- and the same is being disallowed. 12. The ratio of the judgment cited as Maxopp Investments Limited (supra) passed by the Hon ble jurisdictional High Court is that und .....

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. When the assessee has come up with a categoric plea that there is no increase in investment during the year under assessment and has not incurred any expenditure, the question of resorting to estimation by the AO does not arise particularly when AO has neither disputed the audited books of account maintained by the assessee in respect of investment and dividend income nor AO has recorded his dis-satisfaction as to how any expenditure has not been incurred by the assessee in maintaining the inv .....

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n in this case is :- as to whether without prejudice to ground no.1 of appeal no.993/Mum./2012 qua AY 2008-09 and grounds no.1, 2 & 3 raised in appeal no.781/Del./2014 qua AY 2009-10, the assessee is entitled for deduction of interest to the tune of ₹ 84,99,516/- qua AY 2008-09 and ₹ 47,36,853/- qua AY 2009-10 claimed to have expended for business purposes? 16. Ld. CIT (A) while disposing of the appeal qua AY 2008-09 affirmed the finding returned by the AO on the above issue as u .....

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) the disallowance of interest is to be computed in accordance with the formula A x B/C where A is amount of expenditure by way of interest other than interest directly relatable to exempt income. There is no mention of net interest in the provision and thus the contention raised is rejected. 4.7 No submissions have been made before me in regard to alternate arguments of the A.O. for part disallowance of interest. It is an admitted fact that the appellant is not in the money lending business and .....

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has received unsecured loan at ₹ 46,19,15,339/- and at the same time granted ₹ 46,62,12,735/- during AY 2008-09. Assessee paid interest at ₹ 4,69,81,457/- on these loans @ 11% / 12%. AO as well as CIT (A) have disallowed the interest claimed by the assessee on the ground that the assessee has failed to prove direct nexus between loan lent and accepted and all these loans were primarily used partly for advancing loans and the balance was kept in fixed deposits in the bank. 18. .....

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