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2016 (11) TMI 433 - ITAT MUMBAI

2016 (11) TMI 433 - ITAT MUMBAI - TMI - Revision u/s 263 - disallowance 14A - Held that:- The Revenue invoked Section 263 of the Act by issuing notice dated 17-01-2013 u/s 263 of the Act post appellate order passed by the learned CIT(A) on 19- 12-2012 which was also on the same issue of disallowance of expenditure under Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 in relation to earning of income which does not form part of the total income, which was earlier adjudicated by .....

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o set aside assessment order dated 21.12.2011 passed by the AO u/s. 143(3) of the Act for making de-novo assessment. - I .T.A. No.3587/Mum/2014 - Dated:- 21-9-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Vipul Joshi For The Revenue : Shri A. Ramachandran ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee company, being ITA No. 3587/Mum/2014, is directed against the order dated 28th March, 2014 passed by lear .....

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o of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- 1. BREACH OF THE PRINCIPLES OF NATURAL JUSTICE 1.1. The Learned Commissioner of Income - tax - 2, Mumbai ["Ld. CIT"], erred in framing the revision order u/s. 263 of the Income - tax Act, 1961 [ the Act"] by not giving proper, sufficient and effective opportunity of being heard to the Appellant. 1.2 It is submitted that in the facts and the circumstances of the case, .....

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cessary preconditions for initiating the revision proceeding as well as the completion thereof were not fulfilled. 2.3 Without prejudice to the generality of the above, the CIT failed to appreciate that: (i) The order which he was seeking to revise had already merged with the appellate order and, accordingly, was not the "record" within the meaning of section 263 of the Act; (ii) In any case, the assessment order framed was not "erroneous" within the meaning of section 263 of .....

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, 1962. 3.2 It is submitted that in the facts and the circumstances of the case, and in law, the computation of disallowance u/s 14A as returned by the Appellant and as confirmed by the CIT (A) was proper and reasonable and no variation / enhancement was called for. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, no such revision was called for even on merits also. 3. The brief facts of the instant case are that the return of income was filed by the assessee .....

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the assessee that the interest paid during the year was for the term loan from State Bank of India at Gandhidham. It was further stated that no fund was transferred out of borrowed funds to Mumbai wherein investments are held. The A.O. accepted the explanation of the assessee and did not disallow the interest expenditure u/s.14A of the Act for earning the exempted dividend income. It was observed by the learned CIT that the interest paid during the year for the term loan from State Bank of Indi .....

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d was an erroneous order in as much as the same was prejudicial to the interest of Revenue. Notice u/s 263 of the Act were issued to the assessee company on 17th January, 2013 and the assessee was asked to file objections, if any, to the proposal to set aside the assessment order dated 21-12-2011 passed by the AO u/s 143(3) of the Act under the revisionary powers of the learned CIT u/s. 263 of the Act. The assessee was also given opportunity of personal hearing by the learned CIT. The assessee f .....

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Income Tax Rules,1962 only and no disallowance under Rule 8D(2)(i) or (ii) of Income Tax Rules, 1962 was made by the AO while framing assessment order u/s. 143(3) of the Act. It was observed by the learned CIT that if the assessee has earned exempt income , the interest expenses as are debited to P&L account, the expenditure towards interest is to be considered for disallowance for the purpose of Rule 8D (2)(ii) of Income Tax Rules, 1962. On going through the assessment order dated 21-12-20 .....

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der dated 21-12-2011 passed by the AO u/s. 143(3) of the Act is passed without application of mind by the AO and without conducting proper enquiry . It was observed that the same view was confirmed by the Hon ble Madras High Court in the case of Ashok Leyland Limited v. CIT (2003)260 ITR 599(Mad. HC). The learned CIT held that the assessment framed by the A.O. was not correct and is required to be reframed and accordingly the learned CIT set aside the assessment order dated 21-12-2011 passed by .....

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d with the Section 143(2) of the Act conducted by the AO with respect to the disallowance u/s 14A of the Act. The said details before the AO are placed in paper book pages 43 to 75 filed with the Tribunal which were given vide written submissions dated 15-11-2011, 08-12-2011 and 08-12-2011. The ld. Counsel submitted that all the details were submitted before the A.O. with respect to the disallowance u/s 14A of the Act and the A.O. after applying his mind disallowed an amount of ₹ 6,05,192/ .....

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e AO with respect to the disallowance u/s 14A of the Act after considering the submissions of the assessee . It was submitted that the assessee carried the matter before the ld. CIT(A) in the first appellate proceedings who deleted the additions as were made in the assessment order dated 21.12.2011 u/s. 143(3) of the Act, vide appellate orders dated 19-12-2012 passed by learned CIT(A). It was submitted that after the passing of the appellate order by the ld. CIT(A) dated 19th December, 2012, the .....

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so far as the assessee is concerned. It was submitted that the powers of learned CIT(A) is co-terminus with the powers of the AO and learned CIT(A) could have enhanced assessment after complying with the provisions and scheme of the Act but learned CIT(A) considered the submissions of the assessee and held that disallowance of ₹ 1,20,000/- made by the assessee voluntarily is reasonable keeping in view the facts and circumstances of the case. The ld. Counsel drew our attention to the appell .....

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as at 31-03-2009 ( ₹ 20,48,91,228/- as at 31-03-2008) and hence presumption will apply that the assessee has invested its own funds in making investments in the securities which are capable of yielding exempt income in the absence of any finding by the Revenue that the assessee has diverted interest bearing funds for making investments in securities capable of yielding exempt income. Reliance was placed on the decision of Hon ble Bombay High Court in the case of CIT v. Reliance Utilities a .....

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more than the investments in securities capable of yielding exempt income held by the assessee as at 31-30-2009 and 31-03-2008 as borne out from audited accounts. The said audited financial statements are placed in paper book /page 2-22. The assessee drew our attention to notice dated 17-01-2013 issued u/s 263 of the Act by the learned CIT , which is placed in paper book/page 91. The learned counsel for the assessee drew our attention to assessment order dated 21-12-2011 passed by learned AO u/s .....

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are reflected in profit centre HO and was ₹ 12.31 crores as at 31-03-2009 while own funds of HO is ₹ 23.49 crores as at 31-03-2009, which clearly reflects that the assessee s own funds are much higher than investment in securities which are capable of yielding exempt income . It was submitted that during the previous year relevant to the impugned assessment year, only ₹ 40 lacs share application money has been invested for which the share has not been allotted by the issuing co .....

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r attention to page 92- 109 of paper book being replies submitted to learned CIT during revisionary proceedings u/s 263 of the Act. The learned counsel drew our attention to page 76-78 being ledger account of interest bearing ICD raised by the assessee during the year. The complete utilization of the ICD s raised during the year were also submitted which is placed in the file which reflects that the assessee has either granted loans and advances out of the same or have repaid loans raised earlie .....

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4. Sonal Garments v. JCIT (2005) 95 ITD 363(Mum.Trib.) 5. Marico Industries Limited v. ACIT (2009) 312 ITR 259(AT) (Mum)-27 SOT 73(Mum-Trib.) 6. The ld. D.R., on the other hand, relied on the order of the ld. CIT. 7. We have considered the rival contentions and also perused the material placed on record including the case laws relied upon . The case of the assessee for the impugned assessment year was selected for scrutiny by the Revenue for framing the assessment u/s 143(3) of the Act read with .....

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ich was considered by the A.O. before framing assessment u/s 143(3) of the Act. Perusal of the written submission filed by the assessee before the AO, it was observed that the assessee submitted details of secured loans raised from banks and utilization thereof, raising of unsecured loans by the assessee and details of interest expenditure, granting of interest bearing loans by the assessee, details of dividend received , working of disallowance u/s 14A of the Act read with Rule 8D of Income Tax .....

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the AO. The assessee disallowed an amount of ₹ 1,20,000/- voluntarily u/s 14A of the Act in the return of income filed with the Revenue. The A.O. worked out disallowance of ₹ 6,05,192/- u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 , out of which ₹ 1,20,000/- was declared voluntarily by the assessee and the addition of the balance amount of ₹ 4,85,192/- was made by the AO while framing assessment order dated 21-12-2011 passed u/s 143(3) of the Act .....

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2009 ( ₹ 11,91,40,827/- as on 31-03-2008) while the assessee s own funds are to the tune of ₹ 21,14,51,971/- as on 31-03-2009 ( ₹ 20,97,42,428/- as on 31-03-2008) as borne out from audited financial statements which is sufficient to cover the investments in securities made by the assessee and presumption as contemplated vide decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Limited(supra) shall apply in the absence of cogent evidence on record br .....

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1-03-2009 in Oriental Power Cables Limited. It is also observed from the financials of the HO that no interest was incurred as expenditure during the preceding year, while in this year the incremental investment is only ₹ 40 lacs in the share application money with Oriental Power Cables Limited for which the assessee has given the details that this investment is made out of interest free funds raised by the company from Sakarwadi Trading Company Private Limited which is placed at paper boo .....

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d said factory has paid interest for term loan and cash credit facility. Further, the assessee has brought before the AO that the assessee has paid interest on HO account for the first time this year on ICD s raised during the year which were deployed to repay old loans as well to grant interest bearing loans from which interest income of ₹ 27.87 lacs were earned by the assessee . In our considered view, the A.O. has taken a plausible and possible view while framing assessment u/s 143(3) o .....

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ted by the AO and is supported by books of accounts . The assessee contentions of not making investments in securities out of borrowed funds is further supported by own funds of the assessee of ₹ 21.14 crores as at 31-03-2009 while investments in securities stood at ₹ 12.31 crores which own funds are much more than the investments and presumption shall apply as contemplated by decision of Hon ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd., (2009)313 ITR .....

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