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M/s Lee and Muirhead Pvt. Ltd. Versus Deputy Commissioner of Income Tax – Range 2 (2) , Mumbai

2016 (11) TMI 591 - ITAT MUMBAI

Disallowance u/s.14A r.w.r. 8D - Held that:- The disallowance under Rule 8D(2)(iii) of Income Tax Rules, 1962 read with Section 14A of the Act can be made having regard to the accounts of the assessee as per the mandate of Section 14A(2) of the Act and it cannot be applied straight-away without having regard to the accounts of the assessee. The assessee has not submitted any details of the expenses incurred and claimed that no expenditure has been incurred which could be attributable to the earn .....

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inistrative and other indirect expenses to be disallowed u/s 14A of the Act and accordingly we set aside matter to the file of the A.O. who is directed to work out the reasonable disallowance towards indirect expenses incurred for earning exempt income having regards to the accounts of the assessee . - Decided in favour of assessee for statistical purpose. - I .T.A. No.1231/Mum/2014 - Dated:- 8-9-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee .....

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learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- 1. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance u/s.14A amounting to ₹ 9,26,019/- worked out as per Rule 8D. Your appellants submit that the disal .....

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as claimed as exempt u/s 10 of the Act. From the P&L account the A.O. observed that the assessee s investment as on 31st March 2010 was ₹ 15,52,80,656/-. Since the assessee has earned exempt income, the A.O. applied section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 and disallowed an amount of ₹ 10,10,669/-. The assessee during the course of assessment proceedings u/s. 143(3) of the Act submitted that the assessee is engaged in the business of rendering services a .....

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it has huge amount of accumulated reserves as at 31st March, 2010 of ₹ 61,32,10,811/- while as on 31st March 2009 the accumulated reserves were at ₹ 58,49,44,840/-. The assessee submitted that investment in Mutual Funds is ₹ 15,31,55,660/- as on 31- 03-2010 which was much less than accumulated reserves. The profit after tax for the year was ₹ 5,20,63,839/-. It was submitted that the assessee has invested only the surplus funds and has not borrowed any funds for the purpo .....

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ring the year. The assessee submitted that the ratio of the decision of Hon ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd.(2010) 328 ITR 81(Bom. HC) is not applicable to the assessee's case as there is no nexus between the investments made in the Mutual Funds the income from which is exempt and the expenditure incurred as all the investments were made by the assessee out of assessee s own funds. No interest was paid for the purposes of earning exempt income. T .....

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33,307/- Total 5,72,676/- Hence, it was submitted by the assessee before the AO that no disallowance can be made u/s 14A of the Act towards interest expenses as interest expenses were incurred for business purposes. The assessee submitted that no administrative expenses were incurred for the purpose of earning the exempt income as there was no nexus with the earning of exempt income and the expenses incurred. It was submitted that the AO is required to prove that the expenditure has been incurr .....

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urt held that even if the assessee has utilized its own funds for making investments which had resulted in exempt income but still the disallowance of expenditure incurred in the earning of exempt income is to be made. The AO accordingly worked out the disallowance of ₹ 10,10,669/- u/s 14-A read with Rules 8-D of the Income tax Rules, 1962 vide assessment order dated 15-02-2013 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment order dated 15-02-2013 passed by the AO u/ .....

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/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 of ₹ 9,26,018/- on account of administrative and other indirect costs which was considered by learned CIT(A) to be reasonable administrative and other indirect costs which needed to be disallowed and accordingly by applying Rule 8-D(2)(iii) of Income Tax Rules, 1962 read with Section 14A of the Act, 0.5% of the average investments for such administrative and other indirect expenses was worked out which comes to ₹ 9 .....

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e the Tribunal. 6. The ld. Counsel for the assessee, at the outset, submitted that the issue is covered by the decision of the Tribunal in assessee s own case vide common orders dated 15-02-2016 in ITA No. 7435/Mum/2011 and ITA No. 7849/Mum/2011 both for the assessment year 2008-09 and ITA No. 6518/Mum/2012 for the assessment year 2009-10 whereby disallowance made by the authorities below by applying Rule 8D(2)(iii) of Income Tax Rules, 1962 read with Section 14A of the Act was reduced by the Tr .....

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; 2,124,996/-. The ld. Counsel also drew our attention to the various expenses incurred towards personal costs and administrative expenses and contended that the A.O. has erred in making the addition under Rule 8D(2)(iii) of the Income Tax Rules, 1962 read with Section 14A of the Act as none of the expenses incurred by the assessee were attributable to the earning of exempt income. 7. The ld. D.R., on the other hand, relied upon the orders of authorities below. 8. We have considered the rival co .....

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sessee is engaged in the business of rendering services as clearing and forwarding agents. In our considered view the disallowance under Rule 8D(2)(iii) of Income Tax Rules, 1962 read with Section 14A of the Act can be made having regard to the accounts of the assessee as per the mandate of Section 14A(2) of the Act and it cannot be applied straight-away without having regard to the accounts of the assessee. The assessee has not submitted any details of the expenses incurred and claimed that no .....

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