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2016 (11) TMI 654 - ITAT PUNE

2016 (11) TMI 654 - ITAT PUNE - TMI - Disallowance u/s 14A - investment made in foreign companies - Held that:- Since admittedly the assessee has made investments in a foreign company, the dividend income of which is taxable in India and the CIT(A) in the first para of its order has also upheld the same view holding that the investment made in company incorporated outside India, the dividend income of which is taxable in India should not be considered for calculation of disallowance under Rule 8 .....

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s appeal filed by the Assessee is directed against the order dated 01-04-2016 of the CIT(A)-7, Pune relating to Assessment Year 2011-12. 2. Facts of the case, in brief, are that the assessee is a Private Limited Company engaged in the business of IT and ITES and sale and installation of networking and security system. It filed its return of income on 25-09-2012 declaring total loss at ₹ 2,65,979/-. During the course of assessment proceedings the AO noted that the assessee, in its computati .....

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of the I.T. Act. The relevant submission of the assessee before the AO reads as under : Your Honour has asked our company to show cause as to why the addition of ₹ 13,27,400/- u/s.14A r.w. Rule 8D as per our Company s working. In this respect, it is submitted that your Honour has considered the investment made by our company in shares of Kalyani Mauritius Pvt. Ltd. (a Company incorporated in Mauritius) of ₹ 25,33,44,800/- for the purposes of working average value of investment as per .....

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t. 4. However, the AO was not satisfied with the explanation given by the assessee. Rejecting the various explanations given by the assessee and distinguishing the various decisions cited before him the AO recomputed the disallowance u/s.14A r.w. Rule 8D at ₹ 13,27,400/-. After reducing the amount of ₹ 85,823/- already disallowed by the assessee the AO made addition of ₹ 12,41,577/- to the total income of the assessee. 5. Before CIT(A) the assessee strongly challenged the actio .....

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pellant has received dividend of ₹ 4,44,237/-. The appellant itself has disallowed ₹ 85,823/- u/s.14A. The appellant has claimed that appellant has made investment of ₹ 25,33,44,800/- in Kalyani Mauritius Pvt. Ltd. and divided from this investment is not exempt. During the assessment proceedings appellant did not submit details of dividend received and AO invoked rule 8D. The contention of the appellant that investment in Kalyani Mauritius Pvt. Ltd. should not be considered for .....

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included in rule 8D and this view is also supported by the above judicial pronouncement. Therefore, the amount of investment made in company incorporated outside India and dividend therefrom is taxable in India should not be considered for calculation of rule 8D. Accordingly, Ground No.1.2 of the appeal is allowed. The Appellant should furnish details of taxable dividend if any received and details of exempt dividend received by the appellant to the AO in order to give effect of the ground of ap .....

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A) erred in confirming disallowance u/s.14A r. w. Rule 8D at ₹ 13,27,400/- as against ₹ 85,823/- as worked out by the Appellant Company while computing Total Income as per Regular Provisions as well as Book Profits u/s 115JB of the Act. 1.2 The learned CIT(A) erred in not specifically deleting the disallowance of ₹ 12,41,577/- made by the ld. A.O. u/s. 14A over and above the disallowance offered by the assessee of ₹ 85,823/- when he himself has accepted that the investmen .....

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assessee had failed to furnish the details of dividend income received by the assessee company without appreciating that the said issue was totally irrelevant for deciding the quantum of disallowance u/s. 14A r.w.r. 8D and hence, the disallowance confirmed by him on the said ground is not justified at all and the same should be deleted. 2. The Appellant Company craves leave to add to, alter, amend, modify and/or delete any or all of the above Grounds of Appeal. 7. The Ld. Counsel for the assess .....

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pany which in respect of its income liable to tax under this Act has made the prescribed arrangements for the declaration and payment within India all the dividends payable out of such income. Thus a bare perusal of the definition of domestic company indicates that it applies only to Indian company and it is not applied to a foreign company. Therefore, disallowance u/s.14A is uncalled for. In any case the dividend income from the foreign company is taxable. Referring to page 18 of the paper book .....

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o the computation of disallowance u/s.14A r.w. Rule 8D as per the company vis-à-vis as per the AO. Referring to the same he submitted that the AO while computing the working of investment has made addition of ₹ 25,23,44,800/- as investment in shares of Kalyani Mauritius Pvt. Ltd. which was not considered by the assessee. Referring to page 37 of the paper book he drew the attention of the Bench to the submissions made before the CIT(A). Referring to the decision of Hon ble Gujarat Hi .....

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assessee in the said computation has claimed exempt dividend of ₹ 4,44,237/- and has also disallowed an amount of ₹ 85,823/- u/s.14A r.w. Rule 8D. Referring to the profit and loss account and schedules thereto the Ld. Counsel for the assessee drew the attention of the Bench to page 24 of the paper book and submitted that the assessee has received dividend income of ₹ 4,44,237/- only which is from the mutual funds. He submitted that no dividend has been received from the Mauriti .....

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rporated outside India the dividend income of which is taxable in India should not be considered for calculation of Rule 8D. However, in the subsequent paras he has upheld the action of the AO in making disallowance of ₹ 12,41,577/- on account of the said investment. This is contradictory to the findings of the CIT(A) himself. He accordingly submitted that the order of the CIT(A) be set aside and the grounds raised by the assessee should be allowed. 9. The Ld. Departmental Representative o .....

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14A r.w. Rule 8D has excluded the amount of ₹ 25,33,44,800/- invested by it in the shares of Kalyani Mauritius Pvt. Ltd. a company incorporated in Mauritius for the purpose of working average value of investment as per Rule 8D. I find the AO while computing the disallowance u/s.14A r.w. Rule 8D has considered the above investment of ₹ 25,33,44,800/- for the purpose of calculating the disallowance under Rule 8D. It is an admitted fact that no dividend has been received from the above .....

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e did not furnish details of dividend received and AO was not satisfied with the claim of expenses for the exempt dividend income. 11. I find the order of the CIT(A) is self contradictory. While in one part of the order he holds that no disallowance is called for under Rule 8D since the investment made in the company is incorporated outside India and dividend there from is taxable in India, however, at the same time he holds that the computation done by the AO is correct. The assessee has succes .....

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