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2016 (11) TMI 1062 - ITAT MUMBAI

2016 (11) TMI 1062 - ITAT MUMBAI - TMI - Disallowance u/s 14A - AY 2011-12 - Held that:- The expenditure factually incurred on non-taxable receipt is to be disallowed. The expenditure assumes, presumes or deemed to be incurred on nontaxable income cannot be allowed. There should be a proximate cause for disallowance, which has relationship with the exempt income. The return of investment or huge investment cannot be a proximate cause. The assessee specifically pleaded during the assessment that .....

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as per Rule 8D2(iii). - For AY 2012-13 assessee has surplus interest free fund of ₹ 10.10 crore and made investment of ₹ 5.56 crore during the year. On specific queries, the AR of the assessee submitted that the assessee has incurred corresponding interest expenditure of ₹ 1,95,668/-. We have further seen that the fact of this appeal are at little variance to the earlier year. In the earlier year, the assessee voluntarily made the disallowance of ₹ 7,03,118/-, howeve .....

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Accordingly, the AO is directed to restrict the disallowance u/s 14A of the Act at ₹ 1,95,668/- plus administrative expanses of ₹ 1,70,000/- under rule 8D2(iii). - I.T.A. No. 541/Mum/2016, I.T.A. No. 542/Mum/2016 - Dated:- 30-9-2016 - SHRI B. R. BASKARAN, AM AND SHRI PAWAN SINGH, JM For The Appellant : Sh. Aarti Sathe -AR For The Respondent : Sh. B.S. Bist - Sr DR ORDER Per Pawan Singh, JM: 1. These two appeals u/s. 253 are directed against the common order of Commissioner of Income .....

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investing in properties. For AY 2011-12, the assessee filed its return of income on 24th September 2011. In the return of income, assessee claimed exempt income of ₹ 3,40,617/-. The assessee has not apportioned any expenditure toward earning such exempt income. The return of income was selected for scrutiny and while framing assessment, the AO asked the assessee as to why appropriate disallowance should not be made u/s. 14A of the Income Tax Act as per Rule 8D. The assessee filed revised c .....

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to why appropriate disallowance should not be made u/s. 14A of the Income Tax Act as per rule 8D of I.T Rules, 1962. The assessee furnished its reply vide reply dated 5th September 2014, wherein the assessee submitted that no disallowance u/s. 14A had been made for the reasons that assessee has shown its income under the head House Property and Other Sources . The contention of the assessee was not accepted by AO and the AO made the disallowance u/s. 14A read with Rule 8D of ₹ 34,50,193/- .....

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any folds, than the exempt income earned by the assessee. For AY 2011-12 Ld. AR of assessee argued that during the year under consideration, the assessee invested in mutual fund and earned exempt income of ₹ 3,40,617/-, the income was by way of dividend on the unit of mutual fund. The assessee borrowed funds from M/s Saraswat Bank for the purpose of investing in business, repayment of unsecured loan and for working capital. The assessee had invested the excess funds from time to time in mu .....

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incurred for earning exempt income. The AO has not recorded its satisfaction that the calculation/details for disallowance are not correct. On the other hand, ld. DR for Revenue supported the order of authorities below. DR for Revenue further argued that the calculation of disallowance submitted by AO was found to be not as per Rule 8D and the AO duly recorded his observation in paragraph 4.3 of the order. We have considered the rival contentions of the parties and further perused the material a .....

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77; 10.93 crore and the assessee had investment of ₹ 2.61 crore during the year under consideration. The assessee categorically stated that only cost incurred by the assessee to earn exempt dividend income was in the form of interest payment of the said loan for which the voluntary disallowance of interest expenditure of ₹ 7,03,118/- was made. The AO while framing the assessment order simply observed that working of disallowance submitted by assessee is not as per Rule 8D not satisfi .....

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failed to record the correctness of the claim of the assessee in respect of expenditure incurred in relation to the exempt income. The AO calculated the disallowance without discarding the statement of account and the working of disallowance submitted by assessee. The disallowance made by AO is not in accordance with the pre-condition provided under sub-section (2) of section 14A of the Act. In our considered opinion, when the assessee is engaged in composite and indivisible business and earned .....

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med to be incurred on nontaxable income cannot be allowed. There should be a proximate cause for disallowance, which has relationship with the exempt income. The return of investment or huge investment cannot be a proximate cause. The assessee specifically pleaded during the assessment that they have earned non-taxable income by way of dividend on the mutual funds. The assessee has invested the excess loans funds. The assessee has suo-moto disallowed the interest expenditure of ₹ 7,03,118/ .....

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sessee has not made any voluntary disallowance as they have not claimed deduction for the expenses incurred by assessee, thus, the disallowance u/s 14A were not possible. The AO disallowed a sum of ₹ 43,50,194/- u/s 14A of the Act, while framing assessment and the same was sustained in first appeal. The Ld. DR for Revenue argued that during the year under consideration, the assessee earned the dividend income of ₹ 98,450/- which was claimed as exempt income. The assessee has not appo .....

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