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2016 (12) TMI 750 - ITAT AHMEDABAD

2016 (12) TMI 750 - ITAT AHMEDABAD - TMI - Disallowance u/s.14Aread with Rule 8D - Held that:- We come to the finding that assessee on one hand is having sufficient interest free funds to meet the investments and secondly the major portion of exempt income at ₹ 18 lacs out of total exempt income at ₹ 1820.83 lacs is only out of dividend of Sayaji Sethness Ltd. and these investments were made way back in 1995-96 and 1996-97. In these facts we find that the judgment of Hon. Jurisdictio .....

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u/s.14A. However, suo motu disallowance made by assessee at ₹ 20,000/- and 0.5% of average investment as recalculated at ₹ 64215/- by Assessing Officer ₹ 64215/- is sustained as disallowance u/s.14Aof the IT Act. Accordingly this ground of assessee is partly allowed. - Disallowance u/s.14A made by the AO while, computing book profit u/s.115JB - Held that:- As decided in assessee's own case for Asst. Year 2007-08 isallowance u/s.14Aof the Act has to be considered for calcula .....

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tribution - Held that:- We observe from the facts placed before us that for Asst. Year 2009-10 assessee has deposited the PF contribution before the lapse of grace period i.e. 20th of the next month. Grace period is the time for 5 days which is given by PF Department to the employer for making the payment after the completion of due date of 15th. This fact is duly supported by annexure 5 to Tax Audit Report. Hon. Jurisdictional High Court in assessee's own case for Asst. Year 2005-06 and 2006-07 .....

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ce any record to demonstrate that the flat has been used for commercial purposes and not for residential use and also failed to provide any evidence that the building was exclusively used for business and not for the use of stay of directors and other employees. In the facts and circumstances of the case, we are of the view that assessee should be allowed depreciation @ 5% as against 10% claimed in the return of income. Accordingly, this ground of Revenue is allowed. - ITA Nos. 581, 1752 and 224 .....

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he Act) framed on 10/12/2010 and 4/11/2011 by ACIT (OSD) Circle-8, Ahmedabad for Asst. Year 2008-09 and 2009-10 respectively. As the issues raised in these appeals are common and the assessee is the same, these were heard together and are being disposed of by this common order for the sake of convenience. 2. First we will take assessee's appeals for Asst. Year 2008-09 and 2009-10 vide ITA No. ITA Nos. 581 and 1752/Ahd/2012 raising common grounds challenging the orders of ld. CIT(A) wherein s .....

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ome u/s.115JBof the Act at ₹ 13948978/-. The case was selected for scrutiny assessment. Notice u/s.143(2)following by notice u/s.142(1)of the Act were duly issued and served. Necessary details were called for and supplied by the assessee. Assessed loss stood at ₹ 2732096/- and profits for the purpose of MAT was assessed at ₹ 15864575/-. 4. Appeal before first appellate authority brought part relief to the assessee. 5. Aggrieved, assessee is now in appeal before the Tribunal. 6. .....

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.2. The learned CIT(A) erred in not appreciating the fact that there was no fresh investment during the year and hi the immediately preceding year, it has been accepted that no expenditure for interest has been incurred for earning dividend income, it is submitted in the facts of the case that the learned CIT(A) ought to have deleted the disallowance made. 8. Ld. AR submitted that total exempt dividend is ₹ 18,02,832/-; out of which dividend from Sayaji Sethness Ltd. is ₹ 18,00,000/- .....

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ITR 518 (Punj and Har) a) Ld. AR further submitted that Hon'ble Tribunal in Appellant's own case for A.Y. 2007-08 has held that it is undisputed fact that the investments in Sayaji Sethness Ltd. which forms a substantial chunk of investments were made in A.Y. 1995-96 and 1996-97 out of Appellant's own funds in form of capital and reserves and profits from operations and deleted disallowance towards proportionate interest u/s.14A; though they upheld the disallowance of ₹ 25,000 .....

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ion. Disallowance cannot be made if no disallowance was made in earlier years and no fresh investment has been made during the year. (Relied on CIT v. Sridev Enterprises 192 ITR 165(Kar.) There is no requirement to allocate ₹ 25,000 as administrative expense to exempt income as there are no activity incurring any expense except receipt of yearly dividend which happens once in year. Reliance is placed on Godrej and Boyce vs. DCIT 328 ITR 81 (Bom.) Without prejudice to the above, in case the .....

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(Chennai ITAT) d) Even in A.Y. 2003-04, the appellant's claim for deduction u/s.80Mwas allowed in the regular assessment by the department and no adjustment was carried out regarding interest or other expenses due to the fact that there was no expenditure incurred for earning exempt income. Investment in subsidiary companies is strategic investment for the purpose of acquiring controlling interest. Reliance is placed on:- Garware Wall Ropes Ltd. V. CTT46 taxmann.com 18 (Mum ITAT) E1H Associa .....

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sessee has sufficient interest free funds for making investments in shares and mutual funds and post amendment in Rule 8D of the IT Rules, 1962 r.w.s.14Aof the Act for Asst. Year 2008-09 also Hon. Jurisdictional High Court in the case of Principal CIT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Gujarat) has upheld the Tribunals decision deleting the entire disallowance for Asst. Year 2009-10 made by Assessing Officer on the ground that assessee has sufficient interest free f .....

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ere stood investments of ₹ 12925000/- in quoted and unquoted shares and government securities. Assessee paid interest of ₹ 54,44,2000/- against loan of ₹ 35.27 crores. Based upon these facts and figures ld. Assessing Officer applied Rule 8D of the IT Rules 1962 r.w.s.14Aof the Act and calculated disallowance at ₹ 1946597/- (Rs. 20,000/- admitted by assessee + interest disallowance of ₹ 1798062/- + 0.5% of average investment at ₹ 128535/-). Further when the mat .....

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l. 11. From going through the submissions of ld. AR we find that the impugned investments as on 31.3.2008 at ₹ 129.25 lacs mainly includes investment of ₹ 120.00 lacs invested in equity shares of Sayaji Sethness Ltd. brought forward from 1996-97. If this investment of ₹ 120 lacs brought forward from Asst. Year 1996-97 is kept apart the remaining investment left at ₹ 9.25 lacs only. Further on going through the audited balance sheet at page 50 of the Paper Book, we find th .....

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(more specifically at page 111) that investment of ₹ 120.00 lacs stood invested and as on 31.3.1996 also assessee was having interest free funds in the form of share capital reserve and surplus at ₹ 1730.53 lacs. Further the fact that investment in Sayaji Sethness Ltd. which formed substantial chunk of investment made in Asst. Years 1995-96 and 1996-97 has been decided by the Coordinate Bench in assessee's own case in ITA No. 376/Ahd/2012 for Asst. Year 2007-08 by observing as un .....

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er Ltd. (supra) the Hon. High Court has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan, it can be presumed that the investments were from interest free funds available. It is also a fact that Hon. Bombay High Court in the case of Godrej and Boyce Ltd., has held that provisions of rule 8D are applicable from A.Y. 2008-09 and in earlier years though provisions of rule 8D are not applicable b .....

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nce to ₹ 25,000/- as against ₹ 64,000/- made by the AO which in our view, in the present facts and circumstances seems to be reasonable. In view of the aforesaid facts we find no reason to interfere with the order of ld. CIT(A). Thus the ground of revenue and the ground raised by assessee CO are dismissed. 12. From the above discussion we come to the finding that assessee on one hand is having sufficient interest free funds to meet the investments and secondly the major portion of ex .....

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nce made by Assessing Officer on the ground that assessee had sufficient interest free funds out of which investment was made. The relevant portion of the judgment of Hon. Jurisdictional High Court is reproduced below:- 5.1 Now, so far as the deletion of disallowance of interest expenses under Section 14A of the Act by the learned Tribunal CIT(A) is concerned, it is required to be noted that the AO made the disallowance under Section14Aof the Act on the ground that the assessee was not able to j .....

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tire disallowance of ₹ 12,06,934/- made by the AO under section14Aof the Act "6. We have heard the rival submissions and perused the orders of lower authorities and material available on record. The undisputed facts of the case are that the Assessing Officer observed that the assessee has made investment of ₹ 21,14,07,850/- and the assessee has paid interest on borrowed funds of ₹ 40,10,861/-. He also observed that the assessee has not made disallowance of interest expendi .....

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on'ble Supreme Court in the case of S.A. Builders (supra) and Munjal Sales Corporation (supra) and the decision of Hon'ble Mumbai High Court in the case of Reliance Utility and, Power Ltd. (supra) where it was held that if the interest free funds of the assessee were sufficient for making investments, no disallowance of interest expenditure was called for. The Commissioner of Income Tax (Appeals) held that the finding of the Assessing Officer was not correct that the assessee has not cha .....

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e order of the Assessing Officer. He has not pointed out any specific error in the order of the Commissioner of Income Tax (Appeals). He could not bring any material on record to show that the assessee could not have advanced interest free loans or loans at lower rate of interest to the sister concerns out of its interest free funds available with it. Therefore, we find no infirmity in the order of the Commissioner of Income Tax Appeals) which is confirmed and the ground No. 1 of appeal of the R .....

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owance of ₹ 6,22,228/- made by the Assessing Officer. The Authorized Representative of the assessee submitted that the assessee has earned divided income of ₹ 12,200/- as will be evidenced from the statement of accounts of the assessee at page 26 of the paper book for which disallowance of ₹ 6,22,228/- cannot be made. 9. We find that the Assessing Officer as well as the Commissioner of Income Tax (Appeals) could not pinpoint any error in the computation of disallowance made by .....

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the disallowance of ₹ 6,22,228/-. Thus, ground No. 1 of appeal of the assessee is allowed." We are in complete agreement with the view taken by the learned Tribunal and the reasons given by the learned Tribunal while deleting the disallowance of interest expenses under Section14Aof the Act. 13. Respectfully following the judgment of Hon. Jurisdictional High Court, we are of the view that no disallowance out of the interest expenditure is to be made in the case of assessee u/s.14Aof th .....

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ainst assessee by the Tribunal in assessee's own case for Asst. Year 2007-08 and, therefore, disallowance, if any, to be sustained after adjudication of ground No. 2 may also be added to the book profit for the purpose of calculating MAT. 16. Ld. DR supported the orders of lower authorities. 17. We have heard the rival contentions and perused the record. The issue raised in this ground is with respect to addition of disallowance made u/s.14Aof the Act to the book profit for computation of bo .....

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Tribunal while deciding the issue in favour of assessee in the case of M/s. Essar Teleholdings Ltd., (supra) and Quippo Telecom Infrastructure Ltd., (supra) had placed reliance on the decision of Delhi Bench in the case of Goetze (Idia) Ltd. v/s. CIT [2009] 32 SOT 101 (Del.)- We find that the aforesaid decision of Delhi Tribunal was challenged by the Revenue .and the matter was carried before the Hon'ble Delhi High Court. Delhi High Court while deciding the issue in the case of CIT vs. Goet .....

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interest u/s.234Dof the Income Tax Act, 1961? 37. Ld. counsel for the respondents-assessee, during the course of hearing, has fairly conceded, that the first question has to be answered' in favour of the Revenue and against the assessee in view of the provisions In the Explanation 1 below Sec.115JB(2)and clause (f), The Assessing Officer it is stated had made an addition of ₹ 88,292/- to the book profits towards expenditure incurred having nexus with dividend income, which were exempt .....

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e of disallowance of ₹ 25,000/- for calculating the book profit u/s.115JBof the Act. Thus, this ground of the Revenue and of assessee are dismissed. 18. Respectfully following the decision of Co-ordinate Bench, we are of the view that disallowance u/s.14Aof the Act has to be considered for calculating book profit u/s.115JBof the Act. Therefore, disallowance sustained by us in ground No. 2 above at ₹ 84215/- is to be added to arrive at the book profit u/s.115JBof the Act. 19. Ground N .....

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d that when interest is computed u/s.115JBof the Act provisions of section234Care not applicable. In any case, the interest would be computed on the returned income and not on the assessed income. 21. Ld. DR supported the orders of lower authorities. 22. We have heard the rival contentions and perused the record. Through this ground assessee has challenged the order of ld. CIT(A) for not deleting the interest charged u/s.234Cof the Act when assessment was made u/s.115JBof the Act and also not di .....

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752/Ahd/2012 for Asst. Year 2009-10 on following grounds are:- 1. The order passed by the Learned CIT(A) is erroneous and contrary to the provisions of law and facts of the case and therefore needs to be suitably modified. It is submitted that it be so held now. 2. The learned CIT(A) erred in confirming the disallowance made by AO u/s.14Aread with Rule 8D of ₹ 661353/- net of disallowance made by appellant of ₹ 20000/-. It be so held now. 2.1 The learned CIT(A) failed to appreciate t .....

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ught to have deleted the disallowance made. 3. The learned CIT(A) erred in confirming the disallowance u/s.14Amade by the AO while computing book profit u/s.115JBof the Act. It be so held now. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. 25. In this appeal mainly two grounds are effective. Firstly disallowance sustained u/s.14Aof the Act and secondly considering disallowance u/s.14Aof the Act for the purpose of sec.115JBo .....

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r Asst. year 2008-09 we sustain disallowance of ₹ 20,000/- being suo motu made made by assessee and disallowance being 0.5% at ₹ 64215/-, in total disallowance u/s.14Aof the Act is at ₹ 84,625/-. 26. Similarly as regards the second ground we have followed the decision of the Co-ordinate Bench in assessee's own case for Asst. year 2007-08 wherein it was held that disallowance u/s.14Aof the Act is to be considered after considering book profit u/s.115JBof the Act. Relying on .....

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o. 2247/Ahd/2012 for Asst. Year 2009-10. 29. Ground No. 1 reads as under:- 1) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 51,45,493/- made by the Assessing Officer u/s..2(24)(x)r.w.s.36(1)(va)of the Act. 30. Ld. DR supported the order of Assessing Officer. 31. On the other hand, ld. Ar submitted that during the year under consideration assessee has claimed deduction for employees contribution to PF paid within .....

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. Year 2009-10 all the payments have been made before the expiry of grace period and at few instance falls after the date but finally paid before the end of the grace period. Further under Asst. Year 2004-05 the Tribunal has allowed the claim of assessee and even in the matter when the matter travelled to the Hon. Jurisdictional High Court the issue has been decided in favour of assessee and against the Revenue. 32. We have heard the rival contentions and perused the record. Through this ground .....

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his fact is duly supported by annexure 5 to Tax Audit Report placed at page 25 of the Paper Book. Further we observe that Co-ordinate Bench has adjudicated similar issue for Asst. Year 2007-08 in ITA No. 376/Ahd/2010 by observing as follows:- 8.5 We have heard the rival submissions and perused the material on record. On perusing the annexure of Tax Audit Report which is placed on page 7 of the paper book it is seen that the employees contribution to PF have been paid within the due dates after t .....

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no reason to interfere with the order of the CIT(A). Thus this ground is dismissed. 33. We further observe that Hon. Jurisdictional High Court in assessee's own case for Asst. Year 2005-06 and 2006-07 has held in favour of assessee by upholding the order of the Tribunal by observing that Tribunal was justified in deleting the disallowance made under the provisions of sec.36(1)(x)of the Act with regard to delayed employers contribution to P.F. Respectfully following the judgment of Hon. Juri .....

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at. 35. Brief facts are that while framing the assessment order Assessing Officer observed that assessed income by allowing depreciation on residual building @ 5% as against 10% claimed by assessee as the assessee failed to furnish any evidence that the building was exclusively used for the purpose of business and no other activities. However, in appeal before the first appellate authority, assessee succeeded as assessee deleted the disallowance. 36. Now the Revenue is in appeal before the Tribu .....

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depreciation @ 10% as against 5% made by the Assessing Officer. We observe that this issue of charging depreciation on the flat came up before the Coordinate Bench Ahmedabad for Asst. Year 2007-08 in ITA No. 376/Ahd/2010 wherein the Bench has held in favour of Revenue by observing as below:- 9.5 We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to the allowing the depreciation @ 5% or 10% pm the flat. Before us apart from reiter .....

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