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2016 (12) TMI 750

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..... ssessing 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 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. Interest charged u/s.234C - Held that:- Assessee is liable to pay interest u/s.234C only on the returned income where income is assessed as book profit u/s.115JB of the Act as the normal income is loss then not on the assessed income. Disallowance u/s 2(24)(x)r.w.s.36(1)(va) - delay in deposit of PF contribution - 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 .....

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..... take the facts for Asst. Year 2008-09 brief facts are that assessee is a limited company engaged in the business of manufacturing and selling of starch and its derivations. Return of income was filed on 27.09.2008 declaring total loss of ₹ 8478701/- and declaring total income 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. Ground No. 1 is general in nature, which needs no adjudication. 7. Ground No. 2 reads as under:- 2. The learned CIT(A) erred in confirming the disallowance u/s.14Aread with Rule 8D to the extent of ₹ 6,97,078 out of the disallowance of ₹ 19,46,597/- made by the AO. It be so held now. 2.1 The learned CIT(A) failed to appreciate that disallowing u/s.14A, the AO ought to have satisfied t .....

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..... trative 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 AO's order is upheld then Interest expense not attributable to exempt income should not be considered for rule 8D(ii) purposes as borrowed funds were used for specific purposes i.e. for purchase of fixed assets and to meet working capital requirements. Reliance is placed on following decisions:- ITO v. Narain Prasad Dalmia 52 Taxmann.com 83 (Kol. IT AT) ACIT vs. Champion Commercial Company Ltd. 26 taxmann.com 342 (Kol. ITAT) ACIT vs. Best and Crompton Engineering Limited 36 taxmann.com 555 (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:- G .....

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..... rongly inserted in the method provided under rule 8D. Accordingly, ld. Assessing Officer recomputed the disallowance at ₹ 697078/- u/s.14Aof the Act for which assessee is now in appeal before the Tribunal. 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 that assessee possessed share capital and reserve and surplus i.e. interest free funds at ₹ 2029.00 lacs and investment against interest free funds was only ₹ 129.25 lacs which in percentage term is approximately 6%. Further in order to verify such major investment of ₹ 120.00 lacs investment in shares of Sayaji Sethness Ltd. being brought forward from 1996-97, we find that at page 70-123 of paper book assessee has filed copy of annual report for Asst. Years 1994-95 a .....

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..... ssessee 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. Jurisdictional High Court in the case of Principal CIT vs. India Gelatine and Chemicals Ltd. (supra) is squarely applicable to the assessee's case wherein Hon. Jurisdictional High Court has upheld the order of the Tribunal deleting the entire disallowance 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 justify that the investments made in the shares and mutual funds amounting t .....

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..... ative has merely relied upon the 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 Revenue is dismissed. 8. Further, the Assessing Officer also made disallowance of ₹ 8,22,228/- out of administrative expenses, but had restricted the disallowance made to ₹ 6,22,228/- as the assessee himself had ' made disallowance of ₹ 2,00,000/- as expenses incurred for earning tax free divided income. The Commissioner of Income Tax (Appeals) observed that the said expenses must have been incurred by the assessee in making the investments and therefore confirmed the disallowance of ₹ 6,22,228/- made by the Assessing Officer. The Authorized Representative of the assessee submitted that the assessee has earned divided income of & .....

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..... at the Coordinate Bench in ITA No. 376/Ahd/2012 in assessee's own case for Asst. Year 2007-08 has adjudicated this issue and decided in favour of Revenue by observing as below:- 6.3 We have heard rival submissions and perused the material on record. The issue in the present case is with respect to the addition of disallowance made u/s.14Ato the book profits for computation of book profit u/s.115JBof the Act. We find that the co-ordinate benches of the 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. Goetze India Ltd. (supra), decision the issue in favour of Revenue. The relevant portion of the order reads as under:- 35. By order dated 16th May, 2012, the following substantial questions of law were framed in the present appeals:- .....

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..... 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 directing the Assessing Officer to charge interest u/s.234Cof the Act on the returned income rather than assessed income. We are of the view that in the given facts and circumstances assessee is liable to pay interest u/s.234Conly on the returned income where income is assessed as book profit u/s.115JBof the Act as the normal income is loss then not on the assessed income. 23. Other grounds of general nature, which need no adjudication. 24. Now we take up assessee's appeal in ITA No. ITA No. 1752/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. .....

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..... 625/- as held above in ground No. 1 for Asst. year 2009-10 and add the same to the net profit of the assessee for the purpose of calculation of book profit u/s.115JBof the Act. Accordingly ground No. 2 is partly allowed and ground No. 3 is dismissed. 27. Other grounds are of general nature, which need no adjudication. 28. Now we take up Revenues appeal in ITA No. 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 the due date after taking into consideration of grace period given under the respective Act. However, ld. Assessing Officer has disallowed ₹ 51,45,493/- towards employees contribution to PF as according to him the same was not paid within the due date. Ld. AR further submitted that there are two dates for dep .....

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..... 7 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. Jurisdictional High Court and the decision of the Tribunal and in the given facts and circumstances for the year under appeal we find no reason to interfere with the order of CIT(A). We uphold the same. Accordingly, this ground of Revenue is dismissed. 34. Ground No. 2 reads as under:- 2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance amounting to ₹ 13,29,334/- made by the Assessing Officer on account of depreciation on flat. 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 .....

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