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2017 (1) TMI 861 - ITAT MUMBAI

2017 (1) TMI 861 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- While adjudicating the appeal for the AY.2009-10,the Tribunal had restricted the disallowance to 1% of the dividend income.Following the same,we hold that disallowance should be restricted to 1% of the exempt income.First ground of appeal is decided in favour of the assessee,in part. - Disallowance of expenditure on account of repairs and maintenance - Held that:- During the course of hearing before us,the AR admitted .....

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- I.T.A./46/Mum/2014 - Dated:- 6-1-2017 - Sh.Rajendra, Accountant Member and Amarjit Singh, Judicial Member For The Revenue : Shri Suman Kumar-DR For The Assessee : Shri K. Gopal & Ms. Neha Paranjpe PER Rajendra A.M.- Challenging the order dated 4/11/2013 of the CIT (A)-9, Mumbai the Assessing Officer(AO) and the assessee have filed cross appeals for the year under consideration.Assessee-company, engaged in the business of media and entertainment,filed its return of income on 23/09/2010, de .....

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s as interest income from other sources,that it had claimed the income from mutual fund as exempt,that it had not disallowed any expenditure attributable to the exempt income in computation of income u/s. 14 A of the Act. Accordingly,he directed the assessee to show cause as to why disallowance u/s.14A r.wr.8D of the Rules should not be made. After considering the submission of the assessee,he made a disallowance of ₹ 82,08,631/-(Rs. 50.69 lakhs under the head interest expenditure + ₹ .....

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t had not incurred any specific expenditure to earn exempt income,that he had not accepted the submission of the assessee,that there was no jsutification for disallowance out of interest expenditure because the deposit on which interest was paid had been invested into inter-corporate deposits which had earned interest,that there was no change in the facts even during the year under consideration.He directed the AO to delete the disallowance on account of interest as no borrowed funds were utilis .....

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e would like to reproduce the relevant portion of order and it reads as under: 8. We have considered the issue and examined the facts available on record. Even though the assessee has specifically explained the facts, neither the AO nor the CIT(A) considered the same, but invoked Rule 8D and disallowed the amount. As far as interest is concerned, there is direct nexus between the loan obtained from Ms. Sabita R Narang and advancing the same to M/s Nautilus Trading & Leasing Pvt. Ltd. on whic .....

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ree incomes, except of course some indirect expenses of office expenses and employees cost etc. 10. Subsection 2 of section 14A does not enable the Assessing Officer to invoke Rule 8D without determining, in the first instance the correctness of the claim of the Assessee, having regard to the accounts of the Assessee. Subsection 2 of section 14A mandates that it is only when having regard to the accounts of the Appellant, if AO is not satisfied with the correctness of the claim then only he can .....

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invoked. 11. As seen from the assessment order, there is no discussion about Assessing Officer having arrived at the satisfaction. The detailed explanation by the Assessee on various facts were not considered by the AO. Having examined the facts as stated above, we are of the opinion that Rule 8D cannot be invoked as such in the given facts of the case. However, we can also not say that Assessee had not spent any amount for earning the dividend income. A part of the general expenses claimed also .....

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Before parting with the issue, we would like to comment about the mechanical way in which Assessing Officer and CIT(A) passed the orders. Assessee established a direct nexus, in the detailed submissions filed before AO and also the submissions made before the CIT(A) which fortunately are extracted by the Ld. CIT(A) in the orders. However, in the decision part in para 5.2.1, same para in both the orders, the CIT(A) notes that Assessee could not establish the nexus between borrowed funds and capi .....

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companies which has a direct nexus with the Mutual Funds Investments. The only unsecured loan received was directly advanced to another Company as Inter-corporate deposit. Findings/observations by the CIT(A) are not based on the facts available on the record. Therefore we are unable to approve the order or the CIT(A) in the given set of facts. The only option left to us is to reasonably determine the amount for disallowance u/s 14A on the facts of this case. Respectfully,following the above we .....

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10,the Tribunal had restricted the disallowance to 1% of the dividend income.Following the same,we hold that disallowance should be restricted to 1% of the exempt income.First ground of appeal is decided in favour of the assessee,in part. 7. Second ground of appeal is about disallowance of ₹ 7.78 lakhs. During the assessment proceedings,the AO found that assessee had claimed expenditure on account of repairs and maintenance of ₹ 7,78,400/-.He directed it to file the nature of the exp .....

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