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2017 (1) TMI 938 - ITAT PUNE

2017 (1) TMI 938 - ITAT PUNE - TMI - Deduction u/s. 80IA on the addition made u/s. 14A r.w. Rule 8D - Held that:- It is an undisputed fact that the assessee is eligible to claim deduction u/s. 80IA of the Act. The effect of disallowance u/s. 14A r.w. Rule 8D is that there is increase in profits. The assessee is eligible to claim deduction on such increase in profits, as the said profits are arising from the business of assessee eligible to claim deduction u/s. 80IA of the Act. Similar view has b .....

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immediately preceding year and in the light of CBDT Circular dated 2nd November, 2016, the present appeal by the Department is liable to be dismissed. - ITA No. 463/PUN/2014 - Dated:- 11-1-2017 - Shri R. K. Panda, AM And Shri Vikas Awasthy, JM Assessee by : Shri Neelesh Khandelwal Revenue by : Shri M.K. Gautam ORDER Per Vikas Awasthy, JM This appeal by the Department is directed against the order of Commissioner of Income Tax (Appeals)-2, Nashik dated 23-12-2013 for the assessment year 2010-11. .....

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-10-2010 declaring taxable income as Nil . During the course of scrutiny assessment proceedings the Assessing Officer made disallowance of ₹ 7,41,26,060/- u/s. 14A r.w. Rule 8D. Aggrieved by the assessment order dated 01-03-2013, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by placing reliance on various decisions including the decision of Hon ble Bombay High Court in the case of Commissioner of Income Tax Vs. Ge .....

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the issue raised in the present appeal by the Department has already been adjudicated by the Tribunal in assessee s own case in ITA No. 746/PN/2013 for the assessment year 2009-10 decided on 30-12-2016. 3.1 The ld. AR further submitted that the CBDT Circular No. 37/2016 dated 2nd November, 2016 categorically mentions that the Department shall not file any fresh appeal in respect of deduction claimed on enhanced profits due to disallowances made u/s. 32, 40(a)(ia), 40A(3), 43B etc. of the Act. Wh .....

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u/s. 80IA on the addition made u/s. 14A r.w. Rule 8D. It is an undisputed fact that the assessee is eligible to claim deduction u/s. 80IA of the Act. The effect of disallowance u/s. 14A r.w. Rule 8D is that there is increase in profits. The assessee is eligible to claim deduction on such increase in profits, as the said profits are arising from the business of assessee eligible to claim deduction u/s. 80IA of the Act. Similar view has been taken by the Tribunal in the case of ITO Vs. Kalbhor Ga .....

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of M/s. Hari Infrastructure (P) Ltd. The assessee has advanced borrowed money to the said subsidiary company for repayment of loan. It has been contended that the borrowed money has been advanced to the subsidiary on account of commercial expediency. Further, the assessee has made investment in two subsidiary companies i.e. M/s. Nagar Kopergaon Infrastructure Pvt. Ltd. (hereinafter referred to as NKIPL ) ₹ 26.50 crores and M/s. Pranjal Infrastructure Pvt. Ltd. (hereinafter referred to as P .....

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o the tune of ₹ 3.44 crores on the investment made in NKIPL and ₹ 0.23 crores in respect of investment made in the shares of PIPL. It is the case of the assessee that the assessee has not received any exempt income in the form of dividend etc. from the aforesaid two newly formed companies. The ld. AR has made an alternate submission in ground No. 4 of the appeal that even if disallowance u/s. 14A is sustained. The assessee is eligible to claim deduction u/s. 80(IA) on the said disall .....

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d as SPV to obtain contracts from NHAI. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT in ITA No. 848/PN/2013 for the assessment year 2009-10 decided on 18-01-2016, under similar circumstances by following the decision rendered in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) deleted the disallowance made u/s. 14A r.w. Rule 8D in respect of investments made in the subsidiary companies which were created .....

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#8377; 1,08,81,177/- u/s.14A of the I.T. Act r.w. Rule 8D of the I.T. Rules. While doing so, he rejected the contention of the assessee that the investment made in the shares of holding companies are due to commercial expediency and therefore no disallowance of interest should be made u/s.36(1)(iii) or u/s.14A. We find the Ld.CIT(A) rejecting the various submissions made before him and distinguishing the various decisions cited before him rejected the claim of the assessee that no disallowance i .....

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Ld. Counsel for the assessee that since no dividend income has been received which is exempt from tax, therefore, no disallowance u/s.14A should be made. It is also another alternate contention of the Ld. Counsel for the assessee that since the entire income of the assessee is eligible for deduction u/s.80IA(4), therefore, even if any disallowance is made the business income of the assessee will go up and therefore there will be corresponding deduction of the said amount and therefore it is rev .....

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A) which was upheld by the ITAT. On further appeal by the Revenue, the Hon ble High Court dismissed the appeal filed by the Revenue by observing as under : This appeal has been preferred by the revenue against the order dated 02.12.2011 passed by the Income Tax Appellate Tribunal, New Delhi in ITA No.4245/Del/20 11 in respect of the assessment year 2008-09. The issue before the Tribunal, which is also an issue before us, was whether in the facts and circumstances of the case the Commissioner of .....

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oner of Income Tax (Appeals) has given a finding that only interest of ₹ 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of ₹ 6,07,775,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicl .....

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arning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum ₹ 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), hence we uphold the same. On going through the above observations we are of the view that this is merely a question of fact and does not involve any question of law m .....

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assessee is entitled to deduction u/s.80IA(4), therefore, the addition, if any, has to be allowed u/s.80IA(4) and therefore, the same is revenue neutral. Admittedly, the income of the assessee is eligible for deduction u/s.80IA which the AO himself has allowed in the body of the assessment order. The returned business income has been allowed by the AO as deduction u/s.80IA as per the claim. Therefore, once a part of the interest expenditure is disallowed then the corresponding business income w .....

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r observe that the CBDT vide Circular No. 37/2016 dated 02-11-2016 has clarified that where disallowance has been made u/s. 32, 40(a)(ia), 40A(3), 43B etc., of the Act and other specific disallowance relating to business activity deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. The relevant extract of the circular is as under: Chapter VI-A of the Income-tax Act, 1961 ( the Act ), provides for deductions in respect of certain incomes. In computing the pro .....

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deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows : (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of nondeduction of TDS under .....

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Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11,2015, Bombay High Court. (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: • Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. T .....

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