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2017 (2) TMI 542 - ITAT RAJKOT

2017 (2) TMI 542 - ITAT RAJKOT - TMI - Addition u/s 14A - whether section 14A is applicable when the assessee has not actually received any exempt income during the year from assets capable of yielding exempt income? - Held that:- Rule 8D is only a machinery/mechanism to compute the disallowance. It is trite that the Rules are sub servient to the main enactment. Rules can never override the main provisions of the Act. If the facts of the case warrants no disallowance, the computational provision .....

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ith the action of the CIT(A) in deleting the disallowance made by the AO. - Decided in favour of assessee - Disallowance u/s.36(1)(va) by way of employee’s contribution towards provident fund - Held that:- Assessee has allegedly made belated payments of employees’ contribution towards PF for the month of March-2012. It was observed by the CIT(A) that no explanation was submitted by the Assessee before the AO nor was any submission made before the him in this regard. The CIT(A) accordingly up .....

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R ORDER Per Pradip Kumar Kedia, AM The captioned appeals are directed by the Revenue against the separate orders of the Commissioner of Income Tax(Appeals)-3, Rajkot [ CIT(A) in short] identically dated 04/07/2016 pertaining to Assessment Years (AYs) 2012-13 & 2013-24. The Assessee is in Cross Objection No.27/RJT/2016 for AY 2012-13 in Revenue s ITA No.373/RJT/2016. 2. Since the grounds raised by the Revenue in both the AYs are identical and facts being similar both the appeals and assessee .....

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hich is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not . 2. On the facts and the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made u/s.14A read with Rule 8D without even considering or appreciating the relevant decisions of the High Court on .....

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y because these cases are not applicable here as they pertain to assessment years prior to A.Y. 2008-09 [AY 2005-06 and AY 2006-07 respectively] when Rule 8D 2as not applicable at all. 4. Briefly stated, the return of income for the AY 2012-13 filed by the assessee was subjected to scrutiny assessment. In the course of assessment proceedings, it was noticed by the Assessing Officer (AO) that the assessee has made investment of ₹ 413.60 lakhs in its 100% subsidiary company by acquiring shar .....

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empted dividend income during the year. It was submitted that the investment in 100% subsidiary company is a strategic investment solely for carrying on business activities as a separate vehicle. The AO however, relied upon the CBDT Circular No.5 of 2014 dated 11/07/2014 on the issue and observed that the presence of actual receipt of dividend income is not necessary. This view is support by the use of term includible in the heading to section 14A of the Act as well as Rule 8D of the I.T. Rules, .....

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rder of the CIT(A) reads as under:- 3.0 Decision: 3.1 The 1st ground of appeal is regarding disallowance u/s.14A of ₹ 17,66,181/-. It was noted by AO that there was investment of ₹ 4.13 crores in a 100% subsidiary company which was capable of yielding dividend income have been made during the year. It was informed by the appellant that during the instant year, no tax exempt income had been claimed. It was informed by appellant that the appellant has Reserve and Surplus of ₹ 15. .....

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h investment made during the current year which has also seen raising of fresh interest bearing loan and thus indirectly the interest bearing loan are the source of the these investments. Accordingly be computed disallowance u/s.14A under rule 8D at ₹ 17,66,181/-. During the appellate proceedings same argument were reiterated i. 1) there is direct nexus of loan taken with other specific business purpose and as such no interest bearing loan was utilized for share investment as there was suf .....

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efore provisions of section 14A should not be invoked for disallowance of interest and other expenses incurred on such investment. I agree with Ld.AR in respect of all 3 arguments. The Hon ble High Court has very very clearly ruled in (2015) 372 ITR 0079 (Guj) that: (Quote) Income AO made disallowance of expenditure of specified amount under section 14A-Disallowance was confirmed by CIT(Appeals)-Tribunal held that Assessee did not make any claim for exemption and in such situation. Section 14A c .....

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leted. Thus ground 1 & 2 are allowed. 4.0 The 3rd ground is regarding disallowance u/s.36(va) of an amount of ₹ 76,500/- when AO noted that assessee has made belated payment employee s contribution towards provident fund for the month of March 2012. No explanation was submitted before the AO nor was any submission made before me. I do not find any fault in AO s action in making such disallowance. This ground is dismissed. 5.0 In the result, the appeal is allowed. 6. Aggrieved thereto, .....

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judgement of Hon ble Gujarat High Court on the issue in the case of CIT vs. Corrtech Energy Pvt.Ltd. reported in 363 ITR 474(Guj.). 9. We have carefully considered the rival submissions and perused the orders of the authorities below. The question that arises for determination is whether section 14A is applicable when the assessee has not actually received any exempt income during the year from assets capable of yielding exempt income. In this regard, we note that the CBDT vide Circular No.5 of .....

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free income. However, we note that the identical issue came up for consideration before Hon ble Gujarat High Court in the case of CIT vs. Corretech Energy Pvt.Ltd.(supra) and host of other Judicial forums. The Hon ble Gujarat High Court has held that when there is no exempt income and no claim of exemption has been made, section 14A and Rule 8D have no application and consequently no disallowance can be made. Although the judgement of the Hon ble Gujarat High Court in the case of Corretech Ener .....

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inding force on the assessee. Accordingly, where no exempt income is received or receivable during the relevant financial year, provisions of section 14A would not operate. In this view of the matter, the disallowance made by the AO is not sustainable having regard to absence of any exempt income during the financial year relevant to the assessment year in question. Therefore, we concur with the action of the CIT(A) in deleting the disallowance made by the AO. No interference therewith is called .....

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roduction of section 14A) is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not . 2. On the facts and the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made u/s.14A read with Rule 8D without even considerin .....

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