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M/s. Lodha Builders P. Ltd. Versus DCIT, Circle- 7 (3) , Mumbai

Disallowance under section 14A r.w. Rule 8D - Held that:- No disallowance under section 14A of the Act can be made in the case on hand for the year under consideration since the assessee has not earned any exempt income. We, therefore, set aside the decision of the authorities below and direct the AO to delete the disallowance of expenditure under section 14A of the Act. See Cheminvest Limited Versus Commissioner of Income Tax-VI [2015 (9)238 - DELHI HIGH COURT] - Whether investments have be .....

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ber and Shri Saktijit Dey, Judicial Member For The Appellant : Shri Vijay Mehta For The Respondent : Shri J. Mohammed Rizwan ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of the CIT(A)- 48, Mumbai dated 19.03.2015 for A.Y. 2010-11. 2. The facts of the case, briefly, are as under: - 2.1 The assessee company, engaged in the business of land development and construction, filed its return of income for A.Y. 2010-11 on 25.09.2010 declaring NIL income. Subsequ .....

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8377; 3,67,730/- (iii) Difference of interest on Loan Advance ₹ 4,91,328/- 2.2 Aggrieved by the order of assessment dated 21.03.2013 for A.Y. 2010-11, the assessee preferred an appeal before the CIT(A) 48, Mumbai challenging (i) the disallowance under section 14A r/.w. Rule 8D and (ii) the disallowance of interest on loan advance. The learned CIT(A) disposed off the appeal vide the impugned order dated 19.03.2015 allowing the assessee partial relief. 3. The assessee being aggrieved by the .....

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e u/s 14A was uncalled for. 3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the above disallowance without appreciating the fact that the Appellant has not earned any exempt income. 4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the investments have been made in the subsidiary company for the purposes of having strategic control therein and not for the purposes of earning of ex .....

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companies compared to the rate of borrowing, ignoring the fact that capital borrowed is for business purpose only. 4. Ground Nos. 1 to 5 - Disallowance under section 14A r.w. Rule 8D - ₹ 3,67,730/- 4.1.1 In these grounds at 1 to 3 (supra), the assessee assails the impugned order of the learned CIT(A) in confirming the disallowance made by the Assessing Officer (AO) under section 14A of the Act without, inter alia, appreciating the fact that the assessee has not earned any exempt income du .....

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n ground Nos. 4 & 5 (supra) that the learned CIT(A) erred in not appreciating that since the investments were made in subsidiary group concerns for the purpose of control and not for the purpose of earning of exempt income and being strategic investment, these investments should be excluded for computing disallowance under section 14 of the Act. In support of this proposition, reliance was placed on the following judicial pronouncements:- (i) Cheminvest Ltd. vs. CIT (378 ITR 33 (Del.) (ii) G .....

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se of Cheminvest Ltd. ITA No.749/2014 as there was no exempt income received by the assessee during the year. Therefore, according to the Ld. Counsel of the assessee, no disallowance u/s. 14A of the Income Tax Act r.w. Rule 8D was to be made. 2. In this regard, it is submitted that as per the scheme of the Act as envisaged in sec. 14A related to disallowance of expenditure incurred in relation to income not includable in total income, there need not be actual receipt of exempt income for actual .....

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cial-year or not. The above position is further clarified by the usage of terms 'includible' in the heading to sec. 14A of the Act and also the Heading to Rule 8D of the IT. Rules, 1962 which indicates that it is not necessary that exempt income should necessarily be including in a particular year's income, for disallowance to be triggered. Also, sec. 14A of the Act does not use the word "income of the year" but "income under the Act"............... Thus, in the l .....

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rd, it is submitted that Hon'ble Delhi High Court has not considered Hon'ble Supreme Court judgement in the case of Distributors (Baroda) (P) Ltd. Vs. Union of India (1985) 155 'TR 120/22 Taxman 49 (SC) wherein it was held that "Income by way of dividends" from domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of that Act. Hon'ble Supreme Court emphasises that it is the income that should .....

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eans not all the income by way of dividend is exempt, Sec. 115-0 of the I.T. Act deals with the additional income tax chargeable on domestic company on any amount declared, distributed, or paid by such company by way of dividend. For domestic company this is in the form of appropriation, while the same is receipt in the hands of the shareholder. Thus, Sec. 115-0 (5) of the act restricts any deduction under any other provision of the act to be allowed to shareholder in respect of such dividend re .....

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ully considered the material on record. Admittedly, the assessee has not earned any exempt income in the year under consideration. This fact has been recorded by the AO at para 5 of the order of assessment for the year under consideration, after perusal of the assessee s Profit & Loss account and also acknowledged by the learned CIT(A) at para 4.6 of the impugned order. In these circumstances, in our considered view, the ratio of the decision of the Hon'ble Delhi High Court in the case o .....

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lation to the said exempt income. 4.3.2 Similar finding has been rendered on identical facts by the jurisdictional High Court of Bombay in the case of Pr. CIT vs. M/s. Ballarpur Industries Ltd. which is extracted hereunder: - On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judg .....

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Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total in .....

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ecision of the Hon'ble Bombay High Court in the case of Ballarpur Industries Ltd. in ITA No. 51 of 2016 dated 13.10.2016, of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT (378 ITR 33) (Del) and of the Coordinate Bench of this Tribunal in the case of Vakrangee Ltd. vs. ACIT (ITA No. 6988/Mum/2014 dated 10.08.2016), we hold that no disallowance under section 14A of the Act can be made in the case on hand for the year under consideration since the assessee has not earn .....

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shares amounting to ₹ 2,37,61,417/- was strategic investment in its subsidiary group company, M/s. Shreeniwas Cotton Mills Ltd. for control of this company and not with the intention of earning tax exempt dividend income. On a perusal of the details on record, i.e. the impugned order of the learned CIT(A) and the order of assessment, we find that the averments of the learned A.R. of the assessee that the entire shares held by the assessee are in respect of its strategic investment in its .....

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. for the assessee has submitted that, even otherwise, the said disallowance under section 14A w.r. Rule 8D ought not to have been made as the entire investment in shares made by the assessee of ₹ 52,15,95,000/- was strategic investment in group companies for control over these companies and not for investment purpose with the intention of earning of tax exempt dividend income. On a perusal of the details on record, i.e. the impugned order of the learned CIT(A) and the order of assessment .....

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