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2012 (5) TMI 758 - ITAT AHMEDABAD

2012 (5) TMI 758 - ITAT AHMEDABAD - TMI - ITA No. 3090/Ahd/2011 - Dated:- 4-5-2012 - A. K. Garodia (Accountant Member) And Kul Bharat (Judicial Member) For the Appellant : Vinod Tanwani, SR-DR For the Respondent : Sanjay Majumdar, AR ORDER Kul Bharat (Judicial Member) The present appeal has been field by the Revenue against the order of Ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad dated 13-09- 2011 for the assessment year 2008-09 raising the following grounds of appeal. 1) The Ld. Com .....

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sessment proceedings, the Assessing Officer observed that the assessee-company had earned dividend income of ₹ 1,75,92,106/- claimed as exempt income u/s. 10(33) of the Act. He further observed that the assessee incurred interest expenditure of ₹ 4,86,11,489/- and the average investment stood at ₹ 39,73,64,901/-. Therefore, finding the assessee-company in receipt of exempt income the AO called upon the assessee as to why disallowance u/s 14A of the Act should not be made. The a .....

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a temporary period as the company s capital expenditure program for the new project was yet to take place and accordingly the amount has been parked temporarily in mutual funds. Thus there is a direct nexus between the proceeds of the public issue with the investment in the mutual funds and therefore the amount earned by the company out of the investment made in the mutual fund should be treated as exempt income without applying Rule 8D. A statement showing detailed working of amount invested in .....

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t made by the assessee then only Rule 8D has to be applied. In our case nexus is clearly proved between the investment and proceeds of the public issue and therefore we are sure that your good office shall satisfy about the utilization of public issue fund for investment in mutual funds for a temporary period from enclosure-1 above and therefore the question of applying Rule 8D does not arise. However, a statement showing working as per Rule 8D as asked by you is enclosed as Encosue-2 (age No.2) .....

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nce of ₹ 1,02,02.669/- u/s. 14A of the Act. The assessee feeling aggrieved by the order of Assessing Officer filed appeal before Ld. CIT(A) challenging the aforementioned disallowance of ₹ 1,02,02.669/- u/s. 14A of the Act. 3. Before Ld. CIT(A) Learned Authorized Representative of the assessee submitted that no clarification was sought by the Assessing Officer and he applied Rule 8D of the I.T. Rule, 1962 on ad hoc basis he submitted that Rule 8D can be applied only after the AO has .....

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tention, the assessee relied upon the judgment of Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. DCIT in ITA No. 626 & WP 758 of 2010 dated 12-08-2010. The assessee further relied in the case of CIT v. Hero Cycles 323 ITR 158 (P & H) passed by Hon ble Punjab and Haryana High Court. The assessee also relied upon the order of ITAT Delhi in the case of Minda Investment Ltd. v. DCIT in ITA No.4046/Del/2009. The assessee also relied upon the order passed by ITAT De .....

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n by the appellant. The appellant has submitted that it has not invested any interest bearing funds in the mutual funds which has earned exempt income. It has been submitted by the appellant that the company had come out with its maiden public issue on 27/12/2007 and has received net proceeds of ₹ 139.27 crores which has been invested in mutual funds. No other interest bearing funds have been invested by the appellant in the mutual fund. The appellant has also submitted a statement showing .....

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s further held that had the funds not been diverted for such investment the need for interest bearing funds would have been lesser. The findings given by the AO are not justified as in this case, there is a direct nexus between the non interest bearing funds and the investment made by the appellant. No disallowance on account of interest u/s. 14A r.w. Rule 8D can be done. There is no doubt that with introduction of Rule 8D, the Assessing Officer need not establish the nexus with the interest bea .....

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of ₹ 81,19,544/- is directed to be deleted. The A.O has also made disallowance on account of administrative expenses amounting to ₹ 19,86,825/- by applying Rule 8D. This expenditure is supposed to have been incurred on various administrative heads for management and maintenance of the investments made by the appellant in mutual funds. Though the funds for investment were separate that the administrative expenditure is bound to be intermixed and the appellant must have used his exist .....

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resentative of the assessee supported the order passed by Ld. CIT(A) and submitted that assessment order patently erroneous in the light of various judicial decisions cited by him. Ld. AR relied upon the order passed by Ld. CIT(A) in the case of CIT v. Hero Cycles 323 ITR 158 and also the order passed by ITAT Delhi Bench in the case of Minda Investment Ltd. v. DCIT in ITA No.4046/Del/2009. 6. We have heard the rival submissions and perused the materials available on record. It is not disputed th .....

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med as exempt income u/s. 10(33) of the Act. He further observed that the assessee incurred interest expenditure of ₹ 4,86,11,489/- and the average investment stood at ₹ 39,73,64,901. It is settled position of law that the Rule 8D of the Income Tax Rules, 1962 would apply for the Assessment Year 2008-09 Rule 8D is reproduced as under:- [Method for determining amount of expenditure in relation to income not includible in total income. 8D (1) Where the Assessing Officer, having regard .....

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oes not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- A x B/C Where A = amount of expenditure by way of interest othe .....

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