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Future Corporate Resources Ltd. (Formerly known as Simpleton Investrade P Ltd) Versus DY. CIT (OSD) -8 (1) , Mumbai

Addition u/section 14A r.w.r. 8D - disallowance of expenditure incurred to earn exempt income - computation of claim - Held that:- In this case, the assessee has various investments including investments in subsidiaries and also it is a fact that the details filed by the assessee does not throw any light to prove that dividend income is earned form shares held by way of amalgamation only. - We find that the Hon’ble Delhi High Court in the case of Joint Investments P Ltd vs CIT (2015 (3) TMI .....

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The rationale behind these judgments is that the amount of disallowance cannot exceed exempt income. In this case we find that the assessee has earned exempt income of ₹ 24,138, whereas the AO disallowed an amount of Rs ₹ 3,36,28,000. Therefore, considering the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the view that disallowance u/s 14A cannot exceed the exempt income. Hence, we direct the AO to restrict disallowanc .....

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he brief facts of the case are that the assessee company has filed its return of income for the assessment year 2011-12 on 29-09-2011 declaring total income of ₹ 6,76,58,135. The case was selected for scrutiny and accordingly notices u/s 143(2) & 142(1) were issued. In response to notices, the authorized representative of the assessee attended from time to time and filed the details, as called for. During the course of assessment proceedings, the AO noticed that the assessee was holdin .....

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essee was asked to furnish the details of his investment and to showcause as to why disallowance u/s 14A should not be made in accordance with the provisions of Rule 8D. In response to show cause notice, the assessee submitted that it has made investments in various subsidiary companies as a promoter and also as part of its business strategies but not to earn dividend income from such shares. The assessee further submitted that during the financial year relevant to AY 2011-12 it has claimed cert .....

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ubstantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retentions and sale of shares at the most appropriate time for which the assessee need to deploy and employ certain resources by incurring expenditure. Therefore, there is no merit in the contention of the assessee that it has not incurred any expenditure to earn exempt income. Accordingly the AO disallowed 0.5% of average value of investments u/s 14A r.w.r. 8D of IT Rules, 1962. Aggrieved .....

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ompanies have not declared dividend since their inception, which is evident from the fact that during the year it had earned meager amount of dividend of ₹ 24,138 as against which, the AO has disallowed amount of ₹ 3,36,28,000 by invoking the provisions of section 14A r.w.r. 8D of IT Rules, 1962. The assessee further contended that it has acquired certain investments by way of amalgamation in pursuance of order of the Hon ble Bombay High Court for which it has not incurred any specif .....

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arned tax free dividend which, it has claimed as exempt income in its return of income. It is universal principle that if there is any income in P&L Account and there are any assets in balance-sheet of any concern, there must be some incidental direct or indirect expenses to earn such income or asset. In the instant case, the assessee failed to prove that none of the expenses incurred for earning the dividend income and making the investment. With these observations, he confirmed the additio .....

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y way of amalgamation, in pursuance of a Court order, the assessee need not incur any expenditure to acquire such shares, as such, need not disallow any expenditure to earn exempt income. The Ld.AR further submitted that the assessee has earned a meager dividend income of ₹ 24,138 whereas the AO has disallowed an amount of ₹ 3,36,286 which is more than the amount of exempt income earned by the assessee. The disallowance provided u/s 14A cannot be more than the exempt income, therefor .....

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ing the order of CIT(A) submitted that the provisions of section 14A r.w.r. 8D of IT Rules, 1962 are mandatory in nature from AY 2008-09 onwards and the AO is bound to compute disallowance as per the prescribed formula provided under rule 8D(2)(iii), therefore, there is no mistake in the disallowance worked out by the AO and his order should be upheld. 7. We have heard both the parties, perused the materials available on record and have gone through the orders of authorities below. There is no d .....

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s a promoter. The shares were acquired, and made investments solely and exclusively for the purpose in the course of business as part of its business strategy. The intention was not to earn dividend income. In fact, most of the companies did not declare any dividend which is evident from the fact that it had earned a meager dividend of ₹ 24,138. The assessee further contended that it did not incur any expenditure to earn exempt income and that the exempt income is earned from shares acquir .....

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ssessee is that there shall be no disallowance u/s 14A towards expenditure as its investments are strategic investments in group companies and also the shares are held by way of amalgamation. If at all any disallowance is warranted, then the computation made by the AO by taking market value of shares held by amalgamation needs to be corrected. 8. The provision of section 14A provides for disallowance of expenditure incurred to earn exempt income. As per the provisions of sub section (2), the AO .....

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ilarly, u/r 8D, the method is prescribed for disallowance of expenditure in relation to exempt income. As per Rule 8D(2)(i) & (ii) provides for disallowance of direct expenditure incurred to exempt income and interest expenses worked out on the basis of formula prescribed thereunder. Rule 8D(2)(iii) provides for disallowance of expenditure on the basis of 0.5% of average value of investments. From a conjoined reading of section 14A r.w.r. 8D of IT Rules makes it clear that the AO shall compu .....

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ing exempt income. 9. In this case, the assessee claims to have not incurred any expenditure to earn exempt income as the investments in shares held as strategic investments in group companies as a promoter, but not as investments to earn dividend income. The assessee further claims that it had investments in shares as a result of amalgamation but has not incurred any expenditure to earn exempt income. We do not find any merits in the arguments of the assessee for the reason that on perusal of f .....

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e had various investments in shares and mutual funds including in subsidiary companies. Therefore, the arguments of the assessee in the light of the decision of the ITAT, Mumbai Benches in the case of Greaves Leasing & Finance Ltd vs ITO (supra) fails, because in that case, the Tribunal has recorded a categorical finding that the assessee has earned dividend income from shares held by way of amalgamation and has not incurred any expenditure to earn exempt income. In this case, the assessee h .....

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