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DCIT, Circle 11 (2) , New Delhi Versus M/s Hind Industries Ltd.

2017 (10) TMI 176 - ITAT DELHI

Disallowance u/s. 14A read with Rule 8D - sufficiency of funds - Held that:- It is evident that the assessee had sufficient own funds, which were utilised for making any investment in inventories and to sundry debtors to the tune of ₹ 18.19 crores and for making new investment in shares of M/s HAIL of ₹ 6,63,30,000. In addition, the assessee company had current year's profit of ₹ 6.85 crores. Under the circumstances, I hold that the new investment of ₹ 6.63 crores made in .....

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y, we hold that no administrative efforts can be attributed to making of investment in the shares of HAIL, the subsidiary company. - On careful consideration of the reasoning given by the AO for making the addition under Rule 8D in the assessment order, we find that the AO has not examined the claim of the assessee in this regard. Moreover, the AO did not consider that investment of ₹ 18.75 crores was deleted by the ITAT and the new investment of ₹ 6.63 crores was also made in th .....

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the binding decision of the Hon'ble Delhi High Court in the case of CIT Vs. Maxopp Investments (2011 (11) TMI 267 - Delhi High Court ).- Decided against revenue - ITA No. 6575/Del/2014 - Dated:- 4-10-2017 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Department : Sh. Arun Kumar Yadav, Sr. DR For The Assessee : S h . M.P. RASTOGI, Adv. ORDER PER H.S. SIDHU, JM: The Revenue has filed the present appeal against the impugned order dated 30/9/2014 passed by the Ld. .....

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r disallowance of the expenditure even where the taxpayer in a particular year has not earned any exempt income. 3. Whether on the facts and circumstances of the case and law, the Ld. CIT(A) erred in deleting the addition as the same is not acceptable that for managing / controlling / handling the investment of ₹ 25,38,30,000/- no expenditure was actually incurred. 4. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 2. The bri .....

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etails and produced the books of account. The assessee is engaged in business of marketing of manufactured fertilizers and retailed intermediate products. The AO observed that the assessee had paid commission expenses of ₹ 2,81,405/- to the Managing Director, who is also a share holder in the assessee company. The AO applied the provisions of section 36(1)(ii) and thereby made the disallowance of such expenses. Secondly, the AO observed that in the assessment orders of the earlier years fr .....

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om the growers/farmers/villagers and held that its case was covered by Rule 6DD(f). The AO however, relied on the finding given in the assessment order for assessment years 2004-05 to 2009-10 in which it was observed that in the absence of names and addresses of the suppliers, the claim of the appellant remained unverifiable. On identical facts in the current year, the assessee was asked to file nature and status of agents, copy of agreements with agents, list of agents and the period since when .....

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was no documentary evidence to prove that purchases were made from farmers/growers/producers. The AO in this regard relied upon the statement of one Sh. Mohd. Ali Shvaukat, Sr. Manager, Accounts, recorded on oath in A.Y.2005-06, in which he had admitted that the identity of the purchasers and suppliers cannot be verified from the books of accounts. Under the circumstances, the AO held that the assessee s case was directly covered under the provisions of Section 40A(3) and that the exemption clau .....

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empt dividend income. However, the AO was not satisfied with the claim of the appellant. Accordingly, by invoking the provisions of Section 14A(2), he applied the provisions of Rule 8D on the ground that substantial part of investment of ₹ 25,28,30,OOO was made in shares and mutual funds, for which some expenditure was bound to be incurred, and hence held that the claim of the assessee that no expenditure was incurred for earning the dividend income, was incorrect. Accordingly, in view of .....

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ue is aggrieved against the impugned order and filed the present appeal before the Tribunal. 5. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal. 6. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order, which does not need any interference. 7. We have heard both the parties and perused the records, especially the impugned order passed by the Ld. CIT(A). We find .....

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ome, was received nor was to be received as such investment was made for the purpose of exercising strategic control over the subsidiary company, which is for the business purpose of the assessee. The A.R. of the assessee also had informed that the business of the assessee company is closely integrated with that of M/s HAIL. The Ld. Counsel of the assessee further informed that the assessee s main business is processing of meat for the purpose of export and for this purpose, the company purchase .....

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of core business of manufacturing and export of meat and not for earning dividend from HAIL, which is also evident by the fact that no amount of dividend income was actually received by the assessee since earlier years. In view of the above, the provisions of Section 14A will not apply for such investment as was held by the Hon'ble High Court in the case of Oriental Structural Engineering {P} Ltd. (ITA 605/2012) and it has further been held by the ITAT, Mumbai in the case of JM Financial Ltd .....

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, the assessee has made investment of ₹ 6,60,30,000, it had its own reserve funds of ₹ 53,10,50,472. At the same time, the company had obtained secured loan from other banks for the purpose of working capital which amounted to ₹ 36,12,14,O85/- as on 31.03.2010, which were utilised in inventories (Rs.29,76,88,836) and sundry debtors (24,55,04,434). The details furnished by the assessee show that the assessee had also borrowed funds from IFCI term loan, which were used for the pu .....

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the subsidiary company was made out of own funds of the assessee and not from the borrowed funds. Accordingly, no disallowance under Section 14A could have been made. 7.1 Regarding the administrative expenses in respect of making such an investment, evidently the investment has been made in the subsidiary company, therefore, no effort in the form of market research, monitoring and seeking paid assistance of professionals in making such investment was needed. Accordingly, we hold that no administ .....

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