2016 (1) TMI 172

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....e order of the learned CIT(Appeals) is erroneous & contrary to facts & law. 2. On the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the Assessing officer to recomputed the disallowance u/s. 14A of the I.T. Act read with Rule 8D of the Income Tax Rules considering the interest amount of only Rs. 6,86,69,493/- instead of Rs. 11,69,94,410/-. 2.1 Whether the Ld. CIT(A) has erred in holding that bank charges, discounting charges and hire charges do not form part of interest without considering the definition of interest given in section 2(28A) of the Income Tax Act, 1961. 3. Whether the Ld. CIT(A) has erred in deleting the proportionate disallowance of interest amounting to Rs. 52,44,823/-. 4. Whether, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,69,551/- made u/s. 2(24)(x) of the Income Tax Act on the account of deposit of Employees' Contribution towards PF and ESI." Grounds in ITA No. 6079/Del./2012 (By Assessee for A.Y. 2008-09): "1. That on the facts and circumstances of the case, the order of CIT(Appeals) in appeal No. 101/10-11, to the extent mentioned hereunder is illegal, unjust....

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.... ITO, 317 ITR 86 (Delhi Spl. Bench), and also the Notification No. 45/2008 dated 24.03.2008 of CBDT issued vide F.No. 134/09/2007-TPL) regarding computation of disallowance as per Rule 8D, disallowed expenditure of Rs. 1,98,64,333/- . The AO further relying upon various decisions cited at pages 5 & 6 of the assessment order, made proportionate disallowance of interest on interest free loans to the tune of Rs. 52,44,823/-. Besides, for non-payment of employees/employers contribution towards EPF/ESI in time, the Assessing Officer also disallowed a sum of Rs. 2,69,551/- on this account vide assessment order dated 07.12.2010. Aggrieved, assessee challenged this order in appeal before the learned CIT(A), who directed the AO to recomputed the disallowance under rule 8D considering the amount of interest paid of Rs. 6,86,69,493/-. While doing so, he observed that the AO while computing the disallowance u/s. 14A read with Rule 8D has considered the entire amount of financial charges totaling to Rs. 11,69,94,410/- whereas from the details of financial overheads filed by the assessee, total amount of interest paid during the year was Rs. 6,86,69,493/- out of which Rs. 5,45,80,881/- was debit....

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....Industries Ltd. (2011) 339 ITR 632 (Bom) (iv). Karnataka Bank vs. ACIT (2015) 228 Taxman 212 (v). ACIT vs. Punjab State Co-op. Marketing Fed. Ltd. (2012) 14 ITR(Trib)69. (vi). CIT vs. Metal Man Auto Pvt. Ltd. (2011) 336 ITR 434 (P&H) (vii). CIT vs. Winsome Textile Industries Ltd. (2009) 319 ITR 204 (P&H) (viii). CIT vs. Cellice Developers Pvt. Ltd. (2015) 231 Taxman 255 (Cal.) (ix). Maxopp Investments Ltd. vs. CIT, 15 Taxman.com 390 (x). CIT vs. Taikisha Engineering India Ltd. (2015) 229 Taxman 143(Del). (xi). ACIT vs. Sun Investments Pvt, Ltd. (2011) 8 ITR(Trib)33(Delhi) (xii). ACIT vs. Iqbal M. Chagla (2015) 67 SOT 123 (Mum)(Uro) (xiii). Graviss Hospitality Ltd. vs. DCIT (2015) 67 SOT 184(Mum)(Uro). (xiv). CIT vs. Abhishek Industries Ltd. (2015) 231 Taxman 85 (P & H) It was further submitted that the disallowance of interest was also not justified in view of various judicial pronouncements, as the interest incurred was for the purpose of business transactions. He also submitted that ld. CIT(A) has rightly deleted the addition made on account of EPF/ESI after considering various j....

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....enses towards non-taxable income must be excluded and that the relationship of the expenditure with the income which does not form part of the total income has to be established for disallowance u/s. 14A. In this context, it is to be born in mind the plain meaning of section 14A that no deduction can be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. In other words, no deduction of expenditure incurred to earn exempt income are allowable under the Act; that the income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. The ld. CIT(A) while deciding the issue has observed that dividend income and income from mutual funds are incomes which by virtue of the provisions of section 10 do not form part of the total income under the Act and the expenditure incurred in relation thereto are to be disallowed under section 14A of the Act. The ld. CIT(A) analyzing the meaning of expression "income which does not form part of the total income" observed that such income is income which is not includible in computing the total income of the ass....

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....the total income . For this proposition, we lay our hands on the principle of law laid down by Hon'ble Jurisdictional High Court in the recent decision in case of Cheminvest Limited vs. CIT (ITA 749/2014) decided on 02.09.2015, wherein after setting aside the decision of Special Bench of ITAT, relied upon by the Assessing Officer, it was held that "the expression 'does not form part of the total income' in Section 14A of the Act envisages that there should be an actual receipt of income which is not includible in the total income during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income." In view of this, the appeal of the Revenue has to be dismissed and that of the assessee is liable to be allowed on this issue. 9. As regards the issue relating to disallowance of interest, we find that the AO has disallowed a sum of Rs. 52,44,823/- being proportionate interest on account of interest free loans advanced by the assessee to three parties, viz., M/s. Boeing Investments Private Limited, M/s. M.K. Marketing and M/s. Brics Securities Ltd. of Rs. 62,99,375/-, Rs. 54,022/- and Rs. 3,73,53,462/- respectively. The AO has obser....