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2016 (2) TMI 618

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....rder deleting the disallowance of Rs. 13,67,830/- under sec 14A read with Rule 8D(ii) being disallowance of proportionate interest payable on borrowings which can be attributed to earning of dividends. 3. The Assessee had received dividend of Rs. 2,90,97/- and contended that no expenditure ha been incurred by him for earning this dividend. The AO applied straightaway applied Rule 8D of the IT Rules and disallowed a sum of Rs. 13,67,830/- being proportionate interest that can be attributed to investment income which is exempt. The AO had also disallowed Rs. 83,958/- being 0.5% of such investments towards administrative expenses under Rule 8D(2)(iii). This issue has not been agitated before us. 4. On appeal, the CIT(Appeals) examined the ba....

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....ture in relation to exempt income, can he determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e., rule 8D of the Income-tax Rules, 1962. Therefore, the Assessing Officer, at the first instance, must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, is he entitled to adopt the method as prescribed, i.e., rule 8D . Thus, rule 8D is not attracted and applicable to all assessees who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute the disallowance....

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....read with Rule 8D should be made only with respect to Investments which have yielded tax exempt income during the relevant previous year which is excluded from computation of Total income in the Assessment. 11. The First Appellate Authority has found as a fact that the Assessee had sufficient funds for making the Investment in shares. There is no details as to the shares which had yielded exempt income for applying the provisions of sec 14A. However the CIT(A) has found as a fact that the Assessee had sufficient funds to make the entire investments. There was no new investment made during the year and hence there is no question of any borrowed funds during the year being utilised for making investments which have yielded tax free income. T....

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....entered into on 19/09/2006, the entire possession of the land was handed over to M/s. Bhoruka Park Pvt. Ltd., through the registered deed. Further as per the jade, M/s Bhoruka Park Pvt. Ltd has to retain 74% of the right over the land and constructed area of the property. The AO was of the view that It is clear from the JDA that the BSSL has transferred its right in the immovable property to the extent of 74% for construction / development. Once the possession of the land is handed over to M/s. Bhoruka Park Pvt. Ltd., the entire right held in the immovable property was transferred to them. The AO also observed that the assessee company has paid a sum of Rs. 7.5 Crores to M/s BSSL. 16. Further as per the JDA M/s BSSL was required to transfe....

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....ient non-interest bearing funds, no interest could be disallowable. 20. The CIT(A), however, held both concerns are closely related and the assessee parked said amount for business purpose i.e. development of I.T.Park and other companies having certain percentage of right and interest on 7 acres 26 guntas of land at Mahadevapura Industrial Area, K.R.Puram, Bangalore. The CIT(A) therefore held interest attributable on an amount of Rs. 7.5 crores is not disallowable and deleted the addition of Rs. 1,17,12,008/-. 21. Aggrieved, the Revenue is in appeal before us. 22. We have heard both the parties. The only grievance of the Revenue is that the facts relating to the Interest free advance given to BSSL Ltd was not submitted before the AO. The....

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....'s appeal on this issue is dismissed. 23. In the result, the Revenue's appeal is dismissed. CO No.144/B/2015 24. The CO is filed by the assessee on the ground that the CIT(A) erred in holding that a sum of Rs. 10,49,952 is to be disallowed despite the fact that the assessee had not claimed the above sum as expenditure. 25. The assessee before us submitted that out of the total interest paid during the year, a sum of Rs. 1,00,49,952/- was capitalized to building no.2 and the balance sum of Rs. 8,92,01,800 was debited to profit and loss account. It was submitted before the CIT(A) that the entire sum of Rs. 8.92 crores is in respect of building which are already completed and therefore. allowable as deduction. The CIT(A) accepted the cont....