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2016 (9) TMI 1500
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.... i) Disallowance u/s 14A Rs. 18,04,252/- ii) Disallowance u/s 36(1)(iii) Rs. 70,05,000/- iii) Royalty payment treated as capital expenditure Rs. 50,32,500/- ....
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.... income then the disallowance is to be calculated as per the method provided under rule-8D of the Rules and ld.Assessing Officer has rightly done the same. 7. On the other hand, ld. AR submitted that specific disallowance of Rs. 30,347/- was made suo moto by assessee as observed by auditor in the audit report. Further no disallowance is called for out of the interest expenditure as the company has sufficient interest free funds and the interest expenditure is only towards working capital loan taken from bank against hypothecation of stock and assets and has to be specifically used for business purposes. Ld. AR further submitted that the issue raised by the Revenue in this ground is squarely covered in favour of assessee in view of the decision of the Co-ordinate Bench in assessee's own case in ITA No.318/Ahd/2011 Asst. Year 2009-10 for Asst. Year 2006-07 and others pronounced on 17.4.2015 and by the judgment of Hon. Jurisdictional High Court in the case of Principal CIT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Gujarat) wherein it has been held that no disallowance u/s 14A of the Act is called for towards the interest expenditure if the assessee has su....
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....rom where investments have been made in past and during the year under consideration. From the bank statement it is seen that no borrowed money has been diverted for investment. The A.O. has not considered these aspects in the assessment order. Since, the assessee has established that no borrowed money is used for investment; no interest is to be disallowed u/s 14A r.w.r. 8D. Therefore, the A.O. is directed to delete disallowance of Rs. 12,36,802/- on account of interest paid. The appellant has submitted that in respect of exempt income no specific expenditure has been incurred and out of dividend income of Rs. 8,19,154/-, Rs. 6,43,206/- has not been received but is reinvested in the units of the respective mutual funds. The appellant has submitted that in respect of the dividend income cheques are received and deposited into bank account and for collection of the cheques no expenditure is incurred. Similarly, for depositing the dividend cheques into bank no specific expenditure is incurred. In respect of long term capital gain Rs. 14,55,875/- on redemption of mutual funds there is no question of disallowance u7s 14A as the same are taxable capital gain. Therefore in the a....
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....nditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.' 2. New Rule 8D : 2.1 In exercise of the powers given in S. 14A(2) C.B.D.T. has issued a Notification No. S.O. 547(E) on 24-3-2008 (299 ITR (ST) 88). This notification amends the Income-tax Rules by insertion of a new Rule 8D providing for a "Method for determining amount of expenditure in relation to income not includible in total income". Reading this Rule it is evident that the Rule provides for disallowance of not only direct expenditure incurred for earning the exempt income but also for disallowance of proportionate indirect expenditure. This is clearly contrary to the main objective with which S. 14A was enacted. 2.2 Broadly stated, the new Rule 8D provides as under : (i) Th....
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....ions made by assessee before the lower authorities, the observation made by ld. CIT(A), decision of the Co-ordinate Bench in the case of assessee's own case in ITA No.318/Ahd/2011 (supra) and looking to the facts of the case that interest expenditure is only towards to the Asst. Year 2009-10 working capital limit specifically used for the purpose of business and assessee company having sufficient interest free funds, proves that only interest free funds have been used to invest in shares and mutual funds. Further we observe that is in conformity with the order of the Tribunal, deleting the entire disallowance u/s 14A of the Act on the ground that assessee had sufficient interest free funds out of which investment was made is in conformity with the judgment of Hon. Jurisdictional High Court in the case of Principal, CIT vs. India Gelatine and Chemicals Ltd. (supra). Respectfully following the judgment of Hon. Gujarat High Court in the case of Principal CIT vs. India Gelatine & Chemicals Ltd. (supra) and the observation made above, we find that no disallowance is called for in the second limb of rule 8-D relating to interest expenditure. Now coming to the third limb towards ad....
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..... Accordingly total disallowance of Rs. 2,80,347/- (Rs.30,347/- + 2,50,000/-) is held to be Asst. Year 2009-10 disallowance u/s 14A of the Act. Accordingly the ground of Revenue is partly allowed. Ground No.2 - 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 70,05,000/- made on account of interest expenses u/s. 36(l)(iii) of the Act without appreciating the fact that once the funds are put into the business, they lose identity. 14. We have heard the parties. We find that the issue travelled upto the stage of Tribunal by way of ITA No.2923/Ahd/2008 and the Tribunal has decided the issue vide its order dated 28.01.2014 in favour of assessee by holding as under:- "18. Ground No.5 is against the deletion of disallowance of Rs. 1,29,034/- u/s.36(1)(iii) of the Act. The ld.Sr.DR has supported the order of the AO, whereas ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that under the identical facts, the Hon'ble Tribunal in ITA No.1476/Ahd/2006(supra) the issue has been decided in favour of assessee vide para Nos.9 & 16 by observing as under:- "9. Ground No.4(a) relates to disallowance of prop....
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....terest worked out at Rs. 10.70 lacs. In addition, he also disallowed, by estimate administrative, expenditure of Rs. 1,20,000/-. ... 16. Since assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this ground is allowed." 18.1. In the present case also, the facts are identical as the ld.CIT(A) had given a finding on fact that there assessee had sufficient interest free fund and it had not diverted the interest bearing fund same remained unrebutted. Therefore, we do not find any reason to take a contrary view than taken by the Hon'ble Coordinate Bench. Thus, this ground of the Revenue's appeal is rejected. 15. Since the facts are identical to the facts as were raised in ITA No.2923/Ahd/2008 for AY 2005-06 and the Revenue has not pointed out any change into the facts and circumstances of the case, therefore respectfully following the decision of Coordinate Bench passed in ITA No.29....