TaxTMI 
TaxTMI 
2019 (10) TMI 1164
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.... income u/s. 14A by invoking Rule 8D without appreciating that: 1.Section 14A was not applicable in instant case since Assessing Officer failed to establish satisfaction as to how the claim of the Appellant was incorrect; . 2.The Appellant had sufficient interest free funds to carry out investments and hence no borrowed funds were utilized for purpose of investments; 3.No disallowance ought to made in respect strategic investments, not acquired with an intention of earning exempt income. 2.2. The learned CIT(A) grossly erred in not following the decision passed by the Jurisdictional Bombay High Court in the case of HDFC Bank Ltd. ([2014] 366 1TR 505 (Bombay) and wrongly relied on the decision of his learned Predecessor for AY 2011-12 while dismissing the appeal, without appreciating that the Predecessor CIT(A) had allowed the ground in favor of the Appellant for AY 2011-12. 2.3. Without prejudice to the above, the learned CIT (A) grossly erred in not rectifying the errors in calculating amount of disallowance u/s 14A as per Rule 8D. 2.4. Without prejudice to the above, the disallowance u/s. 14A ought to be substantially reduced.....
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.... of the case and in law, the learned CIT(A) grossly erred in upholding the stand of the Assessing Officer that since the Appellant has leased out all its assets therefore the said assets have ceased to be business assets, without appreciating the fact that the said assets are the commercial assets of the Appellant. 4.3 On the facts and in the circumstances of the case and in law, the CIT(A) ought to have appreciated that the Appellant has actively pursued business of manufacture of chemicals and the allegations of the Assessing Officer that the Appellant has practically discontinued business are factually incorrect, hence lease income from lease of certain plant & machinery and building should be treated as business income and not as income from other sources. 4.4 Without prejudice to the above, the learned CIT(A) failed to appreciate that pursuant to the Scheme of Arrangement between Anushakti Chemicals & Drugs Ltd. and Spack Chemicals Pvt. Ltd. and Aarti Healthcare Ltd. approved by the Hon'ble High Court of Mumbai vide its order dated 10th August, 2011, the manufacturing business undertaking of Anushakti Chemicals & Drugs Ltd. got demerged and demerged manuf....
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....me of Rs. 15.99 Lacs against investments of Rs. 12.50 Crores but did not offer any disallowance u/s 14A. The assessee was show-caused as to why the disallowance u/s 14A read with Rule 8D was not to be made considering the investments so made. However, the assessee failed to submit any details. Hence, not satisfied, Ld. AO, applying Rule 8D, computed aggregate disallowance of Rs. 31.34 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs. 27.12 Lacs and expense disallowance u/r 8D(2)(iii) for Rs. 4.21 Lacs. The said disallowance was added back while computing income under normal provisions as well as while computing Book Profits u/s 115JB. 2.3 As per stand taken in earlier years, it was found that the assessee leased out its building and Plant & Machinery to an entity namely Aarti Industries Ltd. As per the terms of agreement, the assessee practically discontinued its business operations since then. The assessee offered lease rental income of Rs. 3 Crores as Business Income. However, following the stand taken in earlier years, the said income was brought to tax under the head income from other sources. 2.4 The last disallowance made was interest disallowance ....
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....ntal, the assessee contended that letting out of commercial assets was business activity for the assessee and the assessee was engaged in commercial exploitation of the property for a set period of time with no intention of discontinuing its normal business activities. The attention was drawn to the fact that entire business unit was let out on as is where is basis. However, following the decision of its predecessor for AYs 2009-10 to 2011-12, Ld. CIT(A) confirmed the stand of Ld. AO on this count. 3.3 Regarding interest disallowance u/s 36(1)(iii), it was submitted that no borrowings were made to acquire the fixed assets rather the assessee had sufficient interest free funds to make capital advances. In the alternative, it was pointed out that the disallowance was to be restricted as per the actual usage of funds for capital advances and CWIP. Reliance was placed on the decision of Hon'ble Bombay High Court rendered in Reliance Utilities 18 DTR 1. The Ld. CIT(A), while confirming the applicability of interest disallowance u/s 36(1)(iii), directed Ld. AO to compute the disallowance only for the period commencing from the date of payment till the date of capitalisation. 4. Agg....
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....ed by lower authorities. Therefore, on the facts and circumstances, we deem it fit to remit the matter of disallowance u/s 14A while computing income under normal provisions as well as while computing Book Profits u/s 115JB to the file of Ld. AO for adjudication de-novo after considering the issue in correct perspective. The Ld. AO is directed to appreciate the suo-moto disallowance offered by the assessee and if not satisfied, recompute the disallowance keeping in view the ratio of binding judicial pronouncements and principals laid down regarding the same. The adjustment of disallowance u/s 14A while computing Book Profits u/s 115JB, in terms of clause (f) to explanation-1 to Sec 115JB(2), would be attracted only in case it is established that the assessee has actually debited any expenditure in profit & loss account relatable to earning of any exempt. Resultantly, the ground stand allowed for statistical purposes. 6. So far as the treatment of lease rental income is concerned, both representatives converge on the point that the matter may be restored back to the file of Ld. AO on same lines as done by the Tribunal in assessee's own case for AY 2011-12, ITA No. 3629/Mum/2016 o....