2019 (7) TMI 1531

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.... for short]. The assessee has filed appeal against the order of the CIT(A)-II, Bengaluru, for the assessment year 2015-16, passed u/s 143(3) and 250 of the Act. Since all the three appeals are of the same assessee, they were heard together and consolidated order is being passed. For the sake of convenience, first we shall take up the assessee's appeal for assessment year 2014-15 and the facts narrated therein. 2. The assessee has raised the following grounds of appeal: "Ground I: Disallowance u/s 14A 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not disposing the appellant's ground no. 3 in regard to disallowance of Rs. 45,02,57,576/- under section 14A rwr 8D and fu....

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....: Disallowance u/s 14A On the facts and in the circumstances of the case and in law, no disallowance U/s 14A is to be made on the investments made out of borrowed funds on which no exempt income was earned during the year. WITHOUT PREJUDICE TO THE ABOVE: Ground V: Disallowance u/s 14A On the facts and in the circumstances of the case and in law. the learned CIT(A) has erred in confirming the disallowance of under rule 8D(iii) to Rs. 5,86,500/- as against disallowance of Rs. 1,23,079/- made by the appellant in the return of income having regard to the books of account." At the time of hearing, it was submitted that ground Nos.1 to 3 are in relation to disallowance under sec.14A r.w. rule 8D. Other grounds are al....

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.... and passed the order u/s 143(3) dated 31/10/2016. 4. Aggrieved by the order, the assessee has filed appeal with the CIT(A). Whereas the CIT(A) considering the grounds of appeal and submissions of the assessee has given a categorical finding in respect of claims and dismissed the main grounds and allowed the alternative ground restricting disallowance u/s 14A to the exempt income. The CIT(A) also referred to submissions made by the assessee with supporting judicial decisions and finally concluded as under: "Respectfully following the Hon'ble jurisdictional tribunal's decision I hereby allow the alternate round. Therefore, the grounds on disallowance of indirect expenses u/s 14A at Rs. 2,54,08,001/- as against Rs. 1,55,362/- (adm....

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....terial on record. The sole crux of disputed issue is in respect of disallowance made by the AO by applying rule 8D(2)(ii) and 8D(2)(iii). The contention of the ld. AR that the CIT(A) has not considered the submissions on the ground of appeal No.2 and 3 before him in respect of disallowance suo motu made by the assessee. Ld. AR further emphasized that the assessee has made disallowance at the time of filing of return of income and referred to computation of income. Further in the course of assessment proceedings, the assessee has filed revised statement of income in disallowing expenditure to the extent of dividend income received. Whereas the CIT(A) has passed the order allowing the alternative ground. We find that the Hon'ble Delhi High Co....

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....g out disallowance under clause (iii) of rule 8D, the only investments which yielded dividend income or exempt income alone should be considered. This issue is now covered by the decision of the Special Bench of Tribunal (Delhi) in the case of Vireet Investment (P) Ltd. (supra). The relevant paragraph is extracted hereunder: "11.16. Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year." Thus the proposition that the amount of disallowance cannot exceed exempt income is settled. Accordingly, we hold that the disallowance cannot ....