2019 (11) TMI 358

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....lowance of Rs. 7,50,000/- made u/s 14A of Income Tax Act, 1961 is unjust, illegal, arbitrary and against the facts and circumstances of the case." 2. Briefly stated facts of the case are that the assessee filed return of income on 25/09/2012, declaring total income of Rs. 2,38,47,390/-. The case was selected for scrutiny and statutory notices under Income-tax Act, 1961 (in short "the Act") were issued and complied with. The Assessing Officer observed investment in shares by the assessee and in view of no explanation in respect of expenditure incurred in relation to the exempt income, in assessment order passed under section 143(3) of the Act on 09/12/2014, he invoked section 14A of the Act read with rule 8D of Income Tax Rules, 1962, and....

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....r rule 8D(2)(i) and 8D(2)(ii) of the Income Tax Rules. The learned counsel referred to para six of the submission made before the learned CIT(A) and submitted that the working capital loan which was of Rs. 17,43,76,002/- as on 31/03/2010 has reduced to Rs. 14,55,45,077 as on 5/02/2011 i.e. the period during which investment of Rs. 3 crores in shares of "Kochar Agro Industries Private Limited" was made, which has earned dividend income of Rs. 7,50,000/- to the assessee. In view of the arguments, the learned counsel submitted to restrict the disallowance under rule 8D(2)(iii) of the Rules. 4. The learned DR, on the other hand, relied on the order of the learned CIT(A). 5. We have heard the rival submission of the parties and perused the....

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....sheet of the assessee on the first day and the last day of the previous year. A=1,94,58,000/- B=1,50,00,00,000/- C=32,98,52,500/- Hence, Disallowance=8,84,850/- 3. An amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ½ % of average investment of Rs. 1,50,00,000/- =Rs. 75,000/-   Total disallowance Rs. 9,59,850/- 6. Before the learned CIT(A), the assessee contested that investment in shares was made out of own sources and not borrowed capital. It was explained that during the year ending 31/03/201....

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....s out flowed in February, 2011. The overdraft account balance before outflow of funds was Rs. 11.99 crores and after outflow, it was increased to Rs. 14.99 crores. Thus, it was clear that Cash Credit Overdraft Account bearing heavy interest burden was utilized towards making investment of Rs. 3 crore in equity shares. Apparently, there was direct nexus between interest bearing source of funds and investment which yielded exempt income. The Commissioner (Appeals) vide Enhancement Notice dated 21-8-2015 asked appellant why the amount of interest expenditure directly relating to income which does not form part of total income should be made i.e. 11 per cent p.a. on Rs. 3 crore as per section 14A read with rule 8D(2)(i). However, the appellant ....

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....d receipt on shares was Rs. 7,50,000. In Joint Investments (P.) Ltd. v. Commissioner of Income-tax [2015] 59 taxmann.com 295 (Delhi), it was held that "the disallowance under section 14A cannot exceed the tax exempt income. By no stretch of imagination can section 14A or rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." In Daga Global Chemicals Pvt. Ltd. v. ACIT (ITA No. 5592/Mum/2012) dt. 1-1-2015....