TaxTMI 
TaxTMI 
2023 (12) TMI 204
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....settes, CDs and Art objects etc. Revised return declaring loss of Rs. 23,49,28,640/- was filed which was selected for scrutiny and notice u/s 143(2) were issued. As per the assessment order, during the course of assessment proceedings it was noticed that the assessee has investments in equity shares, income from which does not form part of total income to the extent of 1,39,00,73,250/-. Ld. AO considering provisions of Section 14A and Rule 8D of the Income Tax Rules and following Circular No. 5/2014 dated 11.02.2014 of CBDT disallowed an amount of Rs. 6,37,90,540/- with following computation :- S. No. Disallowance Amount (Rs.) 1. The amount of expenditure directly relating to income which does not form part of total income NIL 2. In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula- AXB/C Where A= amount of expenditure by way of interest other than the amount of interest included in clause (1) incurred during the previous year B= the average of value of investment, Income fro....
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....orded while working out the said disallowance under section 14A of the Act and as such the disallowance so made should be deleted. 1.2 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the fact that the investments were made in past and that too out of surplus funds and internal accruals and as such there was no requirement or occasion to have computed disallowance on account of interest paid on borrowings as no investment was made out of borrowed funds. 2. That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in sustaining a disallowance of proportionate interest amounting to Rs 78,20,000/- under section 37 of the Act, which disallowance is unjustified and untenable in law and thus, should be deleted, as such. 2.1 That in doing so, the Commissioner of Income Tax (Appeals) has further erred in sustaining the said disallowance by ignoring the replies/ evidences furnished by the assessee appellant and the learned CIT (A) has sustained the said disallowance on irrelevant and extraneous considerations without there being any adverse material and evidence and purely on surmises and conjectures ....
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.... has not discussed a word with regard to suo moto disallowances made u/s 14A of the Act and to the contrary the Ld. CIT(A) observed in para no. 4.2.3.1 that AO has noted cogent satisfaction while working out the said disallowance u/s 14A of the Act. Further in para no. 4.2.3.2 after relying the Hon'ble Supreme Court judgment in the case of Maxopp Investments Ltd. (supra) sustained the additions though no reason had been mentioned as to how it applies to the facts of the case. In fact, the Ld. Tax Authorities Below, have not followed the ratio laid by Hon'ble Supreme Court of India in Maxopp Investment Ltd. wherein in para no. 41 it was observed :- "41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, whi....
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....10-11 and pass a fresh order for claim of disallowance of assessee u/s 14A of the Act. These grounds are decided in favour for statistical purposes. 9. Ground no. 2 and 2.1; Ld Counsel of assessee relied judgment of Hon'ble Supreme Court of India in South Indian Bank Ltd. vs. Commissioner of Income Tax (2021) 130 taxman.com 178 (SC) and S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals), Chandigarh (2007) 158 Taxman 74(SC) and Commissioner of Income Tax vs. Reliance Utilities and Power Ltd. (2009) 178 taxman 135 (Bombay) to contend that when there are funds available, both interest free or loan taken, then a presumption would arise that investments would be out of interest free funds generated or available with the company provided said funds are sufficient to meet investments. Further to contend that same are allowable as business expenditure even if there was no legal obligation incurred the expenses. 10. Ld. Sr. DR however submitted that the orders passed are on merits and the assessee was unable to cite business exigencies requiring the landing of such huge amounts without interest. 11. In this context, it can be observed that from the paper book that the copy....