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2017 (5) TMI 1719 - AT - Income TaxDisallowance u/s 14A r/w rule 8D - disallowance of administrative expenses under rule 8D(2)(iii) - HELD THAT - As could be seen from the facts on record, the Assessing Officer has worked out disallowance of expenditure under section 14A by applying the provisions of rule 8D(2)(ii) and 8D(2)(iii). As far as the disallowance of interest expenditure under rule 8D(2)(ii) is concerned, specific plea of the assessee before the Departmental Authorities as well as before us is, in all these assessment years assessee had sufficient interest free fund available with it to take care of the investment in equity shares and mutual funds. The Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT held that when the assessee has a bag of mixed funds available with it comprising of both interest bearing as well as interest free funds, the presumption would be, the investments made by the assessee is out of interest free funds available in the common kitty. disallowance of interest expenditure under rule 8D(2)(ii) cannot be made. We, therefore, direct the Assessing Officer to verify the audited financial statements of the assessee and if it is found that the assessee had sufficient interest free funds available with it to make the investment, the addition made on account of disallowance of interest expenditure should be deleted in all the assessment years. Disallowance of administrative expenditure under rule 8D(2)(iii) - assessee s claim that strategic investment has to be excluded from the average value of investment for working out disallowance under section 8D(2)(iii) requires consideration by the Assessing Officer. However, the assessee is also required to substantiate that the investment in group companies / concerns were for protecting the business interest of the assessee or for business purpose. We, therefore, direct the Assessing Officer to examine this issue afresh after considering the submissions of the assessee and in the light of the decisions to be relied upon by the assessee. While doing so, the Assessing Officer must also consider assessee s claim that under no circumstances, disallowance under section 14A r/w rule 8D should exceed the exempt income earned in a particular assessment year. Needless to mention, the Assessing Officer must decide the issue after providing due opportunity of being heard to the assessee. As far as assessment year 2011 12 is concerned, we have noted from the chart furnished before us by the learned Authorised Representative that in the said assessment year, the assessee has not earned any exempt income. Neither the assessment order nor the order of the learned Commissioner (Appeals) throws much light on the issue whether in the relevant previous year, the assessee had earned any exempt income or not. Therefore, we direct the Assessing Officer to verify this aspect and in the event, it is ascertained that in the relevant previous year, the assessee had not earned any exempt income, no addition on account of disallowance under section 14A r/w rule 8D can be made. In view of our decision as aforesaid, we do not feel it necessary to deal with assessee s contention on the issue of recording of satisfaction by the Assessing Officer. Ground raised by the assessee in all the assessment years is allowed for statistical purposes. Non credit of TDS - HELD THAT - The issue relates to verification of assessee s claim of grant of TDS credit as per TDS certificate available with it. We have further noted that the assessee had filed an application under section 154 before the Assessing Officer praying for giving TDS credit as per TDS certificates. In fact, while disposing off assessee s appeal on this issue, the learned Commissioner (Appeals) has directed the Assessing Officer to verify this aspect raised by the assessee in the application filed under section 154. As it appears, the Assessing Officer has not yet disposed off assessee s application under section 154 on this issue. We, therefore, direct the Assessing Officer to verify assessee s claim as raised in the application under section 154 by examining the relevant TDS certificate submitted by the assessee and give proper credit to such TDS amount in accordance with relevant statutory provisions. While deciding the issue, the Assessing Officer must afford reasonable opportunity of being heard to the assessee to establish its claim. This ground is allowed for statistical purposes. Disallowance of marked to market loss - HELD THAT - Undisputedly, the derivatives on which the assessee has claimed loss are in the nature of stock in trade. Therefore, on the date of drawing the Balance Sheet, the assessee has to value such stock in trade as per stock or market price whichever is lower. In the present case, there is no dispute that the assessee has valued the derivatives as per the market price prevailing on the date of Balance Sheet. That being the case, marked to market loss claimed by the assessee is allowable. In the case of Chirag Ranjit 2014 (1) TMI 943 - ITAT MUMBAI after taking note of CBDT instruction no.3 of 2010 dated 23rd March 2010, has allowed assessee s claim of marked to market loss. Moreover, the learned Commissioner (Appeals) has given a factual finding that the assessee has carried out trading in NIFTY futures on NSE which is a recognized Stock Exchange. He has also observed that the said transactions were carried out electronically on screen based system and supported by time stamped contract notes issued by the broker. Hence, these transactions are eligible transaction within the meaning of section 43(5)(d) of the Act. Nothing has been brought to our notice by the learned Departmental Representative to controvert the aforesaid factual finding of the learned Commissioner (Appeals). In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised by the Revenue.
Issues Involved:
1. Disallowance under section 14A read with rule 8D. 2. Disallowance based on Annual Information Return (AIR). 3. Non-grant of credit for Tax Deducted at Source (TDS). 4. Deletion of addition on account of marked to market loss. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: Facts and Arguments: - The assessee earned dividend income from investments in mutual funds and equity shares. - The Assessing Officer (AO) disallowed interest and administrative expenditures under section 14A read with rule 8D, amounting to ?6,44,42,680 and ?40,38,890, respectively. - The assessee contended that it had sufficient interest-free funds to cover the investments, supported by a chart showing the availability of interest-free funds and investments made. - The AO and Commissioner (Appeals) did not dispute the availability of interest-free funds but required a direct nexus between the funds and the investments. - The assessee cited several judicial precedents asserting that no such direct nexus is required when sufficient interest-free funds are available. Tribunal’s Findings: - The Tribunal referred to the principle established by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd., which presumes that investments are made from interest-free funds if such funds are available. - The Tribunal directed the AO to verify the financial statements and, if sufficient interest-free funds are available, to delete the disallowance of interest expenditure. - Regarding administrative expenses, the Tribunal noted that investments made for strategic business purposes should be excluded from the average value of investments for disallowance under rule 8D(2)(iii). This issue was remanded to the AO for fresh examination. - The Tribunal also directed the AO to ensure that disallowance under section 14A does not exceed the exempt income earned in any assessment year. Conclusion: - The Tribunal allowed the assessee's appeals for statistical purposes, directing the AO to verify and reconsider the disallowances in light of the principles and judicial precedents cited. 2. Disallowance based on Annual Information Return (AIR): Facts and Arguments: - The AO added ?3,25,425 to the assessee’s income based on discrepancies found in the AIR, alleging unreported transactions. - The Commissioner (Appeals) directed the AO to re-examine the issue and allow the assessee to reconcile the differences. Tribunal’s Findings: - The Tribunal upheld the Commissioner (Appeals)’s direction, allowing the assessee to submit relevant information to reconcile the differences. Conclusion: - The Tribunal found no infirmity in the Commissioner (Appeals)’s direction and allowed the assessee to reconcile the discrepancies with the AO. 3. Non-grant of Credit for TDS: Facts and Arguments: - The AO did not grant full credit for TDS as per the certificates furnished by the assessee. - The Commissioner (Appeals) directed the AO to dispose of the assessee’s rectification application under section 154. Tribunal’s Findings: - The Tribunal directed the AO to verify the TDS certificates and grant proper credit as per statutory provisions, ensuring a reasonable opportunity for the assessee to present its case. Conclusion: - The Tribunal allowed the assessee’s appeal for statistical purposes, directing the AO to verify and grant TDS credit accordingly. 4. Deletion of Addition on Account of Marked to Market Loss: Facts and Arguments: - The AO disallowed a provision for marked to market loss on derivatives amounting to ?3,86,23,434, considering it a notional loss. - The Commissioner (Appeals) deleted the addition, following consistent Tribunal rulings allowing such losses for other assessees under similar facts. Tribunal’s Findings: - The Tribunal upheld the Commissioner (Appeals)’s decision, noting that derivatives held as stock-in-trade should be valued at market price as of the Balance Sheet date. - The Tribunal referenced several decisions supporting the allowance of marked to market loss and confirmed that the transactions were eligible under section 43(5)(d). Conclusion: - The Tribunal dismissed the Revenue’s appeal, upholding the deletion of the marked to market loss disallowance. Final Order: - Revenue’s appeal is dismissed. - Assessee’s appeals are allowed for statistical purposes.
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