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2013 (9) TMI 82 - AT - Income TaxDisallowance u/s 14A read with Rule 8D Held that - There was availability of sufficient own funds to make investments - Loan raised by IFCI are utilized in acquiring fixed assets and working capital/Packing credit/bill discounting facilities raised by the appellant from other banking institutions are being utilized towards working capital requirements (as evident from the monthly stock statements filed with the banking authorities) - AO is not correct in adding a sum of Rs.69,58,866 under section 14A read with Rule 8 on account of proportionate interest disallowing - However with regard to the disallowance of Rs.9,37,500 on account of administrative and other charges, since from assessment year 2008- 09, the applicability of Rule 8D is mandatory, accordingly by applying the formula of 0.5% on the average investment (Rs.18,75,00,000), a disallowance of Rs.9,37,500 stands confirmed
Issues Involved:
1. Deletion of disallowance of Rs.63,24,59,802/- on account of cash purchases under Section 40A(3). 2. Deletion of disallowance of Rs.69,58,866/- on account of interest under Section 14A read with Rule 8D. Detailed Analysis: Issue 1: Deletion of Disallowance on Account of Cash Purchases under Section 40A(3) The Revenue challenged the CIT(A)'s decision to delete the disallowance of Rs.63,24,59,802/- made by the AO on account of cash purchases. The AO had previously disallowed 20% of the cash purchases under Section 40A(3) for assessment years 2003-04 to 2007-08, arguing that the purchases were made through agents in towns with adequate banking facilities, thus not falling under the exclusionary conditions of Rule 6DD(f). The CIT(A) deleted the addition, relying on past ITAT orders for the assessee's own case for assessment years 2005-06, 2006-07, and 2007-08, which held that the cash payments for purchases fell within the clauses (f) and (i) of Rule 6DD, thus no disallowance could be made under Section 40A(3). The Tribunal noted that the facts and circumstances of the case remained unchanged from previous years where similar issues had been settled in favor of the assessee. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's ground, following the consistent past decisions of the Coordinate Benches. Issue 2: Deletion of Disallowance on Account of Interest under Section 14A read with Rule 8D The AO had applied Rule 8D to make an addition of Rs.78,96,366/-, which included Rs.69,58,866/- on account of interest. The CIT(A) deleted the interest disallowance but upheld Rs.9,37,500/- on account of administrative and other charges by applying a 0.5% formula on the average investment of Rs.18.75 crore. The CIT(A) considered the assessee's argument that no interest-bearing funds were utilized for the investments, which were made in financial years 1995-96, 1996-97, and 1997-98 when the assessee had sufficient share capital and reserves. The CIT(A) examined financial statements and concluded that the investments were made from non-interest-bearing funds, and loans taken were used for fixed assets and working capital, not for equity shares. The Tribunal reviewed the CIT(A)'s detailed analysis and the evidence presented, including a letter dated 14.12.2010 addressed to the AO, confirming that no interest related to the investment in equity shares. The Tribunal found no reason to upset the CIT(A)'s finding, noting that the department had not pointed out any factual infirmity or how the principles laid down in the Jurisdictional High Court's judgment in the case of Maxop Investment were not considered. The Tribunal upheld the CIT(A)'s decision to delete the interest disallowance of Rs.69,58,866/- and confirmed the administrative charges disallowance of Rs.9,37,500/-, dismissing the Revenue's ground. Conclusion The Tribunal dismissed the Revenue's appeal regarding the deletion of disallowance on account of cash purchases under Section 40A(3) and upheld the CIT(A)'s deletion of interest disallowance under Section 14A read with Rule 8D, confirming the administrative charges disallowance. The appeal was partly allowed for statistical purposes.
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