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2017 (12) TMI 1001 - AT - Income TaxAddition u/s 14A - sufficiency of own funds - Held that - The presumption will be that the assessee has made investment out of interest free funds unless and until the AO has pointed out in nexus that the investment that all the interest bearing funds have been invested. The presumption will be in favour of assessee in view of the decision of Hon ble Bombay High Court decision in the case of CIT vs HDFC Bank Limited 2014 (8) TMI 119 - BOMBAY HIGH COURT . In view of the above facts and circumstances, assessee has share capital and resources which is much more than the investment of tax free incomes and once assessee has sufficient own funds for making investment, then the presumption will be that no disallowance can be made on account of interest. This view of ours is supported the decision of Hon ble Bombay High Court in the case of HDFC Bank Ltd. (supra). Accordingly, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. Similarly, in respect of disallowance under Rule 8D(2)(iii), there is no expenses relatable to exempt income in the profit and loss account of the assessee and other expense of ₹ 3,64,208/- have already been disallowed by the assessee suo moto. In view of these facts, we confirm the order of CIT(A) and this issue of Revenue s appeal is dismissed. Disallowance under section 14A r.w.r 8D made while computing book profit under section 115JB - Held that - This issue is covered in favour of assessee and against Revenue by the decision of Special Bench of this Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein the Tribunal has clearly held that no disallowance under section 14A of the Act r.w.r 8D of the Rules can be made while computing book profit under section 115JB of the Act. The learned CIT Departmental Representative could not controvert the above proposition. Disallowance of redemption of the provision made for reduction of preference shares while computing the book profit under section 115JB - Held that - Delete the disallowance made by AO on account of the reduction of provision made on the redemption of preference shares. Accordingly, the orders of the lower authorities are reversed and this issue of the assessee s appeal is allowed. Scope of assessment u/s. 153A in respect to completed assessment - Held that - Once assessment has attained finality, then the AO while passing independent assessment order u/s. 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search u/s. 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search. See CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd.(2015 (5) TMI 656 - BOMBAY HIGH COURT ). Accordingly, we confirm the order of CIT(A) and this appeal of Revenue is dismissed.
Issues Involved:
1. Disallowance of expenses related to exempt income under Section 14A read with Rule 8D. 2. Computation of book profit under Section 115JB concerning disallowance under Section 14A. 3. Disallowance of provision for redemption of preference shares while computing book profit under Section 115JB. 4. Validity of assessment under Section 153A read with Section 143(3) without incriminating material found during the search. Issue-wise Detailed Analysis: 1. Disallowance of Expenses Related to Exempt Income Under Section 14A Read with Rule 8D: The first issue pertains to the disallowance of expenses related to exempt income by invoking the provisions of Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules. The Assessing Officer (AO) made a disallowance of ?27,76,374 under Rule 8D(2)(ii) and ?16,65,521 under Rule 8D(2)(iii). The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these disallowances, noting that the assessee had sufficient interest-free funds to cover the investments yielding exempt income. The CIT(A) relied on the presumption that investments would be made out of interest-free funds if such funds were available, as supported by the decision of the Bombay High Court in CIT vs HDFC Bank Ltd. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, confirming that no disallowance on account of interest could be made under Section 14A when the assessee has sufficient own funds for making the investment. 2. Computation of Book Profit Under Section 115JB Concerning Disallowance Under Section 14A: The second issue involves the computation of book profit under Section 115JB of the Act, where the AO made disallowances under Section 14A read with Rule 8D. The CIT(A) deleted these additions, and the ITAT confirmed the CIT(A)'s decision, referencing the Special Bench decision in ACIT vs. Vireet Investments (P.) Ltd., which held that no disallowance under Section 14A read with Rule 8D can be made while computing book profit under Section 115JB. 3. Disallowance of Provision for Redemption of Preference Shares While Computing Book Profit Under Section 115JB: The third issue concerns the disallowance of the provision made for the redemption of preference shares while computing book profit under Section 115JB. The AO disallowed the amount, considering it a reserve and unascertained liability. The CIT(A) upheld this disallowance. However, the ITAT reversed the lower authorities' decisions, following its earlier decision in the case of Well Known Synthetics Pvt. Ltd., where it was held that the amount debited to the profit and loss account for the redemption of preference shares is akin to a charge on the profit and not an appropriation out of profits. Thus, the ITAT allowed the assessee's appeal on this issue. 4. Validity of Assessment Under Section 153A Read with Section 143(3) Without Incriminating Material Found During the Search: The fourth issue pertains to the validity of the assessment framed under Section 153A read with Section 143(3) of the Act. The AO made disallowances under Section 14A based on regular books of account entries and not on any incriminating material found during the search. The CIT(A) quashed the assessment, following the decision of the Bombay High Court in CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd., which held that in the absence of any incriminating material found during the search, the AO could not disturb the finality of the assessment. The ITAT confirmed the CIT(A)'s decision, dismissing the Revenue's appeal. Conclusion: The ITAT dismissed the Revenue's appeals and allowed the assessee's appeals, confirming the deletion of disallowances under Section 14A and the provision for the redemption of preference shares while computing book profit under Section 115JB. The ITAT also upheld the CIT(A)'s quashing of the assessment framed under Section 153A read with Section 143(3) due to the absence of incriminating material found during the search.
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