GOPALA MERCHNTILE PVT. LTD.,AHMEDABAD vs. THE ITO, WARD-2(1)(1), AHMEDABAD

The brief fact of the case of the case is that return of income declaring total income at Rs. nil was filed on 30th Sep, 2014. The case was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 24th Sep, 2015. The relevant facts of the case are discussed while adjudicating the two grounds of appeal filed by the assessee against the order of ld. CIT(A) as follows:-

The assessee has filed appeal before the ld. CIT(A) against adding the disallowed amount u/s. 115JB of the act. The ld. CIT(A) has sustained the addition to the extent of Rs. 35,440/- which was computed by the assessee itself as interest amount incurred for earning exempt income.

During the course of appellate proceedings before us, the ld. counsel has contended that the ld. CIT(A) has erroneously sustained the part of the addition and the same cannot be added u/s. 115JB in view of the decision of Special Bench of the ITAT Delhi in the case of ACIT vs. Vinit Investment Pvt. Ltd. On the other hand, ld. Departmental Representative has supported the order of ld. CIT(A).

Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has added the disallowance made u/s. 14A to the book profit computed u/s. 115JB of the act. The ld. CIT(A) has restricted the addition to the extent of Rs. 35,440/- as disallowance computed by the assessee company. With the assistance of ld. representatives, we have gone through the decision of ACIT vs. Vinit Investment Special Bench ITAT Delhi wherein it is held that expenditure incurred to earn exempt income not to be added for computing book profit u/s. 115JB of the Act. Therefore, following the decision of the Co-ordinate Bench as above we consider that decision of ld. CIT(A) in sustaining the part of the addition is not justified, therefore the impugned addition is deleted and appeal of the assessee is allowed on this issue.

The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.

During the course of appellate proceedings before us the ld. counsel has contended that assessee company had not incurred any expenditure on account of interest in relation to the investment made in shares and securities during the year under consideration. It was further stated that investments were made out of the interest free loan received by the assessee. The ld. counsel has also submitted that as per detail furnished during the course of assessment and appellate proceedings the total interest attributable to the loans taken for purchasing shares was to the extent of Rs. 35,440/-. On the other hand, ld. Departmental Representative has supported the order of lower authorities.

We have heard both the sides and perused the material on record. The Assessing Officer has made disallowance of Rs. 4,53,348/- u/s. 14A r.w.r. 8D of the I.T. Rule 1961. On perusal of the material on record, it is observed that during the course of assessment and appellate proceedings the assessee has submitted the detail and source of fund and investment made in shares and securities by referring the submitted detail the assessee has submitted before the lower authorities that it had not incurred any Page No 5 Gopala Mercantile Pvt. Ltd. vs. ITO expenditure on account of interest in relation to the investment made in shares and securities during the year under consideration. The assessee company had furnished detailed source of investment along with the copies of ledger accounts and account of the bank book in support of its contention that investment was made out of interest free funds available with the assessee company. The assessee has also demonstrated in its submission that the total interest attributable on the loan taken for purchasing shares was to the extent of Rs. 35,440/-. It is observed that Assessing Officer has not disproved the supporting evidences submitted by the assessee which demonstrate that it has made investment in the shares and securities out of interest free funds from which the exempt income was earned during the year under consideration. During the course of appellate proceedings before us, the ld. counsel has also referred page no 6 of the paper book pertaining to the profit and loss account of the assessee company for the year ended March 31, 2014 as per which total operating and general expenses was incurred only to the amount of Rs. 39,386. Therefore, the ld. counsel has submitted that in any case the administrative expenditure cannot be disallowed more than the expenditure claimed by the assessee in the profit and loss account. In this regard, the ld. counsel has also referred the decision of Hon’ble Jurisdictional High Court of Gujarat in the case of PCIT vs. Adani Agro (P) Ltd. (2018) 91 taxmann.com 29 (G) wherein it is held that there was no question of disallowing administrative expenses u/s. 14A r.w.r. 8D in excess of the total administrative expenditure incurred by the assessee. In the light of the above, we restrict the disallowance u/s. 14A to the extent of Rs. 35,440/- as the amount computed by the assessee pertaining to the interest attributable to the exempt income and the disallowance out of Page No 6 Gopala Mercantile Pvt. Ltd. vs. ITO administrative expenditure up to such expenditure i.e. Rs. 39,386/-. Accordingly, we restrict the total disallowance (Rs. 35,440 + Rs. 39,386/-) totaling to Rs. 74,826/-. Accordingly, this ground of appeal of the assessee is partly allowed.

In the result, the appeal of the assessee is partly allowed.