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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM :
These three appeals preferred by the common assessee emanates from the different orders of the Ld. CIT(Appeals)-6, Pune dated 03.10.2016 & 28.10.2016 respectively for the assessment years 2008-09, 2011-12 & 2012- 13 as per the following common grounds of appeal on record:
“The Appellant appeals against the impugned order dated October 3rd 2016, of the Commissioner of Income-tax (Appeals)-6, Pune (the CIT(A)) (received by it on December 17th, 2016) under section 253 of the Income-tax Act, 1961 (the Act) on the following amongst other grounds each of which is in the alternative and without prejudice to one another:
1. 1. The learned CIT(A)-6, Pune, erred in law and on facts, in particularly sustaining certain disallowance of expenses u/s.14A of the ITA, 1961 made by the learned ACIT, Range-9, Pune, considering the facts of the case and various legal propositions.
2. The learned CIT(A)-6, Pune erred in law and on facts in sustaining disallowance u/s.14A of the ITA, 1961 without appreciating that, no satisfaction as to incorrectness of expenses worked out by the appellant’s is reached by the learned AO prior to making the said disallowance.
3. The learned CIT(A)-6, Pune and the learned AO erred in law and on facts in making disallowance of interest u/s.14A of the ITA, 1961 disregarding the fact that, investments in the various companies are made by the appellant from it's own funds. This has already been accepted by Honorable ITAT while passing order in appeal No.1031/PN/2013 dated 08-10-2015, for Asst. Year 2009-10, in appellant's own case. The learned I-T authority has erred in not following this decision and nor has not given any reasons for not following the decision. The learned CIT(A)-6 Pune erred in law and on facts in sustaining ad-hoc disallowance of expenses @0.50% on average investments of the appellant.
4. The appellant craves leaves to add /alter/amend /delete all/any of the Grounds of Appeal.”
These cases were heard together. Since facts common and issues are similar, these cases are being disposed of vide this consolidated order. In all these appeals, though the assessee has raised multiple grounds of appeal, the crux of the grievance in all these cases pertains to the disallowance u/s.14A r.w.r 8D(2)(ii) and 8D(2)(iii) of the Income Tax Rules, 1962. For the sake of convenience, we proceed with the facts of for the assessment year 2008-09.
3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of Boilers. The assessee had filed the return of income on 29.09.2008 declaring an income of Rs.18,60,23,649/-. The Assessing Officer passed assessment order u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) on 16.12.2010 determining total income at Rs.12,21,13,870/- after making following additions in the assessment order:
a) Disallowance on commission payment Rs.18,22,112/- b) Disallowance u/s.14A Rs.36,80,401/- c) Disallowance on interest on capital asset Rs.1,84,115/- d) Disallowance on account of non deduction TDS Rs.4,03,589/-
4. The Ld. Counsel for the assessee submitted that the issues raised in the present appeals are squarely covered by the decision of the Co-ordinate Bench of the Tribunal, Pune in for the assessment year 2009-10 in assessee‟s own case dated 08.10.2015 wherein with respect to disallowance u/s.14A r.w.r 8D(2)(ii) that has been allowed whereas disallowance with respect disallowance u/s.14A r.w.r.8D(2)(iii) that has been sustained.
4.1 With regard to the disallowance u/s.14A r.w.r. 8D(2)(ii), the Ld. Counsel for the assessee took us to the relevant paragraph of the decision of the Co-ordinate Bench of the Tribunal, Pune in (supra.) and the relevant paragraphs is extracted as follows:
“11. We have carefully considered the rival submissions, orders of the authorities below and perused various case laws cited. To begin with, We find that it is an admitted position that no expenses directly attributable to the earning of dividend income has been quantified as per Rule 8D(2)(i) of the Rules. Secondly, proportionate disallowance has been made towards interest expenses attributable to the average investments held by the assessee as per formula laid down in Rule 8D(2)(ii) of the Rules. The plea of the assessee is that non-interest bearing own funds as source far exceeds the corresponding application of funds toward investments. In the circumstances, the contention of the assessee that investment in shares cannot be said to be out of borrowed funds on which the interest expenditure has been incurred is well founded and deserves to be accepted. Mere utilization of OD / CC accounts for routing payment towards investment shares by itself has no consequence as such. The payment out of these overdrafts account is only a way of making payment. The overall position of interest-free funds, borrowed funds, etc. qua the corresponding investments yielding tax-free income is a relevant factor need to be borne in mind. It is not the case of the Revenue that any direct expenses including interest expenses have been incurred. The principle governing the case has already been laid down by the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra). We are also squarely governed by the direct decision of the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. reported in (2014) 366 ITR 505 (Bom), wherein the Hon’ble High Court categorically held that in-principle, if there are funds available both interest-free and interest bearing, then a presumption would arise that investment would be out of interest-free funds generated or available with the assessee, if the interest-free funds were sufficient to meet the investments. Hence, in the light of the aforesaid discussion, disallowance of Rs.3,59,897/- retained by the CIT(A) under Rule 8D(2)(ii) of the Rules is not sustained in law and is therefore directed to be deleted. Thus, on this count, assessee succeeds.
The Ld. DR for the Revenue has placed reliance on the orders of the Sub-ordinate Authorities.
We have perused the case records and heard the rival contentions. We find that this issue has been decided in favour of the assessee in assessee‟s own case in (supra.). The assessee submitted regarding availability of funds and statement is given at the time of hearing. In the interest of justice, we deem it appropriate to restore the matter to the file of the Assessing Officer to examine the issue in the light of the decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case (supra.) whether funds are available or not with the assessee and subject to the availability of funds, the disallowance u/s.14A r.w.r.8D(2)(ii) should be allowed to the assessee. This part of the ground raised in appeal by the assessee is allowed.
With regard to the disallowance u/s.14A r.w.r 8D(2)(iii), the Ld. Counsel took us to the relevant paragraph of the decision of the Co-ordinate Bench of the Tribunal, Pune in (supra.) and the relevant paragraph is extracted as follows:
“12. As regards the next limb of disallowance carried out under Rule 8D(2)(iii) of the Rules, we find that the assessee itself has made a disallowance of Rs.35,007/- being one month salary of its Accountant towards estimated expenses attributable to the tax-free income. Thus, admittedly, certain expenditure is accepted to have been incurred by the assessee. It is the quantum of estimation which is subject matter of dispute. Statutory framework provides that Rule 8D(2)(iii) of the Rules will come into play when essentially there is certain amount of expenditure which can be said to have been incurred by the assessee for which quantification of exacting standards are not possible. Rule 8D(2)((iii) provides statutory formula for computation of disallowance to cover up probable indirect administrative expenses relatable to tax free income. The assessee has not given any scientific basis for arriving at its own estimation. Ostensibly therefore, preference need to be given to statutory formula over the ad-hoc estimation made by the assessee. The onus lay upon the assessee to prove the quantum of expenditure incurred in earning the tax-free income which remains un-discharged.
Accordingly, we decline to interfere with the disallowance sustained by the CIT(A) under Rule 8D(2)(iii) of the Rules which is quantified at Rs. Rs.3,10,668/-. Thus, on this count, the plea of the assessee fails.”
It is evident from the above, this disallowance has been confirmed by the Co-ordinate Bench of the Tribunal, Pune and therefore, respectfully following the same parity of reasoning, disallowance u/s.14A r.w.r.8D(2)(iii) is hereby sustained. This part of the ground raised by the assessee is dismissed.
In the result, all the appeals of the assessee in 353 & 354/PUN/2017 for the assessment years 2008-09, 2011-12 & 2012-13 are partly allowed.
Order pronounced on 26th day of February, 2020.
Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 26th February, 2020. SB आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2.
The CIT(Appeals)-6, Pune.