JCIT SPL. RANGE, NEW DELHI vs. TOURISM FINANCE CORPORATION OF INDIA LTD., NEW DELHI

This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-8, New Delhi [hereinafter referred to CIT (Appeals)] dated 26.09.2019 for assessment year 2016-17, in deleting the disallowance made under Section 14A of the Income Tax Act, 1961 (the Act) by the Assessing Officer.

The Revenue in its appeal raised the following grounds:-

Briefly stated the facts are that the Assessing Officer while completing assessment under Section 143(3) of the Act noticed that assessee earned exempt income of Rs.1,05,88,466/- and made suo moto disallowance of Rs.39,57,161/- as expenses attributable for earning such dividend income. The assessee contended that it has not invested any interest bearing funds towards making investments and, therefore, the provisions of Rule 8D(2)(i) and 8D(2)(ii) are not applicable in its case. It was also submitted that disallowance under Rule 8D(2)(iii) would be applicable and, therefore, it had made suo moto disallowance of Rs.39,57,161/-. Not convinced with the submissions of the assessee the Assessing Officer computed the disallowance under Rule 8D(2)(ii) being interest at Rs.7,93,83,118/- and towards expenses under Rule 8D(2)(iii) being .5% of average investments at Rs.66,69,945/-. Since the assessee made suo moto disallowance of Rs.39,57,161/- he has restricted the disallowance under section 14A of the Act to Rs.8,20,95,902/-.

On appeal the ld. CIT (Appeals) taking note of the fact that the assessee has sufficient interest-free funds for the investments made and following the ratio of the decision of the Bombay High Court in the case of CIT Vs. HDFC Bank 366 ITR 505 wherein it has been held that if assessee’s capital, profit, reserves etc. were higher than the investment and tax-free securities it would have to be presumed that the investment made by the assessee would be out of interest-free funds available with the assessee and consequently no disallowance could be made under section 14A of the Act, deleted the disallowance made towards interest under Rule 8D(2)(ii).

In so far as the disallowance under Rule 8D(2)(ii) is concerned, the ld. CIT (Appeals) directed the Assessing Officer to consider only non- taxable income yielding investments for the purpose of making disallowance under Rule 8D(2)(iii) following the decision of the Hon’ble Delhi High Court in the case of ACB India Ltd. Vs. ACIT in ITA. 615/2014 dated 24.03.2015.

The ld. DR strongly supporting the order of the Assessing Officer submits that even though there is no exempt income received by the assessee during the assessment year under consideration till the provisions of Section 14A read with Rule 8D are applicable and, therefore, the Assessing Officer has rightly made the disallowance under Section 14A of the Act and the ld. CIT (Appeals) is not justified in deleting the same.

The ld. Counsel for the assessee submits that the assessee has sufficient interest-free funds for making investments and, therefore, there is no justification in making the disallowance under Rule 8D(2)(ii) . The ld. Counsel strongly placed reliance on the orders of the ld. CIT (Appeals).

Heard rival contentions perused the orders of the authorities below. Assessee, Tourism Finance Corporation of India Ltd., received exempt income of Rs.1,05,88,466/- during the assessment year under consideration and made suo moto disallowance of Rs.39,57,161/- as expenses attributable for earning exempt income. The Assessing Officer invoking the provisions of Rule 8D read with section 14A of the Act computed the disallowance at Rs.8,20,95,902/-. The ld. CIT (Appeals) deleted the disallowance of interest of Rs.7,93,83,118/- made under Rule 8D(2)(ii) for the reason that the assessee has sufficient interest-free funds for making investments in so far as disallowance under Rule 4 8D(2)(ii) is concerned, the ld. CIT (Appeals) directed t 8D(2)(ii) is concerned, the ld. CIT (Appeals) directed to consider only o consider only non-taxable income yielding investments and not all the investments for taxable income yielding investments and not all the investments for taxable income yielding investments and not all the investments for the purpose of computing the disallowance under Rule 8D(2)(iii) the purpose of computing the disallowance under Rule 8D(2)(iii) the purpose of computing the disallowance under Rule 8D(2)(iii) observing as under:-

On careful perusal of the order of the ld. CIT (Appeals) we find that the ld. CIT (Appeals) applied the ratio of the decision of the Hon’ble Bombay High Court in the case of CIT Vs. HDFC Bank (supra) and deleted the interest disallowance as the assessee has sufficient interest-free funds. In so far as disallowance under Rule 8D(2)(iii) is concerned, the ld. CIT (Appeals) followed the decision of ACB India Ltd. Vs. ACIT (supra) and directed the Assessing Officer to consider only non-taxable income yielding investments for the purposes of disallowance under Rule 8D(2)(iii). We do not see any infirmity in the order of the ld. CIT (Appeals) holding so. Grounds raised by the Revenue are rejected.

In the result, the appeal of the Revenue is dismissed.