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Income Tax Appellate Tribunal, HYDERABAD BENCHES “SMC”, HYDERABAD
Before: SMT. P. MADHAVI DEVI
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER Assessment Year: 2008-09 Vasant Chemicals Pvt. Ltd., Deputy Commissioner of HYDERABAD Vs Income Tax, [PAN: AAACV7249K] Circle-3(3) HYDERABAD (Appellant) (Respondent) For Assessee : Shri A.V.Raghu Ram, AR For Revenue : Shri Nilanjan Dey, DR Date of Hearing : 01-01-2020 Date of Pronouncement : 17-01-2020 O R D E R This appeal filed by the assessee for the AY.2008-09, is directed against the order of the Commissioner of Income Tax (Appeals)–5, Hyderabad, dated 31-05-2016. The revised Grounds of Appeal filed by assessee are as under:
Revised Grounds of Appeal: “
1. The Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of Rs.9,73,556 in as much as the Appellant has voluntarily disallowed an amount of Rs.3,34,524 in the return of income filed by it.
2. The Commissioner (Appeals) failed to appreciate that the borrowed funds are applied to regular business operations and further that interest free funds are utilized to make the investments which fetched exempted income, and therefore no further disallowance was called for.
3. Without prejudice, the Commissioner (Appeals) ought to have appreciated that the disallowance at the most could have been restricted to Rs.6,39,032 as the Appellant had already disallowed an amount of Rs.3,34,524 in its computation while arriving at total income”.
2. From the above Grounds, it is seen that the only issue before the Tribunal is the quantum of disallowance u/s.14A of the of the Income Tax Act [Act] r.w.r.8D of Income Tax Rules. The assessee-company which is engaged in the business of manufacture and export of performance and speciality chemicals, filed its return of income for the AY.2008-09 on 29-09-2008, declaring total income at NIL.
During the assessment proceedings u/s.143(3) of the Act, the Assessing Officer (AO) observed that the assessee has earned exempt income of Rs.75,62,985/- and therefore, the provisions of Section 14A are applicable and the expenditure incurred by the assessee in relation to such exempt income has to be allowed in the manner contemplated u/s.8D(2) of Income Tax Rules. He accordingly computed the disallowance at Rs.9,73,566/-. Aggrieved, the assessee preferred an appeal to the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before the Tribunal.
The Ld.Counsel for the assessee submitted that the assessee is aggrieved by the computation of disallowance under Sub-Rule(ii) of Rules 8D(2) i.e., the amount of interest expenditure incurred by the assessee, which is not directly attributable to any exempt income; The Ld.Counsel has drawn my attention to the details of the interest paid, placed at Pg.85 of the Paper Book and it is seen there from that the interest of Rs.89,90,630/- is paid towards Term Loans and Rs.46,89,080/- towards Working Capital Loans. The interest on other borrowings is to the extent of Rs.31,33,466/-. Total of such interest is Rs.1,68,13,176/-. Ld.Counsel also submitted that the only interest portion not relating the borrowings should be considered for computing the disallowance for any purpose Under Rule 8D(2)(ii) of Income Tax Rules. Further, he submitted that the assessee itself has already made a disallowance of Rs.3,34,524/- u/s.14A of the Act, which has to be reduced from the disallowance u/s.14A of the Act made by the AO.
Ld.DR was also heard.
Having regard to the rival contentions and material on record, I am in agreement with the contentions of Ld.Counsel for the assessee. Under Sub-Rule(ii) of Rule 8D(2) of Income Tax Rules, only such interest which is not attributable to any other purpose can be considered for computation of disallowance u/s.14A of the Act. Therefore, the interest on borrowings used for business cannot be considered for computation of disallowance Under Rule 8D(2). Therefore, the AO is directed to re-compute the disallowance u/s.14A of the Act, by considering the interest on borrowings which are not used for business only and after such re-computation, he shall give credit for the disallowance of Rs. 3,34,524/-, already made by the assessee in the return of income filed. AO is directed to re-compute the disallowance, accordingly.
In the result, the appeal of assessee is treated as allowed for statistical purposes.