M/S. SUNRISE BROKING PVT. LTD.,,AHMEDABAD vs. THE ITO, WARD-4(1)(2), AHMEDABAD

The solitary ground of appeal of the assessee is against the decision of ld. CIT(A) in confirming the disallowance of Rs. 6,37,143/- out of total disallowance of Rs. 23,59,688/- made u/s. 14A r.w. Rule 8D of 1962.

The fact in brief is that return of income declaring income of Rs. nil was filed on 24th Sep, 2014. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 28th August, 2015. The assessee company is engaged in the business of trading in commodity, shares and currency in F&O physical mode. During the course of assessment, the assessing officer noticed that assessee has earned dividend from companies to the amount of Rs. 6,37,143/-. However, the assessee has not disallowed any expenditure u/s. 14A of the act incurred towards earning exempt income. On query, the assessee has responded that company has made investment of Rs. 4,09,48,303/- in shares of Ganesh Housing Corporation Ltd during the F.Y. 2012-13. It is also explained that for investment in aforesaid shares, the asssessee has obtained funds from C.D. Integrated Services Ltd. without incurring any interest cost. Therefore, no disallowance u/s. 14A r.w. Rule 8D is required to be made in the case of the asssessee. The assessing officer has not agreed with the submission of the assessee stating that assessee has made investment in shares amounting to Rs. 4,09,48,3030/- whereas the balance outstanding in the case of C.D. Integrated services Ltd. was only Rs. 1,04,39,000/- as on 31st March, 2014. Therefore, the assessing officer has computed the disallowance according to provision of section 14A r.w. Rule 8D of the IT Rules to the amount of Rs. 23,59,688/- and added to the total income of the assessee.

Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assesse and restricted the disallowance to the extent of exempt income to the amount of Rs. 6,37,143/- Page No 3 Sunrise Broking Pvt. Ltd. vs. ITO

During the course of appellate proceedings before us, the ld. counsel has submitted paper book containing information and copies of documents furnished before the assessing officer and ld. CIT(A) during the course of assessment and appellate proceedings. The ld. counsel has referred page no. 22 of the paper book showing that assessee has obtained the whole amount of Rs. 4,09,48,303/- from C.D. Integrated Services Pvt. Ltd. which was invested in the shares of Ganesh Holding Ltd. during the F.Y. 2012-13. He has also referred other pages in the paper book and contended that no investment was made in the F.Y. 2013-14 relevant to assessment year under consideration. Therefore, the ld. CIT(A)’s decision is not justified. On the other hand, the ld. departmental representative has supported the order of ld. CIT(A).

We have heard both the sides and perused the material on record. The assessing officer has made disallowance u/s. 14A r.w. Rule 8Dto the amount of Rs. 23,59,688/- vide assessment order passed u/s. 143(3) of the act on 30th Nov, 2016. The ld. CIT(A) vide order dated 1st June, 2017 has restricted the disallowance to the extent of exempt income to the amount of Rs. 6,37,143/- . With the assistance of ld. representatives, we have gone through the paper book and material on record. It is noticed from page no. 16 of the assessment order that out of total disallowance of Rs. 23,59,688/- made u/s. 14A of the act by the assessing officer an amount of Rs. 21,54,947/- is pertained to the disallowance of interest expenditure. However, ld. counsel has demonstrated after referring page no. 22 of the paper book from the ledger account of Ganesh Housing Shares that the whole amount of investment was made out of the fund acquired from C.D. Integrated Services Page No 4 Sunrise Broking Pvt. Ltd. vs. ITO Pvt. Ltd. in the F.Y. 2012-13 and the assessee has not made any investment in the F.Y. 2013-14. In the light of the above, we observe that the assessing officer and ld. CIT(A) has not considered the above material facts that assessee has made the whole investment in the shares out of interest free funds only received from C.D. Integrated Services Pvt. Ltd. during the F.Y. 2012-13. Because of the above infirmity and shortcoming in the order of the ld. CIT(A), we restrict the disallowance u/s. 14A of the act to the extent of administrative expenditure i.e. Rs. 2,04,741/-. Accordingly, the appeal of the assessee is partly allowed.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 27-06-2019