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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Assessee against the appellate order of the Commissioner of Income Tax(Appeals)-VIII, Ahmedabad [CIT(A) in short] dated 31/08/2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 02/12/2016 relevant to Assessment Year (AY) 2014-15.
ITA No.2615/Ahd/2017 R.G. Faith Creation Pvt.Ltd. vs. DCIT Asst.Year – 2014-15 - 2 -
The grounds of appeal raised by the Assessee read as under:- 1. The Ld. CIT Appeals 7 Ahmedabad has erred in law and on facts in passing appellate order for A.Y. 2014-15 in the case of appellant by enhancing the addition u/s.14-A made by A.O. of RS.20,31,584/- to Rs.29,37,219/- without giving any notice for enhancement.
The Ld. CIT Appeals ought to have appreciated the fact that Reserve & surplus were more than the investment made and therefore 14-A was not applicable. 3. When the matter was called for hearing, the Ld.AR for the assessee submitted at the outset that solitary issue involved in the captioned appeal relates to quantification of disallowance under s.14A of the Act towards expenditure attributable to exempt income.
The Ld.AR for the assessee pointed out that the Assessing Officer has computed the disallowance aggregating to Rs.20,31,584/- which comprises of two limbs; (1) disallowance of proportionate interest expenditure of Rs.18,96,704/- under Rule 8D(2)(ii) of the I.T. Rules 1962 and (2) disallowance of administrative and general expenses of Rs.1,34,880/- under Rule 8D(2)(iii) of IT Rules. As regards, first limb of disallowance of proportionate expenses, the Ld.AR referred to the comparative balance-sheet and P&L account as on 31/03/2014 and submitted that the investments carrying the potential to earn exempt income is NIL in the current year, whereas it stood at Rs.269.75 lakhs in
ITA No.2615/Ahd/2017 R.G. Faith Creation Pvt.Ltd. vs. DCIT Asst.Year – 2014-15 - 3 - the preceding year. As against the aforesaid position, the own capital stands at Rs.271.07 lakhs which is interest-free. Therefore, having regard to the decision of the Hon’ble Gujarat High Court in the case of Pr.CIT vs. Sintex Industries Ltd. (2017) 82 taxmann.com 171 (Gujarat) endorsed by the Hon’ble Supreme Court in (2018) 93 taxmann.com 24(SC), the disallowance of proportionate expenditure under Rule 8D(2)(ii) is uncalled for where the own capital exceeds corresponding investments. The Ld.AR however did not fairly press disallowance under Rule 8D(2)(iii) so made.
The Ld.DR for the revenue, on the other hand, could not controvert the position taken by the assessee that own funds exceed the corresponding investments and, therefore, presumption would arise in favour of assessee for investments out of own funds.
Having regarding to the decision of the Hon’ble Gujarat High Court in Sintex Industries Ltd. (supra) and also CIT vs. Gujarat State Fertilizers and Chemicals Ltd. (2013) 358 ITR 323 (Guj.), Pr.CIT vs. India Gelatine & Chemicals Ltd. (2015) 376 ITR 553 (Guj.) and where the issue has been rendered in favour of assessee in similar circumstances, we find merit plea of the assessee for deletion of disallowance of proportionate interest expenditure made under Rule 8D(2)(ii). However, the disallowance under s.8D(2)(iii) is justified in
ITA No.2615/Ahd/2017 R.G. Faith Creation Pvt.Ltd. vs. DCIT Asst.Year – 2014-15 - 4 - view of absence of any cogent reason. The assessee accordingly gets the relief to the extent of Rs.18,96,704/- out of total disallowance of Rs.20,31,584/- under s.14A of the Act.
In the result, appeal of the assessee is partly allowed. This Order pronounced in Open Court on 14/ 05/2019
Sd/- Sd/- (राजपाल यादव) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 14/ 05 /2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-7, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad