THE ACIT, CIRCLE-2(1)(2),, AHMEDABAD vs. MILESTONE TRADELINKS PVT. LTD.,, AHMEDABAD

Registry has pointed out that the appeal is time barred by 8 days. In order to explain the delay, Revenue has filed an application dated 27.9.2017 contending therein that PCIT-2, Ahmedabad was holding additional charge of PCIT-1, PCIT-5 &

Only ground taken by the Revenue is that the ld.CIT(A) has erred in deleting disallowance of Rs.2,11,20,355/- out of total disallowance of Rs.2,27,79,227/- which was disallowed by the AO under section 14A r.w.s. Rule 8D of the Income Tax Rules. Grievance of the assessee in the CO is that the ld.CIT(A) has erred in confirming disallowance of Rs.16,58,872/-. In other words, Revenue is pleading that total disallowance made by the AO ought to have been confirmed by the ld.CIT(A). On the other hand, the assessee has pleaded that the total disallowance made by the AO under section 14A read with Rule 8D ought to have been deleted by the CIT(A).

Brief facts of the case are that the assessee has filed its return of income on 28.9.2013 declaring loss of Rs.1,79,69,850/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts it revealed to the AO that the assessee has shown dividend income of Rs.32,69,912/- which was claimed as exempt from taxes under section 10(34)/(35) of the Act. The ld.AO further found that the assessee has shown non-current investment of Rs.2.66 crores in the immediate preceding year. It has also shown current investment to the tune of Rs.57.82 crores. AO further observed that the assessee has debited personal interest expenses of Rs.1.11 crores, and hence

On appeal, the ld.CIT(A) has deleted interest component out of the disallowance. The ld.CIT(A) has recorded a finding that the assessee has net interest income of Rs.21,60,829/-. The ld.CIT(A) has also observed that total investments were of Rs.64.83 crores. In other words, the assessee has demonstrated more interest free funds than the investment made by it. The discussion made by the ld.CIT(A) in this regard is worth to note, which reads as under: “3.5. It has been pleaded that the investments were only to the tune of Rs.63,68,50,854/- as on 31/03/2013 and Rs.2,66,98,000/- as on 31/03/2012 while the interest free funds in the form of share capital and reserves and surplus were at Rs.64,83,10,970/- and Rs.37,31,10,386/- as on 31/03/2013 and 31/03/2012 respectively. Thus, the investment in shares were much less than the interest free funds available, The AO has not brought anything on record that any interest bearing advances have been utilised for the purpose of investment in shares. 3.6. Further, it has been pleaded that the appellant had the interest income of Rs.11,40,90,728/- while it had the interest expenses of Rs.11,19,29,899/-. Thus, there was the net interest income of Rs.21,60,829/-. Since there was net interest income during the year under consideration, therefore, no disallowance on account of interest under Rule 8D(2)(ii) is called for and hence, interest disallowance is deleted.”

With the assistance of the ld.representatives, we have gone through the record carefully. We find that dispute is squarely covered in favour of the assessee by decision of Hon’ble Gujarat High Court in the case of PCIT Vs. Nirma Credit and Capital Pvt. Ltd., (2017) 85 taxmann.com 72; tax appeal no.409 and 514 of 2017. Hon’ble Gujarat High Court has observed that disallowance under section 14A r.w. rule 8D could be made if there is a net

In the result, appeal of the Revenue is dismissed.

As far as CO of the assessee is concerned, we find that the assessee has not debited any expenditure which could be attributed to earning of exempt income. The assessee has made huge investment and somebody must have deputed for taking care of these investments. The ld.AO has worked out expenditure attributable to earning of taxes free income as per Rule 8D, which is half-percent of the investment yielding tax free income. The ld.CIT(A) has confirmed that disallowance. After considering well reasoned order of the ld.CIT(A) we do not find any error in it, and no interference is called for at the end of the Tribunal on this

In the result, appeal of the Revenue and CO of the assessee, both are dismissed. Order pronounced in the Court on 21st February, 2019.