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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI RAJPAL YADAV & SHRI AMARJIT SINGH
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ - अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD – BENCH ‘A’
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No.2050/Ahd/2017 �नधा�रण वष�/Asstt. Year: 2014-15
DCIT, BK Circle Vs. Shri Kamlesh B. Shah Palanpur. 430, Prop. KB Exports Panchratna Opera House Mumbai 400 004. PAN : AFXPS 4908 R
अपीलाथ�/ (Appellant) �त् यथ�/ (Respondent)
Revenue by : Shri S.K. Dev, Sr.DR Assessee by : None सुनवाई क� तार�ख/Date of Hearing : 18/02/2019 घोषणा क� तार�ख /Date of Pronouncement: 19/02/2019 आदेश/O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-4, Ahmedabad dated 19.6.2017 passed for the Asstt.Year 2014-15.
Solitary grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.85,50,703/- which was added by the AO with help of section 14A r.w. Rule 8D of the Income Tax Act.
ITA No.2050/Ahd/2017
Brief facts of the case are that the assessee has filed its return of income electronically declaring total income at NIL, after claiming current year’s loss of Rs.1,51,18,894/-. On scrutiny of the accounts, it revealed to the AO that the assessee has earned dividend income of Rs.27,52,13/- which was claimed as exempt. It was noticed that the assessee has made investment of Rs.24.85 crores. The ld.AO further observed that the assessee has claimed interest expenses of Rs.1,55,03,927/-. The AO has worked out the disallowance as per Rule 8D of the Income Tax Rules, 1962. He made addition of Rs.85,50,703/-. On appeal, the ld.CIT(A) deleted this disallowance by observing that the assessee has sufficient interest free funds which can take care of interest expenditure. The ld.CIT(A) confirmed the addition qua administrative expenditure. The discussion made by the ld.CIT(A), reads as under:
“5. The submission of the assessee and the assessment order has been carefully considered. The only effective ground of appeal is against the additions of Rs.85,50,703/- made by the Assessing Officer by applying provisions of section 14A read with rule 8D of the Act. During the course of assessment proceedings, the Assessing Officer found that the appellant has incurred interest expenditure of Rs.1,55,03,927/- and at the same time had dividend income which claimed as exempt income. Therefore, the Assessing Officer applied formula given under rule 8D and calculated disallowance in para 2 of the assessment order to the extent of Rs.85,50,703/- and made the additions of the same. The appellant contended that his proprietary concern, M/s K. B. Exports is engaged with the business of trading in shares and has regular running account with Sharekhan Financial Services Pvt Ltd., a renowned stock broker with BSE/NSE. During the year, dividend income of Rs.27,52,413/- earned which have been claimed as exempt
ITA No.2050/Ahd/2017
as per the provisions of the Act. The appellant further contended that he has interest free loan of Rs.45,64,49,000/-whereas investment is only Rs.24,85,03,406/-, thus it is clear that interest free funds are far more than the investment in the various assets. The appellant submitted that the dividend income is incidental to his main business activities and does not require any expenditure to earn this income. The appellant cited several case laws, in which it has been held that disallowance u/s.14A cannot be made, if the assessee had more interest free funds than investment made. Appellant also contended that the Assessing Officer did not record satisfaction before making the disallowance, as held in the case of Godrej and Boyce Manufacturing Co. Ltd. Vs. DCIT(2017) 81 taxman.com 111 SC. For these reasons, the appellant contended that the additions made by the Assessing Officer are not justified, hence may be deleted. The submission of the appellant and the assessment order has been gone through carefully. The A.O. did not mention any reason for making additions & mechanically calculated the disallowance as per rule 8D of the Act. It is fact that the appellant is having more interest free funds available than investment of the appellant. Therefore, disallowance on account of interest expenditure is not found justified in this case. The Hon'ble High Court of Gujarat, Ahmedabad in the case of Pr. Commissioner of Income Tax-1 Vs. UTI Bank Limited vide order dated 13th June, 2016 held that if the assessee had sufficient interest free funds in excess of interest free investments, the Tribunal is right in deleting the additions made by the A.O.u/s.14A of the Act. Keeping in view the above judgment of the Hon'ble Jurisdictional High Court of Gujarat, Ahmedabad, additions of Rs.73,08,186/- made on account of payment of interest are deleted. This ground of appeal is deleted.
5.1 Regarding disallowance equal to 0.5% of average investment amounting to Rs.12,42,517/- , it is found that the A.O. has correctly calculated the disallowance as per rule 8D. Therefore, additions to this extent are confirmed. This ground of appeal is partly allowed.”
ITA No.2050/Ahd/2017
In response to the notice of hearing, none has come present on behalf of the assessee. With the assistance of the ld.DR, we have gone through the record carefully. Basically department has contended that it has not accepted decision of Hon’ble Gujarat High Court in the case of Pr.CIT Vs. UTI Bank Ltd. It has already filed an appeal before the Hon’ble Supreme Court. It is pertinent to note that disallowance on account of interest expenditure could only be worked out if there is an interest expenditure attributable to make investment, which could result in tax free income. The ld.CIT(A) has appreciated that the assessee has more interest free funds, out of which investment could be made. Hence, the interest expenditure cannot be attributed towards earning of exempt income. The ld.CIT(A) has made a lucid enunciation of the position of law on this point, and we do not find any infirmity in the order of the ld.CIT(A). Accordingly, the appeal of the Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 19th February, 2019.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 19/02/2019 p