THE PR COMMISSIONER OF INCOME - TAX CIT (A) vs. M/S. MANIPAL GLOBAL EDUCATION SERVICES PVT LTD

THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(2) C.R.BUILDING, QUEEN’S ROAD BENGALURU-560 001 …APPELLANTS (BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) AND: M/S. MANIPAL GLOBAL EDUCATION SERVICES PVT. LTD., NO.14, MANIPAL TOWERS 4TH FLOOR, AIRPORT ROAD BENGALURU-560 008 PAN:AACCM 6313P …RESPONDENT (BY SHRI. B.R. SUDHEENDRA, ADVOCATE)

Heard Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue and Shri B.R.Sudheendra, learned advocate for the respondent.

Brief facts of the case are, the assessee has invested about Rs.90 Crores in mutual funds and earned dividend. The AO2, while giving effect to DRP’s3 order, has disallowed the interest under Section 14A holding that the assessee had incorporated expenses being the interest paid on borrowed money for other purpose of business. ITAT, while partly allowing the appeal, has directed the AO to compare own funds available with the assessee against the value of investments and apply provisions of Rule 8D(2)(ii) by recording thus, “11. We heard the parties on this issue and perused the record. The Hon’ble Bombay High Court has held in the case of HDFC Bank Ltd (366 ITR 505) that no disallowance out of interest expenditure u/r 8D(2)(ii) is called for when own funds available with the assessee is in excess of the value of investments. Accordingly, we direct the AO to compare the own funds available with the assessee against the value of investments and accordingly apply the provisions of Rule 8D(2)(ii) by duly following the decision rendered by Hon’ble Bombay High Court in the case of HDFC Bank Ltd(supra).”

Shri K.V.Aravind submitted that Rule 8D(2)(ii) does not make any difference with regard to the own funds or borrowed funds. 5. Learned advocate for the assessee submitted that the funds invested by the assessee are its own funds and dividends earned thereon are exempted under Section 10(34) of the Income Tax Act, 19694. Therefore, the interest paid on the borrowing made by the assessee for the purpose of business cannot be considered. This court, in The Commissioner of Income Tax and Another Vs. M/s. Brigade Enterprises Ltd.5, has held that the assessee therein had interest free funds to make tax free investment and therefore, the AO’s view that overdraft facility was directly used for making tax exempt investments was incorrect. In the case on hand, according to learned advocate for the assessee, the assessee had own funds which are far more than Rs.90 Crores. The view taken by the Revenue in this appeal defeats logic because while