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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHR RIFAUR RAHMAN, AM & SHRI AMIT SHUKLA, JM आयकरअपीलसं./ (निर्धारणवर्ा / Assessment Year: 2010-11) INFRO ALLIANCE DEPUTY COMMISSIONER TRADING P.LTD, OF INCOME TAX, FLAT NO. 2605 BLDG CENTRAL CIRCLE- 09, बिधम/ NO. 57 KAILASH CO OP MUMBAI SHG CO. GANDHINAGAR Vs. BANDRA( E) MUMBAI Pin 400051 स्थायीलेखासं./जीआइआरसं./PAN No AAACI5902J (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Mr. Praveen Jain by प्रत्यथीकीओरसे/Respondent : Mr. Ganesh Bare (CIT DR) by सुनवाईकीतारीख/ : 13.07.2022 Date of Hearing घोषणाकीतारीख / : 10.10.2022 Date of Pronouncement आदेश / O R D E R Per Amit Shukla, Judicial:
The aforesaid appeal has been filed by the Assessee against order dated 30.11.2015, passed by the CIT(A)-48 Mumbai for the quantum of the assessment passed by the u/s 153 C r.w.s 143(3) of the Income Tax Act. In various grounds appeal, Assessee has challenged the validity of assessment as well as addition on legal grounds that the additions/disallowances are beyond the scope of INFRO ALLIANCE TRADING PVT. LTD section 153 C, and there was no satisfaction note by the Assessing Officer. However, ground No.1 to 2 along with the sub grounds had not been pressed before us. Therefore, same are dismissed as not raised. In ground nos. 3 to 4 assesee has challenged disallowance of Rs. 28,00,656/- u/s. 14A; and Rs. 1,45,912/- as direct expenses u/r. 8D (2) (i); and lastly, the disallowance u/s 14A cannot exceed the exempt income.
The facts in briefs qua the issue raised are that the Assessee Company is engage in the business of trading in Computer Hardware & Software. In the computation of Income the Assessee had shown dividend Income of Rs. 27,91,278/- as exempt. In response to the show cause notice the Assessee claim that no expanses have been incurred for earning of the exempt income. In any case, Assessee had suo motto disallowed interest expenditure as per 14A of Rs. 97,60,030/- which was 28% of the total financial cost, which is evident from the computation of Income filed along with the Return of Income, the copy of which is appearing at page 60 of the paper book. The Ld. Assessing Officer, made following disallowances under rule 8D without recording his satisfaction; (i) Rs,1,45,912/- on account of direct expenditure relating to share trading to changes; (ii) disallowance of interest expanses Rs. 21,41,390/- u/r 8D2(ii); and (iii) Rs.5,13,354 disallowance under rule 8D2(iii) by taking 0.5% of average investment.
The Ld.CIT (A) has confirmed the said disallowance. Further, similar disallowance was made was computing the book profit u/s 115 JB.
INFRO ALLIANCE TRADING PVT. LTD 4. Before us the Ld. Counsel for the Assessee submitted that the direct expanses relate to F&O trading which has been shown as business income therefore, it has not correlation with the earnings of exempt income. He submitted that Assessee has traded in derivative market and only expense of Rs.1,45,911/- was debited to the profit and loss account for this purpose and there is no exempt income earned in share trading in respect of F&O transactions. Thus, this disallowance has wrongly been made. In so far as, disallowance of interest is concerned, Ld. Counsel submitted that Assessee had huge surplus funds and reserve & surplus alone was Rs. 16.02/- Crores and investment was only Rs. 2.96/- crores. Thus, no disallowance of interest can be made. Lastly, at regard to disallowance of other expanses he submitted that no satisfaction has been recorded by the Assessing Officer nor he has verified that most of the investments have not even yielded any exempt income during the year.
On the other hand, Ld. DR strongly relied upon the order of the CIT (A).
We have heard the rival submissions, perused the relevant finding given in the order as well as document referred to before us. In so far as disallowance of Rs.1,45,912/- on account direct expanses, from the perusal of the records, it is seen that the Assessing Officer has wrongly included the share trading charges of Rs.1,45,911/- debited to the profit & loss account which in fact related to F&O transaction which Assessee had shown as business income. In any way no dividend is payable on F&O transaction, because there is no delivery of shares and no name is recorded in the registered of share holder of the company. Thus, this addition is directed to be deleted.
INFRO ALLIANCE TRADING PVT. LTD 7. Now so far as disallowance of interest is concerned, it is not in dispute that Assessee had surplus fund which far exceeded the investment made and which fact has also been noted by the Assessing Officer and CIT(A). Once the Assessee has surplus funds, then interest cannot be disallowed on the presumption that investment must only been made only out of borrowed funds. Now it is well settled law that if an Assessee has surplus funds which are not interest bearing, then no disallowance of interest can be made u/r 8D(2)(ii) which has been settled by the Hon’ble Supreme Court in case of South India Bank Ltd Vs. CIT reported 22(1) 130 taxmen 178 and also in the case of CIT Vs. Reliance Industry Ltd. 410 I.T.A 466, Thus, the disallowance Rs.21,41,390/- made u/r 8D 2 (ii) is directed to be deleted.
Further, from the bare perusal of the assessment order, it is seen that, no where the Assessing Officer has recorded his satisfaction nor has he even noted the Assessee had suo mutto made disallowance of Rs. 97,00,000/- for the purpose of disallowance u/s 14A in its computation of income; nor he has verified the nature of investment whether there is any co relation with the expenditure incurred for the purpose of exempt income. He is not even verified that there was various investments which have not yielded any exempt income which needs to be removed from the computation of is disallowance. If there is no satisfaction recorded by the Assessing Officer, then he cannot resort to make disallowance u/s 14A and accordingly entire disallowance by the Assessing Officer is deleted.
Since, we have already deleted disallowance on the 14A same cannot be added for the purpose of book profit u/s 14A.
Accordingly appeal of the Assessee partly allowed.
Orders pronounced in the open court on 10th October, 2022. Sd/- Sd/- (S Rifaur Rahman) (Amit Shukla) Accountant Member Judicial Member मुंबई Mumbai;ददनांक Dated : 10.10.2022 Mrs.Urmila. आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. दवभागीयप्रदतदनदध, आयकरअपीलीयअदधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,