RANADEY MICRONUTRIENTS PVT.LTD,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX, PUNE

Mrs. Anita Singh appearing on behalf of the assessee submitted that the solitary issue raised in appeal by the assessee is with respect to disallowance made u/s. 14A r.w. Rule 8D(2)(ii) of the Act. The ld. AR submitted that the assessee is a private limited company engaged in the business of manufacture and sale of Inorganic and Micronutrient Mixture Fertilizers. The assessee had filed return of income for the impugned assessment year on 29-09-2012 declaring total income of Rs.91,36,633/-. In scrutiny assessment proceedings, the Assessing Officer inter alia made disallowance of Rs.13,52,528/- u/s. 14A r.w. Rule 8D. During the period relevant to the assessment year under appeal, the assessee had earned dividend income of Rs.14,92,000/- exempt u/s. 10(34) of the Act. The ld. AR submitted that the assessee is having own interest free funds to the tune of Rs.7,54,94,324/-, whereas, the investments during the relevant period are only Rs.4,25,91,226/-. The assessee has not utilized borrowed funds for making the investments. Thus, there is no question of making disallowance u/s. 14A with respect to interest expenditure. The ld. AR submitted that similar disallowance on account of interest expenditure u/s. 14A was made in assessment years 2008-09 and 2010-11. The issue travelled to the Tribunal. The Tribunal in ITA No. 638/PUN/2017 for assessment year 2008-09 decided on 28-09-2018 and ITA No. 137/PUN/2015 for assessment year 2010-11 decided on 18-10-2017 deleted the disallowance in respect of interest expenditure under Rule 8D(2)(ii). The ld. AR further in support of her contentions referred to the Balance sheet of assessee as on 31-03-2012 at page 7 of the paper book. The ld. AR submitted that the authorities below have totally disregarded the law laid down by the Hon’ble Jurisdictional High Court in the case of

On the other hand Ms. Shabana Parveen representing the Department vehemently defended the impugned order. However, the ld. DR fairly admitted that similar issue has been adjudicated in assessee’s own case in preceding assessment years. The ld. DR further contended that the financial position has to be seen in each assessment year.

Both sides heard. Orders of the authorities below perused. The assessee in appeal has raised single issue assailing disallowance of Rs.12,08,801/- u/s. 14A r.w. Rule 8D(2)(ii) of the Act. The ld. AR has drawn our attention to the Balance sheet as on 31-03-2012 at page 7 of the paper book. A perusal of Balance sheet shows that the assessee is having own interest free funds comprising of share capital, reserves and surplus aggregating to Rs.7,54,94,323/-, as against the investments of Rs.4,26,14,226/-. Since, the assessee’s own interest free funds are sufficient to cover the investments it is presumed that entire investments are made from non-interest bearing funds. The Hon’ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. (supra) has held that where the assessee is having both interest free funds and interest bearing funds, the presumption is that the investments are made from interest free funds. Accordingly, the disallowance of Rs.12,08,801/- u/s. 14A r.w. Rule 8D(2)(ii) in respect of interest expenditure is deleted.

In the result, the appeal of assessee is allowed.