MASTER HANDLERS PRIVATE LIMITED,PUNE vs. INCOME-TAX OFFICER, WARD - 14(4), PUNE

The assessee has raised the following grounds of appeal:- 1. The learned CIT(A)-7, Pune erred in law and on facts in upholding the disallowance u/s 14A of the ITA, 1961 made by the learned ITO Ward, 14(4) Pune (hereinafter referred to as the learned AO) amounting to Rs.15,67,949/-.

The assessee has raised four grounds of appeal but all relating to different facets of disallowance under section 14A of the Act at ₹ 15,67,949/-. The ground of appeal No.2 raised by assessee is against non-recording of satisfaction by the Assessing Officer. The assessee referred to the assessment order and pointed out that the Assessing Officer has failed to record satisfaction. It may be pointed out herein itself that this is the case where assessee had not made any suo motu disallowance under section 14A of the Act. During the course of assessment proceedings at page 3 of assessment order, it is very clearly noted that the assessee was asked as to why disallowance should not be made under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short ‘the Rules’). Thereafter, the assessee has given reply. In such circumstances, there is no merit in the plea of assessee that no satisfaction was recorded for making disallowance under section 14A of the Act.

The next issue raised vide grounds of appeal No.3 and 4 is against claim of assessee that it had sufficient own funds to the extent of ₹ 5.18 crores as against investment in shares and mutual funds to the extent of ₹ 4.94 crores. The said details are clearly available at page 3 of assessment order itself, wherein investment in tax free securities including mutual funds totaled to ₹ 4.94 crores. The own funds of the company are to the extent of ₹ 5.18 crores.

The Hon’ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) have laid down that where the assessee has own funds exceeding the investment made in securities, income from which is tax free, then no disallowance is to be made under section 14A of the Act.

Applying the said principle to the facts of present case, I hold that no disallowance on account of interest is to be made under section 14A of the Act read with Rule 8D(2)(ii) of the Rules. However, disallowance of ₹ 2,44,261/- made under Rule 8D(2)(iii) of the Rules stands upheld. The grounds of appeal raised by assessee are thus, partly allowed.

In the result, appeal of assessee is partly allowed.