HEMANT ARUN BADHE,PUNE vs. INCOME-TAX OFFICER, WARD - 3(1), PUNE

The assessee has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law the Learned CIT(A) has erred in dismissing the appeal ex-parte, without giving proper opportunity of hearing, the act being in violation of principle of natural justice, it is prayed that appeal may kindly be restored back for reconsideration by Learned CIT(A). Without prejudice to above ground following ground is taken on merit;

The first ground of appeal is not pressed and hence the same is dismissed as not pressed.

The issue in ground of appeal No.2 is against satisfaction recorded under section 14A of the Act.

The case of assessee is that the Assessing Officer has failed to record any satisfaction before invoking provisions of section 14A of the Act. However, we find that in para 3 of assessment order, the Assessing Officer has very clearly noted that the learned Authorized Representative for the assessee was requested to furnish explanation in respect of large interest expenses relatable to exempt income under section 14A of the Act, as per AIR information and other details. The learned Authorized Representative for the assessee pointed out that the said satisfaction is with regard to AIR information and other details. I find no merit in the plea of learned Authorized Representative for the assessee as the Assessing Officer has clearly recorded satisfaction and asked the assessee to explain as to why disallowance under section 14A of the Act should not be made in respect of exempt income vis-à-vis large interest expenses claimed by assessee. Hence, ground of appeal No.2 raised by assessee is dismissed.

Now, coming to ground of appeal No.3 raised by assessee against the disallowance made under section 14A of the Act read with rule 8D(2)(ii) of the

The learned Authorized Representative for the assessee before the Tribunal pointed out that there is no merit in the aforesaid disallowance as the assessee had sufficient funds i.e. against investment of ₹ 1.36 crores, capital balance available with the assessee was about ₹ 2 crores.

The learned Departmental Representative for the Revenue on the other hand, objected to the submissions of assessee on the ground that in addition to the tax free assets, the assessee has also made investment in flat at Baner and other investments and it cannot be said that the assessee had sufficient interest free funds available to make investments, income from which was exempt from tax.

On perusal of record and after hearing both the learned Authorized Representatives, the issue which is raised by first part of ground of appeal No.3 is against disallowance made under Rule 8D(2)(ii) of the Rules. The said Rule provides that where the interest expenditure has been incurred by assessee, then such interest expenditure which is relatable to investments made, on which tax free income has been earned is not to be allowed as deduction in the hands of assessee. However, the claim of assessee before the Tribunal was that he had sufficient interest free funds available with him. I perused the Balance Sheet placed at page 7 of Paper Book, wherein the opening capital balance of assessee was ₹ 2.34 crores and the closing balance is about ₹ 2 crores. The total investments which have been considered by the Assessing Officer eligible for the said disallowance were totaled to ₹ 1,36,52,300/-. In view of the availability of interest free funds with the assessee and in view of

In the result, appeal of assessee is partly allowed.