AUTOLINE INDUSTRIES LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER

PER VIKAS AWASTHY, JM :

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Pune – 1, dated 13.07.2016 for the assessment year 2010-11.

“1. The Ld.AO erred in increasing (& Ld.CIT(A) erred in confirming) erred in disallowing Rs.15,28,522/- u/s 14A r.w. Rule 8D.

ITA No.2306/PUN/2016

Subsequently, the assessee has raised the following additional

ground :

“The Ld.AO be directed to delete the addition of Rs.27,56,582/- (on account of disallowance u/s 14A r.w. Rule 8D) made to Book Profit calculated u/s 115JB.”

submitted, at the outset, that the assessee has earned exempt income

of Rs.3,40,211/- u/s 10(38) of the Income Tax Act, 1961 (hereinafter

referred to as “the Act”). The assessee made suo-moto disallowance of

expenditure Rs.12,28,060/- in respect of exempt income earned.

The AO made further disallowance of Rs.15,28,522/- u/s 14A r.w.

Rule 8D. The Ld.A.R. submitted that the assessee is having own

interest free funds to the tune of Rs.186.3 crores as against

investment of Rs.87.49 crores. The Ld.A.R. to substantiate his

contentions referred to the Balance-Sheet of assessee as on

31.03.2010. The Ld.A.R. contended that in view of the decision of the

Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities

and Power Ltd., reported as 313 ITR 340, no disallowance in respect

of interest expenditure under Rule 8D(2)(ii) of the Income Tax Rules is

warranted.

while computing Book Profits under Sec.115JB of the Act, made

addition of Rs.27,56,582/- i.e., the disallowance made u/s 14A r.w.

Rule 8D of I.T. Rules. No such addition is to be made while

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computing Book Profits under MAT Provisions. In support of his

contentions, the Ld.A.R. placed reliance on the decision of Hon’ble

Bombay High Court in the case of CIT Vs. M/s. Bengal Finance and

Investments Pvt. Ltd., in Income Tax Appeal No.337 of 2013 decided

on 10.02.2015.

Department vehemently defended the impugned order and prayed for

dismissing the appeal of assessee.

and have perused the orders of authorities below. The solitary issue

raised in appeal is with respect to additional disallowance made u/s

14A r.w. Rule 8D of I.T. Rules and addition of said disallowance while

computing Book Profits under MAT Provisions. It is an undisputed

fact that the assessee has earned exempt income of Rs.3,40,211/-

and that the assessee has made suo-moto disallowance u/s 14A to

the extent of Rs.12,28,060/-. During assessment proceedings, the

AO invoked the provisions of Rule 8D and made disallowance as

under :

Rule 8D computation :

(i)Expenditure directly attributable to exempt income Rs. Nil.

(ii) Interest expenditure Rs.14,34,000/- (iii) 0.5% of average value of investments Rs.13,22,582/-

Total disallowance Rs.27,56,582/-

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Thus, AO has made additional disallowance of Rs.15,28,522/-.

The Ld.A.R. has drawn our attention to the Balance-Sheet as on

31.03.2010. A perusal of the Balance-Sheet shows that own funds of

the assessee comprising of Share Capital and Reserves and Surplus

are to the tune of Rs.186.33 crores as against the investments of

Rs.87.49 crores. Since own funds of the assessee are sufficient to

cover the investments, no disallowance in respect of interest

expenditure is warranted in view of the decision rendered by Hon’ble

Jurisdictional High Court in case of CIT Vs. Reliance Utilities (supra)

and HDFC Bank Ltd., Vs. DCIT reported as 366 ITR 505 (Bom).

that while computing Book Profits u/s 115JB of the Act, no addition

in respect of disallowance u/s 14A of the Act is to be made. We find

that this issue has already been addressed by the Hon’ble Bombay

High Court in the case of CIT Vs. M/s. Bengal Finance and

Investments (supra). For the sake of completeness, the relevant

question of law raised before the Hon'ble High Court is reproduced

herein below :

“2. The Revenue press the following question of law for our

consideration :

(a) X X X X (b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs.78,84,387/- (f) 1 under clause of Explanation to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 SOT 101 (Del.), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above

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decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case ?

The Hon’ble High Court answered the above question by observing as under : “4. So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in ITA No.3850/Mum/20 10 to held that an amount disallowed under Section 14-A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law.”

Thus, in view of the decision of Hon’ble Bombay High Court, the

additional ground raised in the appeal is allowed.

disallowance which is much more than the exempt income earned, no

further disallowance is warranted u/s 14A r.w. Rule 8D of Income

Tax Rules. The impugned order is set aside and the appeal of the

assessee is allowed.

Order pronounced on Tuesday, the 15th day of January, 2019.

Sd/- Sd/- Sd/- Sd/- (R.S. SYAL) (VIKAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER

पुणे Pune; �दनांक Dated : 15th January, 2019. Yamini

ITA No.2306/PUN/2016

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.