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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R.S. SYAL. & SHRI VIKAS AWASTHY, JM
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.
The assessee has assailed the order of CIT(A) by raising following grounds of appeal :
“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
The appellant craves its right to add or alter the Grounds of Appeal at any time before or during the course of hearing of the case.”
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.”
Shri Sharad Shah appearing on behalf of the assessee
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.
In respect of additional ground, Ld.A.R. submitted that the A.O.
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
ITA No.2306/PUN/2016
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.
On the other hand, Shri Ashok Babu representing the
Department vehemently defended the impugned order and prayed for
dismissing the appeal of assessee.
We have heard the submissions of representatives of rival sides
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/-
ITA No.2306/PUN/2016
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).
In the additional ground of appeal, the assessee has assailed
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
ITA No.2306/PUN/2016
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.
In view of the fact that the assessee has made suo-moto
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.
In the result, 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 :
अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-1, Pune. Pr. CIT-1, Pune. 4. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” / DR, ITAT, “A” Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER
// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.