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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
सुनवाई की तारीख/ : 16.06.2022 Date of Hearing घोषणा की तारीख / : 22.06.2022 Date of Pronouncement आदेश / O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by assessee is arising out of the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No. CIT(A), Coimbatore-1/10089/2017-18 vide order dated 27.10.2021. Assessment was framed by ACIT, Corporate Circle-2, Coimbatore for the AY 2015- 16 u/s. 143(3) of the Income-tax Act, 1961 (herein after referred to as ‘the Act’) vide order dated 09.12.2017.
- 2 - ITA No: 539/Chny/2021
The only issue in this appeal of assessee is as regard to the order of CIT(A) confirming the action of the AO in disallowing expenses relatable to exempt income by invoking provisions of section 14A of the Act r.w.r. 8D(2)(ii) of the Income Tax Rules, 1962 (herein after referred to as ‘the Rules’). For this assessee has raised various grounds which need not to be reproduced.
We have heard rival contentions and gone through the facts and circumstances of the case. The Assessing Officer during the course of assessment proceedings noticed that the assessee has earned dividend income amounted to Rs. 31,32,849/- and claimed the same as exempt. Hence, the AO invoked the provisions of section 14A of the Act and made disallowance under Rule 8D2(ii) of the Rules at Rs. 68,07,378/-. The AO also made disallowance under Rule 8D2(iii) of the Rules i.e., freight value of investment @ 0.5% at Rs. 15,02,312/- and also noted that the assessee has already made disallowance under Rule 8D2(iii) of the Rules at Rs. 10,02,211/- sumoto, in the auditor report in Form 3CD Schedule 21(h). The Assessing Officer after rebate on sumoto disallowance restricted the balance disallowance under Rule 8D2(iii) of the Rules. Aggrieved, assessee preferred appeal before the CIT(A). The CIT(A) restricted the disallowance to the extent of exempt income at Rs. 31,32,849/- which includes sumoto disallowance made by the assessee. The CIT(A) directed that the disallowance should be restricted only to the extent of Rs. 31,32,849/- which is exempt income. Aggrieved, assessee came in appeal before Tribunal.
Now before us, Ld. Counsel for the assessee Shri. R. Vijayaraghavan, only requested that the disallowance under Rule 8D2(iii) of the Rules i.e., interest
- 3 - ITA No: 539/Chny/2021 disallowance be deleted as the assessee has interest free funds available with it for making investment in the instruments giving rise to exempt income and once the Assessing Officer fails to prove nexus despite of accounts produced before him, the disallowance cannot be made. We note from the balance sheet filed before us that the assessee has ample interest free funds available with it in the shape of share capital and reserves and surplus as against advances but the AO can verify the same. We find the plea of the assessee’s counsel reasonable that the disallowance of interest can be made if the assessee is not having interest free funds available with it. The AO can verify the balance sheet how funds are going out of interest free funds, if investment made out of the interest free funds and interest free funds are more than the investment made in instruments giving rise to exempt income with it, the AO will not make any disallowance. Hence, this particular issue is set aside to the file of the AO for limited verification of facts whether the assessee has more interest free funds available with it for making investment which give rise to exempt income. In terms of this directions, the matter is restored back to the file of the AO.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 22nd June, 2022. Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य /ACCOUNTANT MEMBER चे�ई / Chennai; िदनांक / Dated : 22-06-2022 JPV आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF