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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
O R D E R भहावीय स िंह, उऩाध्मक्ष के द्वाया/ PER MAHAVIR SINGH, VP: This appeal of assessee is arising out of the order of Commissioner of Income Tax (Appeals)-8, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-8/IT-137/2017-18 vide order dated 22.11.2019. The Assessment was framed by the Dy. Commissioner of Income Tax, circle-3(3)(1), Mumbai (in short ‘DCIT/ AO’) for the A.Y. 2015-16 vide order dated 28.11.2017 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. The assessee also challenged the addition while computing the book profit under section 115JB of the Act. For this, assessee has raised the following grounds: -
2 ITAs No. 638/Mum/2020 Ramgopal Textiles Ltd; AY 15-16
1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance made under section 14A of the Income Tax Act, 1961 to the extent of exempted income earned of ₹19,45,736/-. Further, the same was added to total income while calculating Minimum Alternate Tax under Section 115JB of the Income Tax Act, 1961.”
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the Assessing Officer has invoked the Rule 8D(2)(i) and disallowed direct expenses at ₹16,592/-. He also invoked the Rule 8D(2)(iii) and disallowed interest expenses at ₹ 15,39,056/-. He also invoked the Rule 8D(2)(iii) and disallowed administrative expenses by applying 0.5% of average value of investment on whole of the investments and disallowed a sum of ₹4,06,679/-. Thereby, the Assessing Officer computed the total disallowance under section 14A of the Act at ₹19,45,735/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) simplicitor relying on the decision of Assessment Years 2013-14 and 2014-15 confirmed the disallowance by observing in Para 3.2.4 as under:-
3.2.4 Since the facts and circumstances of the instant case are same as that for AY 2013-14 and 2014-15, and the exempt income in the instant case i.e. Rs.34,00,000/- is more than the total disallowance made u/s 14A r.w. rule 8D i.e. Rs.19,62,327/-. Hence following the same ratio given by me in A.Y.2013 and 2014-15, I find no reason to interfere with the decision of AO of disallowing Rs. 19,45,735/- over and above the suo moto disallowance of Rs.16,592/- u/s 14A r.w. rule 8D. This ground of appeal is dismissed 3 ITAs No. 638/Mum/2020 Ramgopal Textiles Ltd; AY 15-16 4. We noted that all the three disallowance are covered by Tribunal’s decision as the assessee has suo moto disallowed a sum of ₹16,592/- while working out under the normal provisions i.e. direct expenses and ₹2,292/- while computing book profit under section 115JB of the Act. The assessee before us now contended that assessee’s own funds are more than the investments made in the instruments and assessee’s issue regarding interest disallowance is already covered by Tribunal’s decision in assessee’s own case in & 5384/Mum/2018 for Assessment Years 2013-14 & 2014-15 vide order dated 10.02.2020, wherein Tribunal has deleted the disallowance by observing as under:-
5. We have duly considered the rival submissions and perused relevant material on record including documents placed in the paperbook. We have also deliberated on judicial pronouncements as cited before us. Upon perusal of assessee’s financial statements as placed on record, we concur with the submissions of Ld. AR that assessee’s own funds far exceeded the investments held by the assessee which is evident from the fact that the assessee has year- end share capital and free reserves aggregating to Rs.17.25 Crores as against investments of Rs.9.16 Crores held by the assessee. Further, the incremental reserves during the year far exceeds the incremental investments made by the assessee during the year. In such a case, unless nexus of borrowed funds vis-à-vis investments made by the assessee was established by Ld. AO, a presumption was to be drawn in assessee’s favor that the investments were out of own funds. The cited case laws, which are binding in nature, squarely apply to facts of the case. Therefore, we hold that on given factual matrix, interest disallowance u/r 8D(2)(ii) would not be warranted. Therefore, we delete the same.