PARESH N. BHAGAT,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX-24(3), MUMBAI

The only effective issue to be decided in this appeal is with regard to disallowance made u/s 14A of the Act r.w.r. 8D(2) of the Income Tax Rules, 1962 (hereafter referred to as ‘Rules’). 2.1 With the consent of both the parties, the appeal for the assessment year 2011-12 is taken as the lead case and the decision rendered thereon would apply with equal force for assessment year 2012-13 also in view of identical facts except with variance in figures.

We have heard the rival submissions and perused the materials available on record. We find that assessee for assessment year 2011-12 had derived dividend income of Rs.13,83,891/- and claimed the same as exempt. No disallowance of expenses was made suo moto by the assessee u/s 14A of the Act. The Ld. AO proceeded to compute the disallowance u/s 14A of the Act in terms of Rule 8D(2)(ii) of Rs.43,02,748/- and u/s 8D(2)(iii) of Rs.21,38,332/-. The Ld. CIT(A) upheld disallowance made by the Ld. AO, but however, restricted the disallowance to the extent of dividend income of Rs.13,83,891/-. Aggrieved by this order, the assessee is in appeal before us. 3.1. We find that assessee is an individual and from the perusal of the balance sheet of the assessee, we find that assessee is having capital account (own funds) to the tune of Rs.88.50 crores which is much more than the investments made by the assessee and hence, it could be safely presumed that the investments were made with own funds and not with borrowed funds. By placing reliance, in this regard on the decision of Hon’ble Jurisdictional High Court in the case of HDFC Bank Ltd. in 366 ITR 505, we direct the Ld. AO to delete the disallowance of interest under Rule 8D(2)(ii) was of the Rules.