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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI VIKAS AWASTHY
आदेश/ ORDER
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-49, Mumbai (in short ‘the CIT(A)’) dated 04/02/2019 for the assessment year 2014-15.
The solitary issued raised in the appeal by assessee is disallowance of Rs.36,59,072/- made under section 14A of the Income Tax Act, 1961 (in short ‘the Act’) r.w.r. 8D of the Income Tax Rules, 1962 (in short ‘the Rules’), while determining taxable income of the assessee under MAT provisions.
2. Shri Snehal Shah appearing on behalf of the assessee submitted that the assessee has earned tax free income of Rs.2.29 crores during the period relevant to the assessment year under appeal. The assessee made suo-motu disallowance of Rs.6,73,779/- towards earning of exempt income. The Assessing Officer in assessment proceedings without appreciating the facts of the case recomputed disallowance under section 14A r.w.r 8D at Rs.43,32,851/-, thereby enhancing disallowance by Rs.36,59,072/-. The ld. Authorized Representative for the assessee submitted that while recomputing disallowance under Rule 8D, the Assessing Officer has disallowed interest expenditure u/r 8D(2)(ii) Rs.34,98,340/-. The Assessing Officer has failed to take note of the fact that as against investment of Rs.16.69 crores, the assessee is having own interest free funds to the tune of Rs.495.96 crores. Thus, own funds of the assessee were sufficient to cover the investment made. No disallowance in respect of interest expenditure should have been made in the light of decision rendered in the case of HDCF Bank Ltd. vs. DCIT, 383 ITR 529(Bom).
The ld. Authorized Representative for the assessee further contended that the Assessing Officer has completed the assessment under the provisions of section 115JB of the Act. The provisions of section 14A of the Act are not attracted where the income has been computed under section 115JB of the Act. In support of his submissions the ld. Authorized Representative for the assessee placed reliance on the decision by Special Bench of Tribunal in the case of CIT vs. Vireet Investment,165 ITD 27( Del-Trib) (SB).
3.1 The ld. Authorized Representative for the assessee submitted that without prejudice to his primary contentions, for computation of disallowance u/r. 8D(2)(iii) only those investments should be considered on which tax free income has been earned.
Ms Smita verma representing the Department vehemently supported the impugned order and prayed for dismissing the appeal by assessee. The ld. Departmental Representative submitted that disallowance under section 14A of the Act has been made in accordance with the provisions of the Act. The ld. Departmental Representative relied on the judgment of Hon'ble Supreme Court of India in the case of Maxopp Investments vs. CIT 402 ITR 640 to counter the submissions advanced on behalf of the assessee.
Both sides heard, orders of authorities below examined. It is an undisputed fact that the assessee has earned tax free income of Rs.2.29 crores, against which the assessee has made suo-motu disallowance of Rs.6,73,779/- under section 14A of the Act. The ld. Authorized Representative for the assessee has drawn our attention to the statement at page 67 of the Paper Book wherein details of total investments and availability of own interest free funds has been tabulated. We find that the said statement has been extracted from the Balance Sheet as on 31/04/2014. The assessee has also filed copy of Annual Report for the financial year 2013-14. It is evident from records that as against own interest free funds of Rs.495.96 crores, the assessee had made investment of Rs.16.69 crores. Thus, the assessee is having sufficient own funds for making the investment. The Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra) has held that, where both interst bearing funds and interest free funds are available, it shall be presumed that the investments are made from interest free funds. If interest free funds are sufficient to cover the investments made, no disallowance u/r. 8D(2)(ii) is warranted.
We further observe that the Assessing Officer has made assessment by invoking MAT provisions. As against the total income of Rs.39,01,080/- computed under normal provisions, the ‘book profit’ under section 115JB of the Act is Rs.29,85,56,180/-. Since, tax on book profits is more than normal income, the Assessing Officer has assessed the income under section 115JB of the Act. In the case of Vireet Investments Pvt. Ltd. (supra), the Special Bench has held that where computation of income under section 115JB ) of the Act is made, the provisions of section 14A r.w.r. 8D are not attracted. In a recent judgment in the case of Sobha Developers Ltd. vs. DCIT reported as 125 taxmann.com 72(Kar), the Hon’ble High Court in para -7 held: “The disallowance under section 14A of the Act is a notional disallowance and therefore, by taking recourse to section 14A of the Act , the amount cannot be added back to book profit under clause(f) of section 115JB of the Act”
Thus, in view of the facts of the case and the decisions referred above, we find merit in the appeal by assessee. Since, the income of assessee has been assessed to tax under section 115JB of the Act, no disallowance under section 14A r.w.r.8D is warranted. Consequently, the impugned order is set-aside and the appeal of assessee is allowed. 8. In the result, appeal by the assessee is allowed. Order pronounced in the open Court on Friday, the 05th day of March, 2021.