UNITED METAL INDUSTRIES,CHENNAI vs. ACIT NON CORPORATE CIRCLE 3, CHENNAI

The assessee has raised following grounds of appeal:-

The Assessing Officer erred in going beyond the scope of Rule 8D which clearly specifies how Average Investments are to be computed.

The Assessing Officer erred in disallowing interest when the Assessee had clearly proved that no borrowed funds have been utilised for the purpose of investments earning tax free income. 5. The Assessing Officer erred in computing disallowances far in excess of the tax free income of Rs 7,57,560/- claimed by the Appellant.”

The learned AR for the assessee submitted that even though the Tribunal has directed the Assessing Officer to examine claim of the assessee that it has surplus non-interest bearing funds for investments, the Assessing Officer has ignored findings of the Tribunal and went on to compute disallowance by taking into account average monthly investments without considering arguments of the assessee that it has sufficient own funds to cover up investments which yielded exempt income. Therefore, appeal may be set aside to the file of the Assessing Officer to give one more opportunity to the assessee to explain its case.

The learned DR, on the other hand, submitted that assessee has failed to file necessary details including proof of availability of own funds before the Assessing Officer, therefore, there is no reason to give another opportunity to the assessee to go back to the Assessing Officer.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the Tribunal in first round of litigation has recorded categorical finding that prima-facie, the assessee has invested idle funds in liquid dividend investment plans with J.M Financial Mutual Fund. However, set aside appeal to the file of the Assessing Officer, with a direction to reconsider the issue and also to take average value of investments on monthly basis to determine disallowance u/s.14A of the Act. We further noted that in second round, the Assessing Officer has not considered plea of the assessee that it has sufficient own funds, but went on to compute disallowances by taking only average monthly investments made in mutual funds. It is a well settled principles of law that if the assessee is able to prove availability of own funds to make investments in shares and securities, which yield exempt income, then no disallowance can be made towards interest expenses. In this case, although the assessee claims to have own interest free funds, the Assessing Officer has not considered plea of the assessee and disallowed interest by taking only monthly average investments made in mutual funds. Therefore, we are of the considered view that the issue needs to be go back to the Assessing Officer once again to consider plea of the assessee that it has sufficient own funds to cover up investments made in mutual funds. Hence, we set aside the appeal to the file of the Assessing Officer and direct him to reconsider the issue in light of arguments of the assessee that it has idle interest free funds, which has been used for making investments in mutual funds. In case, the assessee proves with necessary evidence with regard to availability of own funds, then the Assessing Officer is directed to consider availability of own funds while computing disallowances u/s.14A of the Act.

In the result, appeal filed by the assessee is allowed for statistical purposes.