M/S FESTINO COMMERCE PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1)(1), BANGALORE

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ITA 96/BANG/2018Status: DisposedITAT Bangalore24 February 2020AY 2013-143 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal deleted the disallowance of interest expenditure under Rule 8D(2)(ii) based on the Karnataka High Court's judgment in CIT vs. Microlabs Ltd. However, it declined to interfere with the disallowance made under Rule 8D(2)(iii).

What were the facts?

The assessee's appeal concerned a disallowance of Rs. 779,988/- made by the AO under Section 14A, comprising Rs. 702,518/- for interest expenditure and Rs. 77,470/- under Rule 8D(2)(iii). The assessee argued that its substantial paid-up share capital and reserves and surplus, coupled with relatively lower investments, justified deleting the disallowance of interest expenditure.

What were the issues?

Whether the disallowance of interest expenditure under Rule 8D(2)(ii) is justified when the assessee has substantial own funds and relatively low investments. The validity of the disallowance under Rule 8D(2)(iii) was also in question.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE

Before: SHRI ARUN KUMAR GARODIA, AM & SMT. BEENA PILLAI, JM

For Respondent: Shri Manjeet Singh, Addl. CIT DR
Hearing: 16.12.2019Pronounced: 24.02.2020

O R D E R

PER SHRI A.K. GARODIA, AM:

1.

This appeal is filed by the assesse and it is directed against the order of CIT(A) – 3 Bengaluru dated 25.10.2017.

2.

Although 5 grounds are raised by the assessee but the effective grievance is only one about disallowance of Rs. 779,988/- made by the AO u/s 14A. 3. In course of hearing, learned AR of the assessee submitted that as per Para 5 on page 3 of the assessment order, disallowance of Rs. 702,518/- is made by the AO out of interest expenditure under Rule 8D (2) (ii) and Rs. 77,470/- under Rule 8D (2) (iii) total Rs. 779,988/-. He submitted a copy of the Balance Sheet of the assessee company and pointed out that the assessee is having paid up share capital of Rs. 205.70 Lacs at the beginning and also at the end of the present year and in addition to that, the assessee is having Reserve & Surplus of Rs. 818.22 Lacs at the beginning and Rs. 875.03 Lacs at the end of the present (B)/2018 Page 2 of 3 year. He also pointed out that as per the same para of the assessment order, investment is of only Rs. 173.44 Lacs at the beginning of the year and Rs. 136.44 Lacs at the end of the present year. He placed reliance of the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Microlabs Ltd., 383 ITR 490 and submitted that as per this judgment, in the facts of the present case, no disallowance is called for out of interest expenditure under Rule 8D (2) (ii). Regarding balance disallowance of Rs. 77,470/- under Rule 8D (2) (iii), he submitted that this should also be deleted. Learned DR of the revenue supported the order of CIT (A).

4.

We have considered the rival submissions. We find force in the submissions of the learned AR of the assessee and accordingly, we delete the disallowance made by the AO under Rule 8D (2) (ii) and for disallowance under Rule 8D (2) (iii), we decline to interfere in the order of CIT (A). The assessee gets part relief to the extent of Rs. 702,518/- being disallowance made by the AO out of interest expenditure under Rule 8D (2) (ii).

5.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on the date mentioned on the caption page.

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