L/H MANJUSHA ANIL. LODHA , LATE SHRI ANIL B. LODHA,,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 1, , NASHIK

This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 1, Nashik [‘the CIT(A)’] dated 15.05.2019 for the assessment year 2014-15.

Briefly, the facts of the case are that the appellant is an individual engaged in the business of contractors and trading in shares. The return of income for the assessment year 2014-15 was filed on 30.11.2014 declaring total income of Rs.1,25,59,730/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-1, Nashik (‘the Assessing Officer’) vide order dated 16.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at total income of Rs.1,41,55,990/- after making addition of Rs.15,96,255/- u/s 14A of the Act. The factual background of the above additions is as under : During the course of assessment proceedings, the Assessing Officer found that the appellant earned exempt income, however, no expenditure was disallowed. Accordingly, he computed the disallowance u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962 (‘the Rules’) of Rs.21,13,372/- includes disallowance of Rs.18,23,630/- and disallowance under clause (iii) of Rule 8D(2) of Rs.2,89,742/-. 3. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A) contending that no interest expenditure was incurred to earn the exempt income as the own funds are more than the investments. However, the ld. CIT(A) rejected the above contentions by holding that the assessee should have bifurcated the utilized interest bearing funds. However, the ld. CIT(A) restricted to the total disallowance to the extent of exempt income of Rs.15,96,255/-. 4. Being aggrieved by the order of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 5. The ld. AR taking us through the order of ld. CIT(A) at pages no.7 to 9 submits that own funds of the appellant were stood Rs.22,49,74,846/- whereas the cost of investment is only Rs.6,11,72,904/-. Thus, he submits that in view of the well settled position of law that when the own funds far exceeds the investments, no disallowance of interest under Rule 8D(2) is called for. However, he submits that as regards to the computation of disallowance under limb (iii) of Rule 8D(2), the matter may be set- aside to the Assessing Officer with direction to compute the disallowance under Rule 8D(2)(iii) by considering the value of those investments which yielded the exempt income alone for the purpose of computing the average value of investments. 6. On the other hand, ld. CIT-DR placing reliance on the orders of the lower authorities submits that the disallowance be restricted to the exempt income.