SHREE NAMAN SECURITIES FINANCE P. LTD,MUMBAI vs. DCIT CEN CIR 5(4), MUMBAI

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ITA 4789/MUM/2018Status: DisposedITAT Mumbai21 October 2020AY 2015-164 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal directed the deletion of interest disallowance under Rule 8D(2)(ii) due to sufficient own funds. For indirect expenses under Rule 8D(2)(iii), the AO was directed to re-compute based only on investments yielding exempt income, not exceeding the exempt income.

What were the facts?

The assessee, engaged in stock brokerage and securities trading, received dividend income claimed as exempt. The Assessing Officer disallowed expenses under Section 14A read with Rule 8D(2), which was upheld by the CIT(A).

What were the issues?

Whether disallowance of interest under Rule 8D(2)(ii) is justified when own funds are sufficient, and how to compute disallowance of indirect expenses under Rule 8D(2)(iii).

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, VIRTUAL COURT

For Appellant: Shri Mahesh O Rajora
For Respondent: Shri V. Vinod Kumar
Hearing: 28/09/2020Pronounced: 21/10/2020

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-53, Mumbai in appeal No. CIT(A)-53/IT-427/DCCC-5(4)/2017-18 dated 25/05/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 15/12/2017 by the ld. Dy. Commissioner of Income Tax, Central Circle 5(4), Mumbai (hereinafter referred to as ld. AO).

M/s. Shree Naman Securities Finance P. Ltd.,

2.

Though the assessee has raised several grounds of appeal, which are quite argumentative in nature, we find that the only effective issue to be decided is with regard to disallowance made u/s.14A of the Act r.w.Rule 8D(2) of the Rules made under normal provisions of the Act.

3.

We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of stock brokerage, shares and securities trading. The assessee is a member of Bombay Stock Exchange and National Stock Exchange. During the year under consideration, the assessee received dividend income of Rs.25,07,296/- which was claimed as exempt in the return of income. We find that no disallowance of expenses was made u/s.14A of the Act by the assessee. Accordingly, the ld. AO had computed the disallowance in terms of Rule 8D(2) of the Rules under second and third limb thereon as under:-

1.

 Disallowance of interest under Rule 8D(2)(ii) - Rs.1,28,44,205/-  Disallowance of indirect expenses under Rule 8D(2)(iii) - Rs. 8,40,952/- -------------------- Total Rs.1,36,85,157/- ============= 3.1. This action of the ld. AO was upheld by the ld. CIT(A).

3.2. With regard to disallowance of interest made under second limb of Rule 8D(2) of the Rules, the ld. AR vehemently argued that the assessee company was flooded with own funds to the tune of Rs.9.83 Crores as on 31/03/2014 and Rs.9.45 Crores as on 31/03/2015 which was far in excess of investment made in shares which has ultimately given rise to exempt income and accordingly, he pleaded that investments made by the assessee had to be presumed to have been made out of own funds of the assessee and not out of borrowed funds. We find lot of force in this argument of the ld. AR

M/s. Shree Naman Securities Finance P. Ltd., and by placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of HDFC Bank Ltd., vs. CIT in 366 ITR 505 (Bom) and Reliance Utilities and Power Ltd., reported in 313 ITR 340 (Bom), we direct the ld. AO to delete the disallowance made on account of interest under Rule 8D(2)(ii) of the Rules in view of availability of own funds. Since, the entire interest disallowance is directed to be deleted under second limb of Rule 8D(2) of the Rules, the alternative argument made by the ld. AR on without prejudice basis that only net interest is to be considered for the purpose of disallowance, need not be gone into by us.

3.3. With regard to disallowance of indirect expenses under Rule 8D(2)(iii) of the Rules, we direct the ld.AO to consider only those investments which had really yielded exempt income to the assessee and re-compute the disallowance under third limb of Rule 8D(2) of the Rules, subject to the condition that in any case, the disallowance shall not exceed the exempt income.

4.

The grounds raised by the assessee are disposed off in the aforesaid manner.

5.

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

Order pronounced on 21/10/2020 by way of proper mentioning in the notice board.

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