DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 1(2)(1), BANGALORE vs. SRI GUARDIAN SOUHARDA BANK NIYAMITA, BANGALURU

The Revenue is aggrieved by the decision of ld CIT(A) in deleting the disallowance made by the AO u/s 14A of the Act.

We heard the parties and perused the record. The facts relating to the issue under consideration are that the AO noticed that the assessee has invested its funds in various categories of mutual funds and earned exempt income. However the assessee did not make any disallowance u/s 14A of the Act. The AO noticed that the assessee has invested a sum aggregating 53.65 crores in various mutual funds and withdrawn the same during the financial year itself. Hence opening and closing balance of investment was Nil.

The AO noticed that the assessee has paid total interest of Rs.6.16 crores on the deposit amount of Rs.84.07 crores collected by it. Accordingly he worked out the average rate of interest paid by the assessee per month on the deposits at 0.61%. The AO applied the above said rate of 0.61% per month on the investments made in mutual funds by considering the period of holding and worked out interest amount of Rs.1.73 crores. He held it to be directly related to the investment made by the assessee. Accordingly he disallowed a sum of Rs.1.73 crores u/s 14A of the Act.

The ld CIT(A) noticed that the assessee has made investments in various mutual funds scheme chronologically, i.e., maturing one investment and investing the maturity proceeds in another mutual fund, i.e, the entire amount of Rs.53.65 crores were not made at a time. Accordingly he noticed that the peak amount of investments outstanding at any given point of time was 7.35 croers. The ld CIT(A) also noticed that the assessee was having own capital of 3.77 crores and reserve fund of 14.52 crores. Accordingly aggregating amount of own funds available with the assessee was Rs.18.20 crores which was more than the peak amount of investment of Rs.7.35 crores. Besides the above the ld CIT(A) also noticed that the amount of loan given by the assessee, deposits kept with the other banks and SLR investments, in aggregate has exceeded the deposit amount of Rs.80.07 croers considered by AO for working out the disallowance. Accordingly he gave a finding that the deposits amount received by the assessee are in no way connected to the investments made by the assessee. Accordingly he deleted the disallowance made by the AO under Rule 8D Rule r.w.s 14A of the Act.

The ld DR supported the order passed by the AO and the ld AR supported the order passed by the ld CIT(A).

Having heard the rival contentions, we are of the view that the order passed by the ld CIT(A) does not call for any inference since a) The Ld CIT(A) has given a finding that the own funds available with the assessee has exceeded the value of investments and hence as per the decision rendered by Hon’ble Supreme Court in the case of Reliance Industries Ltd…(Civil Appeal No.10 of 2019 dated 02-01-2019), no disallowance out of interest expenditure is called for u/s 14A of the Act.

In the result, the appeal of the Revenue is dismissed.