KAMLESH KANUGO,MUMBAI vs. ACIT 15(3), MUMBAI

In this appeal assessee is aggrieved by the confirmation by the learned CIT(A) of the following additions :-

Sr. No. Particulars Amount (Rs) A Addition on account of un-reconciled interest receipt 83,765/- B Disallowance of notional interest on borrowed fund 13,74,401/- C Disallowance of under section 14A 3,04,954/- D Disallowance under Section 40(a)(ia) 7,692/- E Ad-hoc disallowance of conveyance and vehicle expenses 11,911/- F Ad-hoc disallowance of depreciation on vehicle 27,197/-

This appeal was earlier disposed of by the Tribunal vide order dated 30/5/18. Subsequently by order dated 10.4.19 in Miscellaneous Application this order was recalled for adjudicating issue relating to disallowance of interest and disallowance under section 14A which had remained to be adjudicated. Pursuant to the aforesaid recall this appeal has been heard by us. We have heard both the counsel and perused the records.

At the outset learned counsel of the assessee submitted that on the both the issues of disallowance of interest and disallowance under section 14A assessee had submitted before the learned CIT(appeals) that assessee has sufficient own/interest free funds. Hence learned counsel submitted that it was pleaded before the learned CIT(A) that no disallowance for interest for diversion of funds or earning of exempt income can be done. However learned CIT(A) has dismissed this ground taken by the assessee by holding that assessee's funds are intermingled and that assessee was not in a position to correlate the interest free funds and the investment, interest upon which are subject matter of disallowance.

In this regard it is the submission of the learned counsel of the assessee that this approach of learned CIT(A) is not in consonance with the honourable jurisdictional High Court decision in the case of HDFC Bank Ltd. (WP No. 1753 of 2016 dt. 25.2.2016) and Reliance Utilities & Power Ltd. (178 Taxman 135), wherein it was held that if interest free funds are sufficiently available no disallowance for diversion or earning exempt income can be done and that assessee was not required to make one-to-one correlation.

In this view of the matter upon hearing both the Counsel and perusing the records, we in the interest of justice remit both these issues to the file of the assessing officer. The assessing officer shall consider this issue by examining the factual records. If assessee's interest free funds are sufficient to cover the impugned investment no disallowance for interest in this regard is required. Needless to add assessee should be granted adequate opportunity of being heard.