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Before: Shri Ramit Kochar & Shri Duvvuru RL Reddy
आदेश / O R D E R PER DUVVURU RL REDDY, Judicial Member: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-6, Chennai dated 25.06.2019 relevant to the assessment year 2016-17. Besides challenging the confirmation of disallowance made under section 14A read with Rule 8D, the assessee also agitated confirmation of levy of interest under section 234A as well as 234B of the Income Tax Act, 1961 [“Act” in short].
Brief facts of the case are that the assessee has filed its return of income for the assessment year 2016-17 on 30.11.2016 admitting an income
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of ₹.19,60,94,110/-. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny and against the statutory notices, the assessee furnished the details. On verification of the details filed by the assessee, the Assessing Officer completed the assessment under section 143(3) of the Act by determining total income of the assessee at ₹.20,04,03,035/- after making disallowance under section 14A of the Act at ₹.43,08,925/- under normal provision. On appeal, while confirming the disallowance made under section 14A r.w. Rule 8D, the ld. CIT(A) also confirmed the levy of interest under section 234A and 234B of the Act.
On being aggrieved, the assessee is in appeal before the Tribunal. With regard to the disallowance made under section 14A of the Act, by referring to the balance sheet filed in the form of paper book, the ld. Counsel for the assessee has submitted that the assessee has sufficient own funds/internal accruals for making investments, the interest expenditure incurred by the assessee should not have been disallowed under section 14A r.w. Rule 8D(2)(ii) since no part of the borrowed funds were used by the assessee for making investments and prayed for deleting the disallowance of expenditure. On the other hand, the ld. DR supported the orders of authorities below.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. The assessee was found to have been invested ₹.28.57
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crores in shares as on 31.03.2015 and earned a dividend income of ₹.6,15,00,000/- during the year and claimed the same as exempt. However, the assessee has not admitted any expenditure attributable to such investments. Hence, by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer determined the expenditure attributable for earning such exempt income at ₹.43,08,925/- and brought to tax. Before the ld. CIT(A), the assessee has contended that the investments in the acquisition of shares were from its own interest free funds. The above contention of the assessee was not accepted by the ld. CIT(A) since the assessee was not maintaining any separate books of accounts for the investments in shares, nor there was a separate establishment to look after the investments in shares/funds. The ld. CIT(A) further observed that the assessee may be having substantial interest free own funds (in the form of capital/reserves and surpluses, etc.), but, this does not mean that the investments are made only from these own interest free funds, especially when the books are not maintained separately.
Various courts have held that when the assessee claimed that it had sufficient funds to cover investments in tax free securities which was corroborated by the financial audited report for various assessment years and the entire interest expenditure on borrowing fund was incurred in connection with the operating revenue which had been offered to tax, no disallowance is required to be made under section 14A of the Act [CIT v. Bharti Televenture Ltd. (2011) 331 ITR 502 (Del), CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom), PCIT v. Sintex Industries Ltd. (2018) 403 ITR 418(Guj),
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etc.]. On perusal of the appellate order, we find that the ld. CIT(A) has not disputed the financial status of the assessee having sufficient own funds to make investments in subsidiary. We have also perused the balance sheet filed by the assessee and find that the assessee had sufficient funds in the form of capital/reserves and surpluses. In these circumstances, we direct the Assessing Officer to delete the interest expenditure computed under Rule 8D(2)(ii) and to consider only those investments for computing average value of investment which yielded exempt income during the year under consideration as per Rule 8D(2)(iii) in view of the case law filed by the assessee in the case of ACIT v. Vireet Investment (P) Ltd. (2017) 165 ITD 27 (Delhi)(SB). Thus, the ground raised by the assessee is partly allowed for statistical purposes.
The next ground relates to confirmation of levy of interest under section 234A of the Act amounting to ₹.4,02,362/-. Against the levy of interest under section 234A of the Act, the ld. CIT(A) has not given any specific findings, instead, he held that levy of interest under section 234A, 234B and 234C of the Act is automatic and mandatory. The above observation is found to be incorrect. As per section 234A of the Act, interest could be levied for defaults in furnishing return of income. However, in the grounds of appeal, the assessee has raised a specific ground that the ld. CIT(A) ought to have appreciated that the assessee filed its return of income for the AY 2016-17 on 30.11.2016 (i.e.) on the due date for filing return of income and the ld. Counsel for the assessee has submitted that since there was no delay in filing the return of income, levy
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of interest under section 234A of the Act does not arise. Thus, we direct the Assessing Officer to verify the due date of filing of return of income and decide levying interest under section 234A of the Act afresh in accordance with law. However, interest under section 234B of the Act could be levied after attaining finality of main issue under adjudication. Thus, the ground raised by the assessee is partly allowed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on the 29th January, 2020 in Chennai.
Sd/- Sd/- (RAMIT KOCHAR) (DUVVURU RL REDDY) ACCOUNTANT MEMBER JUDICIAL MEMBER
Chennai, Dated, 29.01.2020 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.