GUJARAT APOLLO INDUSTRIES LIMITED,,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1),, AHMEDABAD

The assessee has raised five grounds in its appeal, which read as under:

Brief facts of the case as emerging from the record is that assessee-company is engaged in the business of manufacturing and dealing in road construction and maintenance machinery and crushing and screening equipment. Assessee has filed its return on 29.11.2014 declaring total income at Rs.1,56,98,44,760/- under normal provision of the Act and Rs.66,87,64,960/- under section 115JB of the Act. The return was processed under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment. During the assessment proceedings, it was noticed by the AO that the assessee has paid payment of commission of Rs.18,84,793/- on export sales on which TDS was not deducted by the assessee. The ld.AO proposed disallowance

Aggrieved against the order of the AO, assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) also, the assessee maintained similar explanations that the agents are non- residents; they have no permanent establishment in India; not having any chargeable income tax in India; and that similar claim was allowed by the ld.CIT(A) in the assessment year 2013-14. However, the ld.CIT(A) also not satisfied with the explanation of the assessee, mainly on the ground that the assessee has not proved each sales commission paid with documentary evidences, more so when the list of the persons to whom commission was paid included the names of Indians, and whether their income was

Before us also submissions of the ld.counsel for the assessee are more or less on the similar line as were made before the lower authorities. However, he further submitted that similar issue came up before the Tribunal in assessee’s own case for the Asstt.Year 2013-14, and the Tribunal in ITA No.3046/Ahd/2016 vide order dated 19.1.2021 allowed claim of the assessee. While allowing the claim assessee, the Tribunal also followed decision of the Co-ordinate Bench of the Tribunal in the appeal filed by the 4

We have given our thoughtfull consideration to the facts of the case. We also gone through the material available on record and also orders cited by the ld.counsel for the assessee. The ld.AR filed paper book no.2 which contained page nos.121 to 169 wherein a chart showing details of commission on sale paid to various foreign nationals and domestic persons. The assessee has also placed before us Form No.15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties. One among this is Mr.Binod Shah, Form No.15CB clearly mentioned that he belongs to Nepal and he was paid commission 72,1000/- on 5.6.2013 and also Rs.2,41,966/- on the very same day. However, these copies of the chart, Form no.15CB and form no.CA were not produced before the lower authorities due to shortage of time, and therefore, the ld.counsel for the assessee submitted that these documents may be entertained by the Tribunal invoking Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and further pleaded that the similar is being allowed in favour of the assessee by Co-ordinate Bench in the Asst.Year 2013-14. The ld.DR for the Revenue has no serious objection for entertaining the above new documents on records and to be verified by the AO.

In light of the above facts fact that these new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose.

Assessee has not pressed ground no.2 for adjudication, therefore, this ground is dismissed for want of prosecution.

So far as ground no.3 and 4 in respect of disallowance under section 14A read with Rule 8D of the Act are concerned, a brief facts of the case is that during the assessment proceedings, the ld.AO noticed that the assessee has received dividend of Rs.1,57,78,392/- from mutual funds, and claimed as exempt income. The assessee itself has not disallowed any expenditure for earning such exempt income. In the absence of the details thereof, the ld.AO sought details of the working under section 14A for computation of total income. It was explained by the assessee that investment was made from the sale proceeds of one of the business concerns of the assessee. Assessee had sufficient interest free funds available with it at the relevant time such as equity capital, reserves and surplus etc. and no borrowed funds were utilized for the purpose of investment. Further, it was submitted that assessee has not incurred any interest cost and book profits were declared consistently year after year. It was submitted that no separate manpower or administrative expenses 6

Aggrieved against these disallowances the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions made before the AO. It is further submitted that assessee has received an amount of Rs.225.08 crores from sale one of its business, and out of that an amount of Rs.201 crores has been transferred to portfolio management and investment through Kotak Bank Securities. Further, the assessee has earned interest income of Rs.10.23 crores, and against which only Rs.3.75 crores incurred as interest expenses and the net interest income was offered to tax. Assessee has also contended that no addition should be made under section 14A to book profit computed under section 115JB of the Act, and relied upon the decisions in the cases of ACIT Vs. Vireet Investment, ITA

The ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that so far as disallowance under section 14A of the Act is concerned, from the books of accounts for the year under consideration it is very clear that the assessee has sufficient interest free funds in the form of share capital, reserves and surplus and other cash reserves for making such investment. The assessee has not utilized any borrowed capital for the purpose of the impugned investment. It is settled proposition of the law that when interest free funds available with the assessee were more than the investment and/or borrowed funds, then no disallowance is to be made under section 14A of the Act. As submitted before the lower authorities, the impugned investment was made out of sale proceeds received from the sale of business of the assessee which was reflected in the books of accounts, and such investments are strategic investment for the purpose of the business. Though the ld.CIT(A) in principle agreed with the assessee that investment has

We have given our thoughtful consideration to the facts of the case, and gone through the orders of the Revenue authorities. We find that issue before us has two folds, viz. (i) whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses Rs.38,02,347/- to the extent of 0.5% of average investment was correct or not, and (ii) whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A read with Rule 8D

So far as first fold of dispute is concerned, it is undisputed fact that the assessee has received an amount of Rs.225 crores from sale of business out of which Rs.201 has been transferred to Kotak Securities for investment. Further, it is also not in dispute that annual report of the assessee showed that assessee also got enough reserves and surplus of Rs.276.83 cores. Therefore, assessee’s capital, profit reserves, surplus and bank deposits were higher than the investment in tax free securities, therefore, it could be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under section 14A of the Act. As noted by the Revenue authorities during the assessment proceedings, the assessee has received dividend income of Rs.157,78,392/- from mutual funds, and offered suo moto disallowance of Rs.3,98,520/- after considering a portion of accountant salary in maintaining of the investment. However, the ld.AO disbelieved the claim of the assessee and he proceeded to compute the disallowance by invoking the provisions of section 14A read with Rule 8D(2) of IT Rules and accordingly Rs.1,34,23,645/- added to the total income of the assessee. However, the ld.CIT(A) though in principle concurred with the claim of the assessee in respect of utilization of interest free and surplus funds for the impugned investment, and accordingly deleted the disallowance in respect of interest expenses made under Rule 8D(2)(ii), but he retained administrative expenses to the extent of Rs.42,00,867/- being 0.5% of the average investment and the ld.AO was directed to restrict the disallowance to the extent of differential i.e. Rs.38,02,437/-. However, it is not

So far as second issue i.e. whether amount of disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose or not, is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P.Ltd., 165 ITD 27 wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance of Rs.3,98,520/- for the purpose of calculation of book profits u/s.115JB of the Act.

Now we take ground no.5 in respect of confirmation of addition of Rs.3,18,140/- on account of mismatch of TDS as per Form 26AS.

On verification of Form 26AS, it was noticed by the AO that the assessee had claimed TDS of Rs.93,69,723/- against 11

After hearing both the sides, and having gone through the orders of the lower authorities, we find that impugned mismatch of TDS has happened due to difference in TDS claimed by the assessee of Rs.93,69,723/- and the amount of TDS shown in the Form No.26AS of Rs.94,01,537/-. The fact that the assessee has given advances to TESCO Projects P.Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank.

Considering the above facts of the case, we are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. The AO shall verify the claim of the assessee on the issue by examining relevant ledger accounts of the assessee and thereafter verify corresponding contra account from TESCO Projects showing whether or not interest payment has been made to the assessee. If the AO finds that no interest payment has been made to the assessee, then no addition is to be made, otherwise, the ld.AO may pass appropriate order in accordance with law after providing reasonable opportunity to the assessee. Needless to say, the assessee shall furnish all the details to support its case as and when called for by the AO.

In the result, appeal of the assessee is partly allowed for statistical purpose.

The assessee has raised five grounds in its appeal, which read as under:

Brief facts of the case as emerging from the record is that assessee-company is engaged in the business of manufacturing and dealing in road construction and maintenance machinery and crushing and screening equipment. Assessee has filed its return on 29.11.2014 declaring total income at Rs.1,56,98,44,760/- under normal provision of the Act and Rs.66,87,64,960/- under section 115JB of the Act. The return was processed under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment. During the assessment proceedings, it was noticed by the AO that the assessee has paid payment of commission of Rs.18,84,793/- on export sales on which TDS was not deducted by the assessee. The ld.AO proposed disallowance

Aggrieved against the order of the AO, assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) also, the assessee maintained similar explanations that the agents are non- residents; they have no permanent establishment in India; not having any chargeable income tax in India; and that similar claim was allowed by the ld.CIT(A) in the assessment year 2013-14. However, the ld.CIT(A) also not satisfied with the explanation of the assessee, mainly on the ground that the assessee has not proved each sales commission paid with documentary evidences, more so when the list of the persons to whom commission was paid included the names of Indians, and whether their income was

Before us also submissions of the ld.counsel for the assessee are more or less on the similar line as were made before the lower authorities. However, he further submitted that similar issue came up before the Tribunal in assessee’s own case for the Asstt.Year 2013-14, and the Tribunal in ITA No.3046/Ahd/2016 vide order dated 19.1.2021 allowed claim of the assessee. While allowing the claim assessee, the Tribunal also followed decision of the Co-ordinate Bench of the Tribunal in the appeal filed by the 4

We have given our thoughtfull consideration to the facts of the case. We also gone through the material available on record and also orders cited by the ld.counsel for the assessee. The ld.AR filed paper book no.2 which contained page nos.121 to 169 wherein a chart showing details of commission on sale paid to various foreign nationals and domestic persons. The assessee has also placed before us Form No.15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties. One among this is Mr.Binod Shah, Form No.15CB clearly mentioned that he belongs to Nepal and he was paid commission 72,1000/- on 5.6.2013 and also Rs.2,41,966/- on the very same day. However, these copies of the chart, Form no.15CB and form no.CA were not produced before the lower authorities due to shortage of time, and therefore, the ld.counsel for the assessee submitted that these documents may be entertained by the Tribunal invoking Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and further pleaded that the similar is being allowed in favour of the assessee by Co-ordinate Bench in the Asst.Year 2013-14. The ld.DR for the Revenue has no serious objection for entertaining the above new documents on records and to be verified by the AO.

In light of the above facts fact that these new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose.

Assessee has not pressed ground no.2 for adjudication, therefore, this ground is dismissed for want of prosecution.

So far as ground no.3 and 4 in respect of disallowance under section 14A read with Rule 8D of the Act are concerned, a brief facts of the case is that during the assessment proceedings, the ld.AO noticed that the assessee has received dividend of Rs.1,57,78,392/- from mutual funds, and claimed as exempt income. The assessee itself has not disallowed any expenditure for earning such exempt income. In the absence of the details thereof, the ld.AO sought details of the working under section 14A for computation of total income. It was explained by the assessee that investment was made from the sale proceeds of one of the business concerns of the assessee. Assessee had sufficient interest free funds available with it at the relevant time such as equity capital, reserves and surplus etc. and no borrowed funds were utilized for the purpose of investment. Further, it was submitted that assessee has not incurred any interest cost and book profits were declared consistently year after year. It was submitted that no separate manpower or administrative expenses 6

Aggrieved against these disallowances the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions made before the AO. It is further submitted that assessee has received an amount of Rs.225.08 crores from sale one of its business, and out of that an amount of Rs.201 crores has been transferred to portfolio management and investment through Kotak Bank Securities. Further, the assessee has earned interest income of Rs.10.23 crores, and against which only Rs.3.75 crores incurred as interest expenses and the net interest income was offered to tax. Assessee has also contended that no addition should be made under section 14A to book profit computed under section 115JB of the Act, and relied upon the decisions in the cases of ACIT Vs. Vireet Investment, ITA

The ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that so far as disallowance under section 14A of the Act is concerned, from the books of accounts for the year under consideration it is very clear that the assessee has sufficient interest free funds in the form of share capital, reserves and surplus and other cash reserves for making such investment. The assessee has not utilized any borrowed capital for the purpose of the impugned investment. It is settled proposition of the law that when interest free funds available with the assessee were more than the investment and/or borrowed funds, then no disallowance is to be made under section 14A of the Act. As submitted before the lower authorities, the impugned investment was made out of sale proceeds received from the sale of business of the assessee which was reflected in the books of accounts, and such investments are strategic investment for the purpose of the business. Though the ld.CIT(A) in principle agreed with the assessee that investment has

We have given our thoughtful consideration to the facts of the case, and gone through the orders of the Revenue authorities. We find that issue before us has two folds, viz. (i) whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses Rs.38,02,347/- to the extent of 0.5% of average investment was correct or not, and (ii) whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A read with Rule 8D

So far as first fold of dispute is concerned, it is undisputed fact that the assessee has received an amount of Rs.225 crores from sale of business out of which Rs.201 has been transferred to Kotak Securities for investment. Further, it is also not in dispute that annual report of the assessee showed that assessee also got enough reserves and surplus of Rs.276.83 cores. Therefore, assessee’s capital, profit reserves, surplus and bank deposits were higher than the investment in tax free securities, therefore, it could be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under section 14A of the Act. As noted by the Revenue authorities during the assessment proceedings, the assessee has received dividend income of Rs.157,78,392/- from mutual funds, and offered suo moto disallowance of Rs.3,98,520/- after considering a portion of accountant salary in maintaining of the investment. However, the ld.AO disbelieved the claim of the assessee and he proceeded to compute the disallowance by invoking the provisions of section 14A read with Rule 8D(2) of IT Rules and accordingly Rs.1,34,23,645/- added to the total income of the assessee. However, the ld.CIT(A) though in principle concurred with the claim of the assessee in respect of utilization of interest free and surplus funds for the impugned investment, and accordingly deleted the disallowance in respect of interest expenses made under Rule 8D(2)(ii), but he retained administrative expenses to the extent of Rs.42,00,867/- being 0.5% of the average investment and the ld.AO was directed to restrict the disallowance to the extent of differential i.e. Rs.38,02,437/-. However, it is not

So far as second issue i.e. whether amount of disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose or not, is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P.Ltd., 165 ITD 27 wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance of Rs.3,98,520/- for the purpose of calculation of book profits u/s.115JB of the Act.

Now we take ground no.5 in respect of confirmation of addition of Rs.3,18,140/- on account of mismatch of TDS as per Form 26AS.

On verification of Form 26AS, it was noticed by the AO that the assessee had claimed TDS of Rs.93,69,723/- against 11

After hearing both the sides, and having gone through the orders of the lower authorities, we find that impugned mismatch of TDS has happened due to difference in TDS claimed by the assessee of Rs.93,69,723/- and the amount of TDS shown in the Form No.26AS of Rs.94,01,537/-. The fact that the assessee has given advances to TESCO Projects P.Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank.

Considering the above facts of the case, we are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. The AO shall verify the claim of the assessee on the issue by examining relevant ledger accounts of the assessee and thereafter verify corresponding contra account from TESCO Projects showing whether or not interest payment has been made to the assessee. If the AO finds that no interest payment has been made to the assessee, then no addition is to be made, otherwise, the ld.AO may pass appropriate order in accordance with law after providing reasonable opportunity to the assessee. Needless to say, the assessee shall furnish all the details to support its case as and when called for by the AO.

In the result, appeal of the assessee is partly allowed for statistical purpose.

The assessee has raised five grounds in its appeal, which read as under:

Brief facts of the case as emerging from the record is that assessee-company is engaged in the business of manufacturing and dealing in road construction and maintenance machinery and crushing and screening equipment. Assessee has filed its return on 29.11.2014 declaring total income at Rs.1,56,98,44,760/- under normal provision of the Act and Rs.66,87,64,960/- under section 115JB of the Act. The return was processed under section 143(1) of the Act, the case of the assessee was selected for scrutiny assessment. During the assessment proceedings, it was noticed by the AO that the assessee has paid payment of commission of Rs.18,84,793/- on export sales on which TDS was not deducted by the assessee. The ld.AO proposed disallowance

Aggrieved against the order of the AO, assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) also, the assessee maintained similar explanations that the agents are non- residents; they have no permanent establishment in India; not having any chargeable income tax in India; and that similar claim was allowed by the ld.CIT(A) in the assessment year 2013-14. However, the ld.CIT(A) also not satisfied with the explanation of the assessee, mainly on the ground that the assessee has not proved each sales commission paid with documentary evidences, more so when the list of the persons to whom commission was paid included the names of Indians, and whether their income was

Before us also submissions of the ld.counsel for the assessee are more or less on the similar line as were made before the lower authorities. However, he further submitted that similar issue came up before the Tribunal in assessee’s own case for the Asstt.Year 2013-14, and the Tribunal in ITA No.3046/Ahd/2016 vide order dated 19.1.2021 allowed claim of the assessee. While allowing the claim assessee, the Tribunal also followed decision of the Co-ordinate Bench of the Tribunal in the appeal filed by the 4

We have given our thoughtfull consideration to the facts of the case. We also gone through the material available on record and also orders cited by the ld.counsel for the assessee. The ld.AR filed paper book no.2 which contained page nos.121 to 169 wherein a chart showing details of commission on sale paid to various foreign nationals and domestic persons. The assessee has also placed before us Form No.15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties. One among this is Mr.Binod Shah, Form No.15CB clearly mentioned that he belongs to Nepal and he was paid commission 72,1000/- on 5.6.2013 and also Rs.2,41,966/- on the very same day. However, these copies of the chart, Form no.15CB and form no.CA were not produced before the lower authorities due to shortage of time, and therefore, the ld.counsel for the assessee submitted that these documents may be entertained by the Tribunal invoking Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and further pleaded that the similar is being allowed in favour of the assessee by Co-ordinate Bench in the Asst.Year 2013-14. The ld.DR for the Revenue has no serious objection for entertaining the above new documents on records and to be verified by the AO.

In light of the above facts fact that these new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose.

Assessee has not pressed ground no.2 for adjudication, therefore, this ground is dismissed for want of prosecution.

So far as ground no.3 and 4 in respect of disallowance under section 14A read with Rule 8D of the Act are concerned, a brief facts of the case is that during the assessment proceedings, the ld.AO noticed that the assessee has received dividend of Rs.1,57,78,392/- from mutual funds, and claimed as exempt income. The assessee itself has not disallowed any expenditure for earning such exempt income. In the absence of the details thereof, the ld.AO sought details of the working under section 14A for computation of total income. It was explained by the assessee that investment was made from the sale proceeds of one of the business concerns of the assessee. Assessee had sufficient interest free funds available with it at the relevant time such as equity capital, reserves and surplus etc. and no borrowed funds were utilized for the purpose of investment. Further, it was submitted that assessee has not incurred any interest cost and book profits were declared consistently year after year. It was submitted that no separate manpower or administrative expenses 6

Aggrieved against these disallowances the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions made before the AO. It is further submitted that assessee has received an amount of Rs.225.08 crores from sale one of its business, and out of that an amount of Rs.201 crores has been transferred to portfolio management and investment through Kotak Bank Securities. Further, the assessee has earned interest income of Rs.10.23 crores, and against which only Rs.3.75 crores incurred as interest expenses and the net interest income was offered to tax. Assessee has also contended that no addition should be made under section 14A to book profit computed under section 115JB of the Act, and relied upon the decisions in the cases of ACIT Vs. Vireet Investment, ITA

The ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that so far as disallowance under section 14A of the Act is concerned, from the books of accounts for the year under consideration it is very clear that the assessee has sufficient interest free funds in the form of share capital, reserves and surplus and other cash reserves for making such investment. The assessee has not utilized any borrowed capital for the purpose of the impugned investment. It is settled proposition of the law that when interest free funds available with the assessee were more than the investment and/or borrowed funds, then no disallowance is to be made under section 14A of the Act. As submitted before the lower authorities, the impugned investment was made out of sale proceeds received from the sale of business of the assessee which was reflected in the books of accounts, and such investments are strategic investment for the purpose of the business. Though the ld.CIT(A) in principle agreed with the assessee that investment has

We have given our thoughtful consideration to the facts of the case, and gone through the orders of the Revenue authorities. We find that issue before us has two folds, viz. (i) whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses Rs.38,02,347/- to the extent of 0.5% of average investment was correct or not, and (ii) whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A read with Rule 8D

So far as first fold of dispute is concerned, it is undisputed fact that the assessee has received an amount of Rs.225 crores from sale of business out of which Rs.201 has been transferred to Kotak Securities for investment. Further, it is also not in dispute that annual report of the assessee showed that assessee also got enough reserves and surplus of Rs.276.83 cores. Therefore, assessee’s capital, profit reserves, surplus and bank deposits were higher than the investment in tax free securities, therefore, it could be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under section 14A of the Act. As noted by the Revenue authorities during the assessment proceedings, the assessee has received dividend income of Rs.157,78,392/- from mutual funds, and offered suo moto disallowance of Rs.3,98,520/- after considering a portion of accountant salary in maintaining of the investment. However, the ld.AO disbelieved the claim of the assessee and he proceeded to compute the disallowance by invoking the provisions of section 14A read with Rule 8D(2) of IT Rules and accordingly Rs.1,34,23,645/- added to the total income of the assessee. However, the ld.CIT(A) though in principle concurred with the claim of the assessee in respect of utilization of interest free and surplus funds for the impugned investment, and accordingly deleted the disallowance in respect of interest expenses made under Rule 8D(2)(ii), but he retained administrative expenses to the extent of Rs.42,00,867/- being 0.5% of the average investment and the ld.AO was directed to restrict the disallowance to the extent of differential i.e. Rs.38,02,437/-. However, it is not

So far as second issue i.e. whether amount of disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose or not, is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P.Ltd., 165 ITD 27 wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance of Rs.3,98,520/- for the purpose of calculation of book profits u/s.115JB of the Act.

Now we take ground no.5 in respect of confirmation of addition of Rs.3,18,140/- on account of mismatch of TDS as per Form 26AS.

On verification of Form 26AS, it was noticed by the AO that the assessee had claimed TDS of Rs.93,69,723/- against 11

After hearing both the sides, and having gone through the orders of the lower authorities, we find that impugned mismatch of TDS has happened due to difference in TDS claimed by the assessee of Rs.93,69,723/- and the amount of TDS shown in the Form No.26AS of Rs.94,01,537/-. The fact that the assessee has given advances to TESCO Projects P.Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank.

Considering the above facts of the case, we are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. The AO shall verify the claim of the assessee on the issue by examining relevant ledger accounts of the assessee and thereafter verify corresponding contra account from TESCO Projects showing whether or not interest payment has been made to the assessee. If the AO finds that no interest payment has been made to the assessee, then no addition is to be made, otherwise, the ld.AO may pass appropriate order in accordance with law after providing reasonable opportunity to the assessee. Needless to say, the assessee shall furnish all the details to support its case as and when called for by the AO.

In the result, appeal of the assessee is partly allowed for statistical purpose.