NANDKISHOR SHIVNARYAN ATTAL,NASHIK vs. INCOME-TAX OFFICER, WARD - 3(1), NASHIK

आदेश आदेश आदेश

PER SUSHMA CHOWLA, JM:

The captioned appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals) – 1, Nashik dated 10.07.2017 relating to assessment year 2014-15 against order passed under section 143(3) of the Income Tax Act 1961 (in short ‘the Act’).

“1. On the facts and in the circumstances Hon. CIT Appeal is not justified in confirming the addition u/s.14A even though the assessee have sufficient interest free funds to cover the investment in assets income from which is tax free.

moved an application for adjournment. The appeal was adjourned to 26-12-2018 at the request of the assessee. However, none appeared on behalf

of the assessee on the appointed date nor any application was filed for adjournment. In view of the smallness of the issue, the appeal is heard ex

parte the assessee and is decided after hearing the ld. Departmental

Representative for the Revenue.

by the Assessing Officer under section 14A of the Act read with Rule 8D(2)(ii)

of the Act. In the grounds of appeal itself, the assessee pointed out that he had sufficient interest free funds available to cover the investments in assets, the income from which was exempt.

in trading in Onion and Adat income. For the year under consideration, the assessee had filed return of income declaring total income of Rs.12,85,463/-.

The Assessing Officer noted that the assessee had earned exempt income

from the investment in PPF, UTI Masterplus and shares of RIL. The assessee

pointed out that he had made the aforesaid investments out of his own funds

which were interest free and hence, there was no merit in making any disallowance under section 14A of the Act. The Assessing Officer, however,

was of the view that the provisions of section 14A of the were applicable in the assessee’s case and he computed the disallowance under Rule 8D of the Income-tax Rules, 1962. The first disallowance was made under Rule 8D(2)(ii)

of Rs.1,30,460/- and the second under Rule 8D(2)(iii) of Rs.43,814/-. The said

disallowance made by the AO at Rs.1,74,274/- was upheld by the CIT(A) on the ground that the assessee had failed to establish the nexus between own funds

and the investments made. The CIT(A) also holds that no evidence was produced to show that the balance in the capital was interest free. Hence, the disallowance of Rs.1,74,274/- was upheld by the CIT(A). Reliance placed upon aforesaid disallowance made under section 14A of the Act read with Rule 8D(2)(ii) at Rs.1,30,460/-. Though, in the grounds of appeal, the assessee has not mentioned the amount of disallowance, the ground is specific to the effect

that there is no merit in confirmation of addition under section 14A of the Act

eventhough the assessee had interest free funds to cover the investments.

had clearly laid down the proposition that, in case the assessee has sufficient

own funds to cover the investments made, the income from which was exempt

from tax, then no disallowance is to be made under section 14A read with Rule

8D(2)(ii) of the Income Tax Rules, 1962. Applying the said principle to the facts

of the case, where the assessee has raised the aforesaid issue, then the same

cannot be brushed aside on the ground that the assessee failed to establish the nexus between own funds and interest free investments. It is not relevant for deciding the present issue. In case, the assessee has sufficient interest free

funds available with him in the form of capital or otherwise and it is sufficient to cover the investments, the income of which was exempt from tax, then, no disallowance is warranted under section 14A read with Rule 8D(2)(ii) of the Act.

Applying the said principle to the facts of the present case and since the assessee has failed to appear and file the necessary evidence on the appointed date, this issue is remitted back to the file of AO for the limited

purpose of verifying the availability of interest free funds. In case, the plea of the assessee is correct, then no disallowance is to be made in the hands of the assessee. Accordingly, the Assessing Officer is directed to verify the stand of the assessee in this regard and delete the addition in view of the above

direction.

Order pronounced on this 28th day of December, 2018. (SUSHMA CHOWLA) "याियक "याियक सद"य "याियक "याियक सद"य सद"य / JUDICIAL MEMBER सद"य

पुणे / Pune; "दनांक Dated : 28th December, 2018 Satish

आदेश आदेश क" आदेश आदेश क" क" "ितिलिप क" "ितिलिप "ितिलिप अ"ेिषत "ितिलिप अ"ेिषत अ"ेिषत/Copy of the Order is forwarded to : अ"ेिषत

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार स"यािपत "ित ////

Senior Private Secretary, आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune Date