Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM
The appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals), Pune-5, Pune dated 10.03.2017 relating to assessment year 2012-13 against order passed under section 144 of the Income Tax Act, 1961 ( in short ‘the Act’).
The assessee has raised following grounds of appeal:-
2 ITA No.1623/PUN/2017 A.Y.2012-13
“On facts and in law- 1. The learned CIT(A) erred in confirming the disallowance of entire amount of interest expenditure of Rs.26,96,118/- u/s.14A r.w.r.8D. For this and such other grounds as may be urged at the time of hearing, the order of the CIT(Appeals) and the assessing officer may be vacated and the appellant’s claim may be allowed or any suitable directions issued. 2. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
The only issue raised in the present appeal is against the disallowance
made u/s.14A r.w.r.8D of the I.T. Rules, 1962.
Briefly in the facts of the case, the assessee was engaged in the business
of construction activities. The assessee had furnished return of income declaring
total income of Rs. Nil. The case of the assessee was picked up for scrutiny. The
Assessing Officer disallowed the depreciation of Rs.18,41,609/- and also
disallowed interest expenditure of Rs.26,96,118/- since, it related to exempt
investment. The said disallowance was made u/s.14A of the Act.
The CIT(A) upheld the disallowance of interest since the assessee failed to
establish that the borrowed funds have been utilized for the purpose of business
and not for the investment in funds from which tax free income was being
generated. With regard to the claim of depreciation, the same was allowed by the
CIT(A).
The assessee is in appeal against the disallowance of entire amount of
interest expenditure of Rs.26,96,118/-.
The Ld. AR for the assessee pointed out that no part of interest
expenditure is to be disallowed in the hands of the assessee. He referred to the
Balance Sheet placed at page 5 of the paper book wherein the assessee had
negative capital account of Rs.1.56 Crores and had unsecured loan of Rs.27.98
3 ITA No.1623/PUN/2017 A.Y.2012-13
Crores against which investment totaled to Rs.20.53 Crores. He referred to the
bifurcation of the investment at page 7 of the paper book which reveals that the
investment of Rs.20.53 Crores was the net investment after debiting the negative
capital account of Rs.1.20 Crores. The Ld. AR further referred to Page 13 of the
paper book in which details of unsecured loans of Rs.27.98 Crores are placed and
pointed out only two loans of Rs.7,00,000/- and Rs.51,000/- were interest bearing
funds and rest of the funds were interest free funds. He pointed out that interest of
Rs.26,96,118/- debited to P & L account was on account of interest paid to
concern in which the assessee had negative capital balance. He, thus, pointed out
that since the interest was paid on the debit balance in the partnership firm and no
interest was relatable to the interest free funds available with the assessee, there
is no merit in the disallowance made in the hands of assessee.
On the other hand, Ld. DR for the Revenue placing reliance on the order of
CIT(A) pointed out that the assessee had failed to establish nexus and hence,
there is no merit in the claim of the assessee.
On perusal of the record and after hearing both the Authorized
representatives, the issue which needs to be adjudicated in the present appeal is
disallowance u/s.14A of the Act. The said provisions of section provide that where
the assessee had made investment in funds, income from which is exempt from
tax and on the other hand, the assessee had utilized interest bearing funds for
making the aforesaid investments, then suitable disallowance as per provisions of
section 8D of the IT Rules are to be worked out in the hands of assessee. In the
facts of the present case before me, admittedly the assessee has made
investment to the extent of Rs.20.53 Crores net and gross Rs.21.73 Crores, the
income arising on which was exempt income from tax. Further, the assessee had
negative capital account of Rs.1.56 Crores, in other words, interest free funds
utilized were to the extent of Rs.23.30 Crores.
4 ITA No.1623/PUN/2017 A.Y.2012-13
On the other hand, assessee claims to have raised unsecured loans from parties to the extent of Rs.27.98 Crores, out of which interest is being paid only on loans amounting to Rs.7,51,000/-. In such circumstances, the plea of the assessee is that it had sufficient interest free funds available with it to park the same in funds, income from which was exempt from tax. It had also pointed out that the total interest debited during the year of Rs.26,96,118/- related to the debit balance in the capital account of the assessee and had no relation to the investment made, income from which is exempt from tax. The Ld. AR for the assessee in this regard has placed reliance on the ratio laid down by the Pune Bench of the Tribunal in the case of Shri Gajendra D. Pawar Vs. DCIT, ITA Nos.1009 to 1012/PUN/2015, for the assessment years 2005-06 to 2008-09 dated 31.10.2017 wherein it has been held that the availability of funds are to be seen as on the date of Balance Sheet. The said proposition has been laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. reported as 313 ITR 340 (Bom.) which has been applied by the Pune Bench of the Tribunal. As far as availability of interest free funds with the assessee are covered and the investment made by the assessee, income from which is exempt from tax, then no disallowance merits to be made in the hands of the assessee u/s.14A of the Act. Accordingly, Assessing Officer is directed to delete addition of Rs.26,96,118/-. Thus, the solitary ground raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on 22nd day of October, 2018.
Sd/- (SUSHMA CHOWLA) �या�यक सद�य/JUDICIAL MEMBER
पुणे / Pune; �दनांक / Dated : 22nd October, 2018. SB
5 ITA No.1623/PUN/2017 A.Y.2012-13
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals), Pune-5, Pune. 4. The Pr. CIT-4, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, 5. पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.