Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI RAVISH SOOD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax-21, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’). Having gone through the affidavit filed by the assessee, we condone the delay of one day in filing the appeal by the appellant.
M/s Patan Solar Pvt. Ltd.
At the start of hearing, the Ld. counsel of the assessee submits that the assessee would not press the 1st ground of appeal
. Considering the submission, we dismiss the 1st ground of appeal as not pressed.
3. The 2nd ground of appeal filed by the assessee is against the order of the Ld. CIT(A) confirming the disallowance of Rs.91,72,479/- made by the Assessing Officer (AO) u/s 14A r.w. Rule 8D of the Income Tax Rules (the ‘Rules’). The additional grounds of appeal filed by the assessee reiterates the above ground. In a nutshell, the facts are that the assessee had received dividend of Rs.29,78,190/- during the year under consideration. During the course of assessment proceedings, the AO asked the assessee to explain why expenses relating to investment, income from which does not or shall not form part of the total income be disallowed u/s 14A r.w. Rule 8D. The assessee filed a reply dated 12.03.2015 which has been extracted at para 6.2 (page 6) of the assessment order dated 14.03.2015 by the AO. However, the AO was not convinced with the said reply of the assessee and relying on the decision in Godrej & Boyce Mfg. Co. Ltd. v. DCIT 234 CTR (Bom) 1 (2010) made a disallowance of Rs.91,72,479/- u/s 14A r.w. Rule 8D. The said disallowance comprises of Rs.51,61,823/- under Rule 8D(2)(ii) and Rs.40,10,656/- under Rule 8D(2)(iii).
4. In appeal, the Ld. CIT(A), relying on the decision in Godrej & Boyce Mfg. Co. Ltd. (supra) confirmed the disallowance made by the AO by observing that : “The dividends received is on investments financed out of borrowed funds. The share capital reserves as on 31.03.2011 was negative amount of Rs.97.25 M/s Patan Solar Pvt. Ltd. Rs.136 crores. The borrowings included short term facility from Syndicate Bank of Rs.27 crores. The balance was unsecured loans. This was deployed as loans and advances of Rs.71 crores, fixed deposits of Rs.45 crores and investments of Rs.11 crores. In the current year borrowings have come down and so has the investments. The borrowings at the end of the year is Rs.21 crores of unsecured loans. Against these unsecured loans, the utilisation is reflected in short term loan and advances of Rs.19 crores and investments of Rs.2 crores. Thus, there is no direct link of interest paid only to interest earned. The Rule 8D(2)(ii) takes care of this deployment of interest bearing funds by considering it as investment/total assets. Thus, the disallowance as per Rule 8D(2) is appropriate.” Thus, the Ld. CIT(A) confirmed the disallowance of Rs.91,72,479/- made by the AO.
5. Before us, the Ld. counsels of the assessee rely on the decision in Pr. CIT v. Nirma Credit & Capital (P.) Ltd. (2017) 85 taxmann.com 72 (Guj), arguing that for purpose of applying factors contained in clause (ii) of sub-Rule (2) of Rule 8D, prior to its amendment w.e.f. 02.06.2016, amount of expenditure by way of interest would be of interest paid by assessee on borrowings minus taxable interest earned during the financial year. Further, they rely on the decision in ACIT v. Vireet Investment (P.) Ltd. (2017) 82 taxmann.com 415 (Delhi-Trib) (SB). Also the Ld. counsels rely on the submission made before the AO as well as Ld. CIT(A). On the other hand, the Ld. DR relies on the order of the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below.
M/s Patan Solar Pvt. Ltd. A perusal of the balance sheet as at March 31, 2012 of the assessee-company indicates that its own funds (share capital, reserves and surplus) stand at Rs.2,58,61,888/- whereas the non-current investments are at Rs.2,04,25,400/-. In HDFC Bank Ltd. vs. DCIT [2016] 67 taxmann.com 42 (Bom), the Hon'ble Bombay High Court referring to the decision in CIT vs. HDFC Bank Ltd.[2014] 366 ITR 505 (Bom) and CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) held as under : “15. It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities & Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act.”
Respectfully following the above decision, we delete the disallowance of Rs.51,61,823/- made by the AO under Rule 8D(2)(ii).