M/S. REXTONE FINANCE LTD. (NOW KNOWN AS M/S. REXTONE DIGITAL LTD.),MUMBAI vs. D.C.I.T - 13(3)(1), MUMBAI

The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with section 8D of the Rules (hereinafter the ‘Rules’). For this assessee has raised the following three grounds: - “1. The teamed CIT (Appeals) has erred in law, facts & circumstances of the case while confirming the disallowance of Rs. 9,30,749/- u/s sec 14A r.w.r 8D of the income Fax Act, 1961. 2. The learned CIT (Appeals) Officer has erred in law, facts & circumstances of the case while confirming the disallowance of interest amounting to Rs. 9,30,749/- u/s sec 14A r.w.r 8D of the Income Fax Act. 1961 to the total income of the assessee in view of the fact that on Funds (Share Capital Reserves) are in excess of investment in Tax Free Securities.

At the outset, the learned Counsel for the assessee took us through the disallowance of expenses relatable to exempt income computed by the AO in para 5.2 of his order. According to the learned Counsel, the AO disallowed the interest under Rule 8D(2)(ii) at ₹ 7,93,768/- and administrative expenses under Rule 8D(2)(iii) of the rules, being an amount equal to 1 and ½ % of the average value of investment amounting to ₹ 1,36,981/- thereby the total disallowance made under section 14A of the Act read with Rule 8D of the Rules of ₹ 9,30,749/-. The CIT(A) simply confirm the action of the Assessing Officer. Aggrieved, assessee came in appeal before Tribunal.

Before us, the learned Counsel for the assessee stated that the assessee has no issue as regards to the disallowance of administrative expenses at ₹ 1,36,981/- but only requested that the disallowance of interest expenses should be deleted. He stated that neither the AO nor CIT(A) has considered the issue of availability of funds i.e. tax free funds available with the assessee being share capital and reserve and tax free investments made by assessee as under: - Tax free investment 01.04.2012 ₹ 2,75,32,314/- 31.03.2013 ₹ 2,72,59,970/- Average value ₹ 2,73,96,142/- 4 ITAs No. 826/Mum/2018 Share capital & Reserves 31.03.2012 ₹ 3,53,92,973 (₹ 3,28,77,000/- + ₹ 25,15,973/-)

The learned Counsel for the assessee in view of the above stated that these needs examination at the level of AO and in case these facts are correct, the AO will delete the disallowance in view of the decision of Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd.

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