SAUMAS MERCANTILES PVT. LTD.,KOLKATA vs. I.T.O., WARD-5(2), KOLKATA

The assessee in the present case is a company which is engaged in the business of manufacturing of machinery parts. The return of income for the year under consideration was filed by it on 28.03.2016 declaring a total income of Rs. 8,13,960/-. In the said return, dividend income of Rs. 3,78,549/- received during the year under consideration was claimed to be exempt by the assessee. In computation of the total income, a disallowance of Rs. 1,26,497/- was offered by the assessee suo moto u/s 14A in respect of expenditure

The learned counsel for the assessee submitted that the impugned addition was made by the AO and confirmed by the Ld. CIT(A) mainly by way of disallowance on account of interest as per Rule 8D(ii). He invited our attention to the copy of the relevant balance sheet of the assessee to show that sufficient own funds in the form of share capital amounting to Rs. 99.67 lacs and reserves and surplus amounting to Rs. 6.86 crores were available with the assessee at the relevant time and the same being more than the investment of Rs. 2.58 crores made in the shares, there was a presumption available to be drawn that the investment in shares was made by the assessee out of its own funds and not out of the borrowed funds. He contended that the disallowance made by the AO u/s 14A read with Rule 8D(ii) on account of interest thus was not sustainable and the Ld. CIT(A) is not justified in confirming the same.

The learned DR, on the other hand, submitted that the investment in shares was made by the assessee in the earlier years and in the absence of anything brought on record by the assessee to establish that Assessment Year: 2015-16 Saumas Mercantiles Pvt. Ltd.

I have considered the rival contention and also perused the relevant material available on record. It is observed that the investment made by the assessee in shares was Rs. 2.58 crores at the beginning of the year under consideration while the same was reduced to 56.60 lacs at the end of the year i.e. 31.03.2015. A perusal of the relevant balance sheet of the assessee company shows that sufficient own funds in the form of share capital and reserves were available with the assessee at the beginning of the year under consideration to the extent of Rs. 7.06 crores which were increased to 7.85 crores as on 31.03.2015. The own funds available with the assessee company at the relevant time thus were much more than the investment made in the shares and since it was a case of mix funds, I find merit in the contention of the learned counsel for the assessee that the presumption is that its own funds were utilised by the assessee company for making investment in shares. The investment in shares thus was not made by the assessee company out of its borrowed funds and the disallowance made by the AO and confirmed by the Ld. CIT(A) on account of interest u/s 14A read with Rule 8D(ii) is not sustainable. I accordingly delete the said disallowance and allow this appeal of the assessee.

In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 13th September, 2019.