RANADEY MICRONUTRIENTS PVT.LTD,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX, PUNE

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ITA 638/PUN/2017Status: DisposedITAT Pune28 September 2018AY 2008-094 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that where interest-free funds available with the assessee are more than the investments made, it is presumed that the investments were made out of such interest-free funds. Therefore, the disallowance of interest expenditure was deleted.

What were the facts?

The assessee company claimed a disallowance of Rs. 23,22,105/- under Section 14A read with Rule 8D(2)(ii) for interest expenditure. The assessee argued that investments were made from interest-free funds, which were more than the total investments. The Assessing Officer and CIT(A) rejected this contention.

What were the issues?

Whether interest expenditure is disallowable under Section 14A when the assessee has sufficient interest-free funds to cover the investments made.

Which sections of the Income-tax Act were involved?

Section 14A

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

Before: SHRI VIKAS AWASTHY, JM

For Appellant: Shri Arvind V. Sonde
For Respondent: Shri Sudhendu Das
Hearing: 19.09.2018Pronounced: 28.09.2018

आदेश / ORDER

PER VIKAS AWASTHY, JM

This appeal by assessee is directed against the order of Commissioner of Income Tax (Appeals)-4, Pune dated 10.10.2016 for the assessment year 2008-09.

2 ITA No.638/PUN/2017 A.Y.2008-09

2.

The only ground raised by assessee in appeal is against

disallowance of Rs.23,22,105/- u/s.14A of the Income Tax Act, 1961

(hereinafter referred to as ‘the Act’) r.w.r 8D(2)(ii) of the Income Tax

Rules, 1962.

3.

Shri Arvind V. Sonde appearing on behalf of the assessee

submitted that the assessee is a Company engaged in the business of

manufacture and sale of inorganic and Micronutrient Mixture

Fertilizers. During the course of scrutiny assessment proceedings, the

Assessing Officer made disallowance of Rs.24,83,143/- u/s.14A r.w.R.

8D(2)(ii) & (iii). The disallowance made under provisions of Rule 8D(2)(ii)

on account of interest expenditure is Rs.23,22,105/-. The assessee

explained that investment was made from own interest free funds

available with the assessee. Interest bearing funds were not utilized for

making investment. However, the Assessing Officer rejected the

contentions of the assessee. Aggrieved with the assessment order dated

29.11.2010, the assessee carried the matter in appeal before the

Commissioner of Income Tax (Appeals). The Commissioner of Income

Tax(Appeals) without appreciating the facts of the case rejected the

contentions of the assessee. Now, the assessee is in second appeal

before the Tribunal. The ld. AR pointed that the assessee has interest

free funds to the tune of Rs.4,83,83,857/- in the shape of share capital,

reserves and surplus. The assessee made investment to the tune of

Rs.4,47,60,486/- out of which dividend yielding investments are only to

the tune of Rs.1,30,83,378/-. During the period relevant to the

assessment year under appeal, the increase in dividend yielding tax free

investment is Rs.59,10,000/-. The ld. AR contended that the case of the

assessee is squarely covered by the decision of Hon'ble Jurisdictional

3 ITA No.638/PUN/2017 A.Y.2008-09

High Court in the case of CIT Vs. HDFC Bank Ltd., reported as 366 ITR

505.

4.

On the other hand, Shri Sudhendu Das representing the

Department vehemently defended the order of Commissioner of Income

Tax (Appeals) in confirming disallowance made under Rule 8D(2)(ii).

5.

Both sides heard. Orders of the Authorities below perused. The

solitary issue raised by assessee in appeal is against disallowance made

under Rule 8D(2)(ii) in respect of interest expenditure. The Assessing

Officer has made disallowance under Rule 8D(2)(iii) as well, however, the

same is not disputed by the assessee. The ld. AR has drawn my

attention to the P & L account for the year ending 31st March, 2008 and

Balance Sheet as on 31st March, 2008. A perusal of the Balance Sheet

shows that the assessee has share capital of Rs.75,00,000/- and

reserves and surplus are to the tune of Rs.4,08,83,857/-. Thus, the

assessee is having interest free funds aggregating to Rs.4,83,83,857/-.

As against this investment by assessee over a period of time is

Rs.4,47,60,486/-. The Hon'ble Bombay High Court in the case of CIT

Vs. Reliance Utilities and Power Ltd. reported as 313 ITR 340 has held

that where both interest free funds and interest bearing funds are

available and the interest free funds are more than the investment

made, the presumption is that the investment is made out of interest

free funds available with the assessee. The said decision was rendered

by the Hon'ble Jurisdictional High Court in the context of Section

36(1)(iii) of the Act. The Hon'ble High Court, thereafter, applied the same

principle while interpreting the provisions of section 14A of the Act in

the case of CIT Vs. HDFC Bank Ltd. (supra.). The Hon'ble High Court

observed that where investment is made in tax free securities by the

4 ITA No.638/PUN/2017 A.Y.2008-09

assessee, it would be presumed to have been made from own funds in case they are in excess of investment made.

6.

Thus, in the light of the facts of the case and the ratio laid down by the Hon'ble Jurisdictional High Court in the case of CIT Vs. HDFC Bank Ltd. (supra.), the disallowance in respect of interest expenditure made under Rule 8D(2)(ii) is deleted. The impugned order is modified, accordingly, the ground raised in appeal by the assessee is allowed.

In the result, appeal of the assessee is allowed. 7.

Order pronounced on Friday, the 28th of September, 2018.

Sd/- (�वकास अव�थी /VIKAS AWASTHY) �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 28th September, 2018. SB 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)-4, Pune. 4. The Pr. CIT-3, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, 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.

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