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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI VIKAS AWASTHY, JM
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
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.
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.
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).
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.
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.