INDIAN SEAMLESS ENTERPRISES LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER VIKAS AWASTHY, JM

These four appeals by the assessee for the assessment years 2009-10 to 2012-13 are directed against the order of Commissioner of Income Tax (Appeals)-12, Pune dated 10.09.2015 common for the aforementioned assessment years.

2 ITA Nos.1638 to 1641/PUN/2015 A.Ys.2009-10 to 2012-13

appeals are taken up together for adjudication and are being disposed of

vide this common order.

“1.The learned Assessing Officer has erred in applying provisions of rule 8D r.w.s 14A without passing any speaking order as to non-satisfaction about working of disallowance u/s.14A and without establishing any nexus between borrowed funds and investments. 2. The learned Assessing Officer has erred in making disallowance by applying provisions of rule 8D r.w.s 14A ignoring basis/facts established and demonstrated and methodology adopted by the predecessor for A. Y. 2005-06 which facts continued during the year under consideration also. The disallowance u/s 14A be restored as per basis established in order passed u/s 143(3) of the Income Tax Act, 1961 for A.Y. 2005-06. 3. The learned Assessing Officer has erred in making disallowance under provisions of rule 8D r.w.s.14A ignoring the fact that the investments made by the company are of strategic nature and hence no disallowance u/s. 14A r.w.r. 8D is warranted. 4. Your appellant prays leave to add, substitute, amend, modify or withdraw any of the grounds of the appeal if the occasion arises.”

Identical grounds have been raised by the assessee assailing the order

of Commissioner of Income Tax (Appeals) for assessment years 2010-11,

2011-12 and 2012-13.

the basis of method adopted for making disallowance in the assessment

year 2005-06, the assessee made suo-moto disallowance u/s.14A of the

Income Tax Act,1961 (hereinafter referred to as ‘the Act’) in the impugned

assessment years. The details of suo-moto disallowances made by assessee

in the impugned assessment years are as under:

3 ITA Nos.1638 to 1641/PUN/2015 A.Ys.2009-10 to 2012-13

Assessment year Amount

2009-10 1,04,49,268/-

2010-11 51,79,590/-

2011-12 1,78,09,980/-

2012-13 2,31,29,018/-

However, in assessment proceedings, the Assessing Officer invoked

the provisions of Rule 8D of the Income Tax Rules, 1962 and enhanced the

disallowances u/s. 14A of the Act as under:

Assessment year Disallowance u/s.14A enhanced by Assessing Officer. (Amount) 2009-10 1,37,98,000/-

2010-11 1,52,19,000/-

2011-12 1,27,07,000/-

2012-13 1,52,11,000/-

warranted as the assessee has not utilized borrowed funds for making

investment. Own funds of the assessee are much more than the investments

made. The case of the assessee is squarely covered by the decision of

Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and

Power Ltd., reported as 313 ITR 340 and HDFC Bank Limited Vs. DCIT,

reported as 366 ITR 505.

5.1 The ld. AR further submitted that in so far as disallowance under

Rule 8D(2)(iii) is concerned, the Assessing Officer while making disallowance

4 ITA Nos.1638 to 1641/PUN/2015 A.Ys.2009-10 to 2012-13

has not reduced the amount of suo-moto disallowance made by the

assessee. The ld. AR submitted that the disallowance already made by the

assessee should be reduced from the disallowance made under Rule

8D(2)(iii) of the I.T. Rules. In the First Appellate Proceedings, the

Commissioner of Income Tax (Appeals) has confirmed the disallowance

made by Assessing Officer.

Department vehemently defended the impugned order and prayed for

dismissing the appeals of the assessee.

and have perused the orders of Authorities below. The solitary issue raised

in all the four appeals by the assessee is against making disallowance

u/s.14A r.w.r 8D over and above suo-moto disallowance made by the

assessee.

ITA No.1638/PUN/2015 (Assessment Year 2009-10)

recording satisfaction by Assessing Officer for rejecting suo-moto

disallowance by the assessee. During the course of submissions before us,

the ld. AR of the assessee has failed to point any infirmity in the satisfaction

recorded by the Assessing Officer for invoking provisions of Rule 8D. Hence,

ground No.1 in the appeal by assessee is dismissed.

method as applied in assessment year 2005-06. It is relevant to mention

here that section 14A was amended by the Finance Act, 2006 w.e.f.

5 ITA Nos.1638 to 1641/PUN/2015 A.Ys.2009-10 to 2012-13

01.04.2007. After the amendment disallowance is to be computed in

accordance with Rule 8D of the Income Tax Rules. Thus, the method of

computing disallowance u/s.14A of the Act prior to assessment year 2008-

09 and post amendment have gone under substantial change. Thus, in the

light of the amended provisions of section 14A and introduction of Rule 8D,

the method of computation of disallowance u/s.14A has to be in accordance

with Rule 8D.

utilized for making investment is to be disallowed. However, where no

interest bearing funds are utilized for making such investment, no

disallowance under Rule 8D(2)(ii) is warranted. The Hon'ble Bombay High

Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (supra.) 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 Hon'ble Jurisdictional High Court in the

case of HDFC Bank Ltd. Vs. DCIT (supra.) following the ratio laid down in

the case of CIT Vs. Reliance Utilities and Power Ltd.(supra.) has held that

investment in tax free securities by the assessee would be presumed to have

been made from own funds in case they are in excess of investment made.

consider the decisions of Hon'ble High Court while making disallowance

under Rule 8D(2)(ii) of IT Rules. The Authorities below have also failed to

ascertain availability of interest free funds with the assessee for making

investment during the impugned assessment years. The fact whether

sufficient interest free funds were available with the assessee during the

6 ITA Nos.1638 to 1641/PUN/2015 A.Ys.2009-10 to 2012-13

assessment years under appeal for making investment needs verification.

Under such circumstances, we deem it appropriate to remit this issue back

to the file of the Assessing Officer to verify the availability of interest free

funds with the assessee for making investment and thereafter, by following

the ratio laid down by the Hon'ble Jurisdictional High Court in the cases of

CIT Vs. Reliance Utilities and Power Ltd.(supra.) and HDFC Bank Limited

Vs. DCIT (supra.), shall compute disallowance under rule 8D(2)(ii), if

required.

Assessing Officer is directed to reduce the amount of suo-moto disallowance

made by the assessee and thereafter, determine the final disallowance

under the provisions of section 14A r.w.r 8D. The Assessing Officer while

revisiting this issue shall grant reasonable opportunity of hearing to the

assessee, in accordance with law. The ground No. 2 of the appeal by the

assessee is partly allowed for statistical purposes in the terms

aforesaid.

the same is dismissed.

for assessment year 2009-10 is partly allowed for statistical purposes.

has assailed the findings of Commissioner of Income Tax(Appeals) by raising

grounds identical to the grounds raised in the appeal for assessment year

2009-10. It is an admitted fact that the Assessing Officer has made

7 ITA Nos.1638 to 1641/PUN/2015 A.Ys.2009-10 to 2012-13

disallowance u/s.14A r.w.r. 8D in all the four impugned assessment years in similar manner. Thus, the findings given by us while adjudicating appeal of the assessee for assessment year 2009-10 would mutatis-mutandis apply to assessment years 2010-11 to 2012-13. Accordingly, the appeals of the assessee in ITA Nos.1639 to 1641/PUN/2015 for assessment years 2010-11 to 2012-13 are partly allowed for statistical purpose in similar terms.

Order pronounced on Friday, the 14th day of September, 2018.

Sd/- Sd/- (अ�नल चतुव�द� /ANIL CHATURVEDI) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 14th 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)-12, Pune. 4. The Pr. CIT, Central, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” 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.