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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 20, Mumbai dated 28.10.2016 for the Assessment Year 2011-12.
The only issue in appeal of the assessee is in respect of sustaining the disallowance made u/s. 14A r.w. Rule 8D of I.T Rules.
(A.Y: 2011-12) M/s. Kewal Kiran Clothing Ltd., 3. Briefly stated the facts are that, the Assessing Officer while completing the assessment made disallowance under Rule 8D r.w.s. 14A of the Act at ₹.25,81,430/- comprising of interest under Rule 8D(2)(ii) at ₹.10,87,615/- and administrative expenses under Rule 8D(2)(iii) at ₹.14,93,815/-. On appeal Ld.CIT(A) sustained the disallowance.
Before us, Learned Counsel for the assessee in so far as the interest disallowance is concerned referring to Page No. 7 of the Paper Book submitted that the investments during the Assessment Year under consideration have come down to ₹.26.84 Crores as against ₹.32.90 Crores and at the same time the Share Capital and Reserves have increased to ₹.197.75 Crores from ₹.175.19 Crores. Referring to Page No. 8 of the Paper Book which is the Profit and Loss Account the Ld. Counsel for the assessee submitted that the net profit for the year stood at ₹.46.23 Crores after tax. Therefore, it is contended that since the own funds are much more than the investments and the current profit after tax stood at ₹.46.23 Crores and the investments have come down from ₹.32.90 Crores to ₹.26.84 Crores the presumption is that the investments are made from out of own funds and not from borrowed funds. Therefore, he submitted that in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. HDFC Bank [366 ITR 505] and CIT v. Reliance
(A.Y: 2011-12) M/s. Kewal Kiran Clothing Ltd., Utilities and Power Ltd. [313 ITR 340] no disallowance under Rule 8D(2)(ii) is required to be made.
Coming to Disallowance under Rule 8D(2)(iii), it is the only submission of the Ld. Counsel for the assessee that only those investments which yielded dividend income should be considered for the purpose of computing the disallowance under Rule 8D(2)(iii). Reliance is placed in the case of ACB India Ltd. v. ACIT [62 taxmann.com 71 (Del.)] and ACIT v. Vireet Investments Private Limited [165 ITD 27 (Del. Trib) (SB)].
Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below. Having perused the orders of the Authorities below, Paper Book and the case laws relied on, we notice that the assessee had sufficient surplus funds for making investments. Further the profits for the current Assessment Year stood at ₹.46.23 Crores. Therefore, it can fairly be considered even assuming that entire investments of ₹.26.85 Crores was made by the assessee during this Assessment Year it can be safely said that the investment was made out of surplus own funds. Hence, following the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. HDFC Bank (supra) and CIT v. Reliance Utilities and Power Ltd.
(A.Y: 2011-12) M/s. Kewal Kiran Clothing Ltd., (supra), we direct the Assessing Officer to delete the disallowance made under Rule 8D(2)(ii).
In so far as the disallowance under Rule 8D(2)(iii), following the decision of the Special Bench in the case of ACIT v. Vireet Investments Private Limited (supra), we direct the Assessing Officer to recompute the disallowance by considering only those investments which yielded exempt income
In the result, appeal of the assessee is partly allowed.