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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWAL & AND & SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVASHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA
PER G.D. AGRAWAL, PER G.D. AGRAWAL, PRESIDENT PER G.D. AGRAWAL, PER G.D. AGRAWAL, PRESIDENT PRESIDENT :- PRESIDENT
1. This appeal by the Revenue for the assessment year 2012-13 is directed against the order of learned CIT(A), Haldwani dated 12th May, 2015.
2. The only ground raised by the Revenue reads as under :-
“The ld.CIT(A) has erred in law and facts in restricting the disallowance u/s 14A itself made by the assessee whereas the disallowance u/s 14A read with Rule 8D(2)(ii) made by the A.O. under the observation that the interest free funds were made out of common pool of funds having more than 90% of the interest bearing funds.”
2 ITA-5056/Del/2015
At the time of hearing before us, at the outset, it was stated by the learned counsel for the assessee that the issue is squarely covered in favour of the assessee by the decision of ITAT dated 2nd June, 2009 in assessee’s own case for the assessment year 2005-06 vide ITA No.3495/Del/2008. He further stated that the above decision of ITAT has been upheld by Hon'ble Jurisdictional High Court.
Learned Senior DR, on the other hand, stated that the above decision of ITAT and Hon'ble Jurisdictional High Court was for assessment year 2005-06 when Rule 8D was not in existence. Now, since 2008-09, Rule 8D has come into existence, therefore, the decision of earlier years would not be applicable.
In the rejoinder, it was stated by the learned counsel that learned CIT(A) has considered the applicability of Rule 8D and has sustained the disallowance to the extent of 0.5% of average investment. He has allowed the relief only in respect of disallowance of interest accepting the finding of the earlier year of the ITAT, which is upheld by Hon'ble Jurisdictional High Court that the interest free funds available with the assessee are much more than the investment in interest free securities. The investment in interest free securities is only 4.16% of the interest free funds available.
We have carefully considered the submissions of both the sides and perused the material placed before us. We find that the ITAT in assessee’s own case for assessment year 2003-04 and 2004-05 in & 4987/Del/2007 has deleted the disallowance u/s 14A holding that the investment in tax free bonds was out of own funds. Similar view was followed by the ITAT in assessment year 2005-06. Both the above decisions of ITAT were upheld by Hon'ble Jurisdictional High Court. That for the year under consideration, learned CIT(A)
3 ITA-5056/Del/2015 considered the earlier decisions of the ITAT and Hon'ble Jurisdictional High Court and also Rule 8D. After considering the earlier years position as well as Rule 8D, he held as under :-
“3.2 The findings of ld.AO and the averments of ld.AR have been considered. It is clear that the appellant had substantial interest free funds out of which there can be a valid presumption that the impugned investments could have been made since the said investments are demonstrably only 4.16% of the interest free funds available. This fact itself would cover this issue in favour of the appellant through the cases already decided in ITAT and thereafter the Hon'ble Jurisdictional High Court. It would be relevant to mention that though Rule 8D was introduced only from AY 2008-09, it merely represented a mechanism for working out the inadmissible expenses. Since Section 14A was already on the Statute Book much before the insertion of Rule 8D, the principles of disallowance were always there and Rule 8D merely crystallized the method of calculation. Thus the orders of ITAT and the Hon’ble High Court of Uttarakhand have binding force when it comes to the fact surrounding whether or not interest bearing funds were used to make the impugned investments. Thus just like in those previous years, it has been demonstrated that this year also there were interest free funds available in abundance to cover up for any investments yielding tax free income. Not only the Hon'ble Jurisdictional High Court in the appellant’s own case (supra) but other High Courts have also affirmed this principle:
Dhampur Sugar Mills Ltd reported in 370 ITR 184 (All).
HDFC Bank Ltd reported in 366 ITR 505 (Bombay). 3. UTI Bank Ltd reported in 215 Taxman 8 (Gujarat).
Following this settled position of law and the admitted fact that of the total interest free funds available with the appellant, only 4.16% has been invested to yield the tax free income, the addition made is deleted in full. Once the interest component is removed then there could be no addition as the remaining values adopted by the ld.AO do not even amount to Rs.15.
4 ITA-5056/Del/2015
3.3 Before parting with this issue, it needs to be mentioned that there are a plethora of case laws which mandate the disallowance of administrative expenses (for eg case of Telectronics Dealing Systems (P) Ltd reported in 228 Taxman 194 (Bombay). Since the appellant has already disallowed an amount representing 0.5% of average investment income (exempt), there is no need felt to disallow any further amount.”
From the above, it is evident that learned CIT(A), after referring to the earlier decisions of ITAT as well as Hon’ble High Court, has arrived at the conclusion that no borrowed money was utilized for investment, yielding tax free income. The interest free funds available with the assessee were much more than the investment in tax free securities. The investment in tax free securities was only 4.16% of the interest free funds available. The above factual finding has not been disputed before us and, therefore, the decision of ITAT as well as Hon'ble Jurisdictional High Court would be squarely applicable to the extent of disallowance of interest under Rule 8D. The other part of disallowance under Rule 8D i.e., 0.5% of average investment has not been deleted by the learned CIT(A). In view of the above, we do not find any infirmity in the order of learned CIT(A). The same is sustained and Revenue’s appeal is dismissed.
In the result, the appeal of the Revenue is dismissed. Decision pronounced in the open Court on 27.10.2017.