ASST CIT 5(3)(2), MUMBAI vs. SANGHAVI EXPORTS INTERNATIONAL P. LTD, MUMBAI

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ITA 1090/MUM/2016Status: DisposedITAT Mumbai16 March 2018AY 2008-095 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s order, following the jurisdictional High Court's decision in CIT v. HDFC Bank Ltd. It held that if an assessee has sufficient own funds for investments, a presumption can be drawn that these investments came from own funds, not borrowed funds, thus no disallowance under Section 14A is required.

What were the facts?

The Revenue appealed against the deletion of disallowance under Section 14A read with Rule 8D2(ii) by the CIT(A). The assessee claimed no exempt income was received, but the Tribunal noted the absence of an assessee's appeal or cross-objection to support this. The CIT(A) deleted the disallowance for interest expenses under Rule 8D2(ii) based on the assessee having sufficient interest-free funds for investments.

What were the issues?

Whether disallowance under Section 14A is warranted when the assessee has sufficient interest-free funds to cover investments in tax-free securities.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI

Before: SHRI RAJENDRA, HONBLE & SHRI C.N. PRASAD, HONBLE

For Appellant: Shri Suchek Anchaliya
For Respondent: Shri V. Justin
Hearing: 15.03.2018Pronounced: 16.03.2018

2 & 1090/MUM/2016 (A.Y: 2009-10 & 2008-09) M/s. Sanghavi Exports International P. Ltd O R D E R PER C.N. PRASAD (JM) 1. These two appeals are filed by the Revenue for the Assessment Years 2009-10 and 2008-09 respectively.

2.

In so far as the appeal for the Assessment Year 2009-10 is concerned, the Learned Counsel for the assessee submitted that the assessee did not receive any exempt income and therefore no disallowance is attracted u/s. 14A of the Act.

3.

Ld.DR vehemently supported the orders of the Assessing Officer.

4.

We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the Assessment Order and the Appellate order, we could not see any finding given by the Authorities that the assessee has not earned the exempt income during this Assessment Year. We also find that the assessee neither filed an appeal nor cross objection before us contending that the assessee did not receive any dividend income and therefore there should not be any disallowance u/s. 14A of the Act. In the absence of appeal or Cross Objection by the assessee the contentions of the assessee cannot be accepted in the appeal filed by the Revenue.

3 & 1090/MUM/2016 (A.Y: 2009-10 & 2008-09) M/s. Sanghavi Exports International P. Ltd 5. In both these appeals the Revenue agitated the orders of the Ld.CIT(A) in deleting the disallowance under Rule 8D2(ii) r.w.s. 14A of the Act.

6.

In both these years the assessments were completed u/s. 143(3) and while completing the assessments the Assessing Officer disallowed expenses attributable for earning the dividend income under Rule 8D2(ii) being interest and also administrative expenses under Rule 8D2(iii). Ld.CIT(A) after examining the accounts of the assessee and noticing that the assessee is having sufficient interest free funds to take care of the investments, he directed the Assessing Officer to delete the disallowance made under Rule 8D2(ii) in respect of interest but sustained the disallowance made under Rule 8D2(iii) of I.T. Rules.

7.

Ld.DR vehemently supported the orders of the Assessing Officer and submitted that there is no justification in deleting the disallowance made under Rule 8D2(ii) of I.T. Rules.

8.

Ld. Counsel for the assessee placed reliance on the order of the Ld.CIT(A).

9.

On a perusal of the orders of the Ld.CIT(A), we find that the assessee is having sufficient own funds in the form of share capital,

4 & 1090/MUM/2016 (A.Y: 2009-10 & 2008-09) M/s. Sanghavi Exports International P. Ltd reserves and surplus and the investments made by the assessee are far below than the surplus funds. As held by the Hon'ble Jurisdictional High Court in the case CIT v. HDFC Bank Ltd [366 ITR 505] if the assessee had sufficient own funds for making investments a presumption can be drawn that the investments in tax free securities must be deemed to have come out of own funds and not from borrowed funds and therefore no disallowance u/s. 14A is required to be made. It is the finding of the Ld.CIT(A) that assessee has sufficient own funds for making tax free investments and since this finding is not controverted with evidences by the Revenue, respectfully following the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd [366 ITR 505], we uphold the order of the Ld.CIT(A) and reject the grounds of Revenue.

10.

In the result, Revenue appeals are dismissed.

Order pronounced in the open court on the 16th March, 2018.

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