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Income Tax Appellate Tribunal, KOLKATA BENCH “A”, KOLKATA
Before: SH.P.M.JAGTAP & SH. S.S.VISWANETHRA RAVI
PER P.M.JAGTAP, ACCOUNTANT MEMBER
This appeal is filed by the assessee against the order of Ld.CIT(A)-11, Kolkata dated 04.11.2015 and the grounds raised by the assessee therein read as under:-
1. “That the Ld. Commissioner of Income-tax (Appeals) was wrong in confirming the action of the Assessing Officer in disallowing Interest of Rs.15,33,085 paid on Loan taken in relation to the Appellant's business.
2. That the Ld. Commissioner of Income-tax (Appeals) was wrong in confirming the action of the Assessing Officer in disallowing a sum of Rs.50,44,154 u/s 14A by applying Rule 8D(2)(ii) and 8D(2)(iii). 3. That without prejudice to the contention raised in Ground No.2 above, the Ld. Commissioner of Income-tax(Appeals) failed to appreciate that the Investments having been made by the Appellant without utilising any borrowed money, there should not have been any disallowance of Interest of Rs.41,64,024 by applying Rule 8D(2)(ii) and thus she was wrong in confirming the disallowance of the said amount of Rs.41,64,024.
That the Ld. Commissioner of Income-tax(Appeals) failed to appreciate that due to the wrong disclosure made by the Tax Auditor, the Assessing Officer had disallowed Bonus of Rs.32,460 u/s 36(1)(ii) and thus she erred in confirming the disallowance of Bonus of Rs.32,460.”
As regards the issue raised in Ground No.1 relating to the disallowance made by the AO and confirmed by Ld.CIT(A) on account of interest of Rs.15,33,085/-, the relevant facts of the case are that the assessee is a company which is engaged in the business of investment and finance. The return of income for the year under consideration was filed by it on 21.09.2011 declaring a total income of Rs.45,78,660/-. In the said return, deduction of Rs.15,33,085/- was claimed by the assessee on account of interest paid on housing loan. During the course of assessment proceedings, it was found by the AO that the said interest was paid by the assessee on the funds borrowed for purchase of a flat. He, therefore, held that the expenditure incurred by the assessee on interest was not for the purpose of its business and accordingly the same was disallowed by him.
On appeal, Ld.CIT(A) confirmed the same disallowance.
We have heard arguments of both parties on this issue and also perused the relevant material available on record. At the time of hearing before us, the only alternative contention raised by the Ld. Counsel for the assessee is that the interest in question having been paid by the assessee for purchase of residential flat, the deduction for the same should be allowed under the head “Income from House Property”. Ld. DR, on the other hand, has contended that this alternative claim made by the assessee for the first time before the Tribunal requires verification by the AO. We find merit in the contention of the Ld.DR. The impugned order of Ld.CIT(A) on this issue is accordingly set aside and the matter is restored to the file of the AO for the limited purpose of considering the alternative claim of the assessee for deduction on account of interest in question under the head “Income from House Property” in accordance with law after verifying all the facts from the relevant record. Ground No.1 of the assessee’s appeal is accordingly treated as allowed for statistical purposes.
4. As regards the common issue involved in Ground Nos. 2 & 3 relating to the disallowance made by the AO and confirmed by Ld.CIT(A) u/s 14A of the Act, the relevant facts are that the assessee company during the year under consideration had received the dividend income of Rs. 88,263/- which was claimed as exempt from tax. No disallowance on account of expenditure incurred relating to said exempt income however was offered by the assessee as required by the provisions of section 14A of the Act. Keeping in view the substantial investment made by the assessee in shares/mutual funds, the contention raised by the assessee that no such expenditure was actually incurred was not found tenable by the AO. He worked out such expenditure by applying Rule 8D at Rs.50,44,154/- and made a disallowance to that extent u/s 14A. On appeal, Ld.CIT(A) confirmed the said disallowance made by the AO.
We have heard the arguments of both parties and perused the relevant material available on record. Ld. Counsel for the assessee has submitted that a disallowance u/s 14A has been made by the AO by applying Rule 8D on account of interest of Rs. 41,64,024/- and on account of other expenses of Rs.8,80,130/-. He has submitted that the assessee is disputing only the disallowance made u/s 14A on account of interest on the ground that it had sufficient own funds to make the relevant investment in shares/mutual funds. He has invited our attention to the balance sheet of the assessee company as on 31.03.2011 to show that the assessee company had own funds of Rs.27 crores in the form of share capital and reserves & surplus and since the same were sufficient to make the investment of Rs.17.34 crores in share/mutual funds, there was no diversion of borrowed fund for making such investment calling for any disallowance u/s 14A. A perusal of the relevant balance sheet of the assessee company also shows that interest bearing borrowed funds were utilized by the assessee company for the purpose of its business by utilising the same for acquiring fixed assets as well as for working capital purposes.
We, therefore, find merit in the contention of the Ld. Counsel for the assessee that the investment in shares and mutual funds was made by the assessee company from its own funds available in the form of share capital and reserves & surplus and there being no utilization of the borrowed funds for making such investment, the disallowance made by the AO and confirmed by Ld.CIT(A) u/s 14A of the Act on account of interest by applying Rule 8D is not sustainable. Even Ld.DR has not disputed this position. We accordingly modify the impugned order passed by ld.CIT(A) on this issue and sustain the disallowance of Rs.50,44,154/- made by the AO to the extent of Rs.8,18,150/-. Ground No.2 & 3 of the assessee’s appeal are, thus, partly allowed.
Ground No.4 raised by the assessee in this appeal is not pressed by the Ld. Counsel for the assessee at the time of hearing before the Tribunal. The same is accordingly dismissed as not pressed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 27.07.2018.