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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI B.R BASKARAN,AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals)-14, Mumbai, dated 19.02.2015, which in itself arises from the order passed by the A.O under Sec. 143(3) of the Income-tax act, 1961 (for short ‘Act’), dated 29.11.2013. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal:-
2 Web Works India P. Ltd. Vs. DCIT “1. The Ld. AO erred in disallowing Rs. 3,40,100 by invoking rule 8D with section 14A and CIT(A) -14 erred in confirming the same.
2. The learned AO erred in disallowing Rs. 2,87,369/- interest under rule 8D(2)(ii) without appreciating that the funds taken for loan were used for earning taxable income and therefore the interest cannot be disallowed and the Learned CIT(A)-14 erred in confirming the same.
The learned AO erred in disallowing indirect expenses of Rs. 52,731/- under Rule 8D(ii) and the CIT(A)-14 erred in confirming the same.
The assessee craves leave to add, alter, amend or delete any of the above grounds of appeal.”
Briefly stated, the facts of the case are that the assessee company which is engaged in the business of I.T enabled services had filed its return of income for A.Y. 2011-12 on 29.09.2011, declaring an income of Rs. 41,99,480/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2).
3. The issue involved in the present appeal lies in a narrow compass. The assessee who was in receipt of exempt dividend income of Rs. 7,10,529/- had made a suo motto disallowance of Rs. 98,450/- under Sec. 14A in its computation of income. The A.O while framing the assessment reworked the disallowance under Sec. 14A r.w Rule 8D(ii) and (iii) at Rs. 3,40,100/-. 4. Aggrieved, the assessee assailed the order of the A.O before the CIT(A). The assessee submitted that the details of the interest expenditure of Rs. 6,52,366/- debited in the profit & loss account for the year under consideration comprised of interest of Rs. 6 lac on funds received from Smt. Seema Rathi which were utilised for purchase of Gala 125 from which office activities of providing services 3 Web Works India P. Ltd. Vs. DCIT of IT were carried out, while for the balance interest of Rs. 52,366/- was in respect of the car loan raised from Kotak Bank Ltd. The assessee submitted before the CIT(A) that as no amount of the borrowed funds were utilized for purchasing of exempt income yielding assets, therefore, no disallowance of any part of the interest u/s 14A was called for in the hands of the assessee. The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case observed that as the assessee had itself offered a suo motto disallowance of Rs. 98,450/- u/s 14A, therefore, it could safely be concluded that some part of the interest bearing loans were relatable to the exempt income yielding assets. The CIT(A) concluded that as the disallowance of Rs. 3,40,100/-computed by the A.O under Sec. 14A was as per the method contemplated under Rule 8D, therefore, the same was well in order.
Aggrieved, the assessee had assailed the order of the CIT(A) before us. The ld. Authorised representative (for short ‘A.R’) for the assessee at the very outset of the hearing of the appeal submitted that as the assessee had substantial interest free funds by way of Share Capital, Share Application Money, Reserves & surplus of Rs. 2,12,31,393/-, therefore, no disallowance of any part of the interest on borrowed funds was called for in its hands. The ld. A.R in order to fortify the factual position as was averred by him, took us through the ‘Balance sheet’ of the assessee company as on 31.03.2011 wherein the aforesaid facts stood revealed. The Ld. A.R in support of his aforesaid contention relied on the judgments of the Hon’ble High Court of Bombay in the case of CIT Vs. HDFC Bank Ltd.(2014) 366 ITR 505 (Bom) and CIT Vs. Reliance Utilities & Power Ltd (2009) 313 ITR 340 (Bom). The ld. A.R further submitted that the A.O while making the disallowance under Sec.14A had failed to record his satisfaction as to why the disallowance shown by the assessee was liable to be 4 Web Works India P. Ltd. Vs. DCIT dislodged. Per contra, the ld. Departmental representative (for short ‘D.R’) relied on the orders of the lower authorities.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We have perused the balance sheet of the assessee for the year under consideration and find substantial force in the contention of the ld. A.R that the assessee had substantial self owned funds by way of Share Capital, Share Application Money, Reserves & surplus of Rs. 2,12,31,393/-, which sufficiently explained the investments in the exempt income yielding investments of Rs. 1,21,10,194. We find that the Hon’ble High Court of Bombay in the case of CIT Vs. HDFC Bank Ltd.(2014) 366 ITR 505 (Bom) had held that where the assesse's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the assessee were out of the interest-free funds available with it and no disallowance was warranted u/s 14A. We are of the considered view that in the backdrop of the facts of the case read with the settled position of law as it stands established that the assessee had substantial self owned funds to which the exempt income yielding investments of the assessee could be related, therefore, no part of disallowance of such interest expenditure was called for in its hands. We may further observe that even otherwise as the interest bearing funds had been found to have been invested for the business purposes of the assessee and not for making investment in the exempt income yielding assets, therefore, on the said count also no part of the interest expenditure as per Rule 8D(2)(ii) could be attributed to earning of the exempt dividend income and no disallowance under Sec. 14A was called for in the hands of the assessee.