MADURA MICRO FINANCE LIMITED,CHENNAI vs. ITO CORPORATE WARD 4(4), CHENNAI

The first issue arises for consideration is disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 read with Rule 8D(2)(ii) of the Income-tax Rules, 1962.

Shri S. Nagarajan, the Ld. representative for the assessee, submitted that the assessee had sufficient own and interest-free funds. For the assessment year 2013-14, the assessee had own funds to the extent of ₹63,81,76,448/-. Similarly, for the assessment year 2014-15, the own funds available with the assessee were to the extent of ₹72,11,88,435/-. According to the Ld. representative, the assessee, in fact, invested its own funds and no borrowed funds were utilised for investment for earning exempted income. Therefore, according to the Ld. representative, the computation made by the Assessing Officer under Rule 8D(2) is not correct.

We heard Shri B. Sahadevan, the Ld. Departmental Representative also. According to the Ld. D.R., since the assessee claims that it had its own funds, the matter may be remitted back to the file of the Assessing Officer for verification and to examine the applicability of Rule 8D(2) of the Income-tax Rules, 1962.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claims that own and interest free funds were available with it for making investment for earning dividend income. Moreover, even if the assessee invested its own funds, 0.5% of investment which yielded the exempted income has to be disallowed under Rule 8D(2). Therefore, this Tribunal is of the considered opinion that the matter needs to be verified by the Assessing Officer. Accordingly, orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the availability of the assessee’s own funds and interest free funds and also verify the investment made during the years under consideration and thereafter decide the issue afresh, in accordance with law, after giving a reasonable opportunity to the assessee.

The assessee has raised one more ground with regard to charging of interest under Section 234B of the Act. This Tribunal is of the considered opinion that charging of interest under Section 234B is a consequential one and therefore, the Assessing Officer shall reconsider the issue afresh and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee.

In the result, both the appeals filed by the assessee are allowed for statistical purposes.