RAHEJA LEASING & INVESTMENTS P.LTD,MUMBAI vs. DCIT CC 4(2), MUMBAI

The Assessing Officer while completing the assessment noticed that assessee made investments in shares and earning exempt income from such investments. Assessing Officer required the assessee to explain why the provisions of section 14A should not be invoked. Assessee submitted its reply stating that it had not incurred any expenditure for earning exempt income which is proposed to be calculated and disallowed u/s. 14A of the Act. Without prejudice it was submitted that if interest free funds are available to the assessee are sufficient to meet its investments and at the same time assessee had raised a loan, it can be presumed that the investments were made out of interest free funds available. Assessee placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd. [366 ITR 505]. However, the Assessing Officer rejected the submissions of the assessee and computed the disallowance u/s. 14A r.w. Rule 8D at ₹.6,43,337/-. On appeal Ld.CIT(A) sustained the disallowance.

Before us Learned Counsel for the assessee invited our attention to Page No 14 of the Annual Account which is the balance sheet as on 31.03.2013 relevant for the Assessment Year 2013-14 and submitted that (A.Y: 2013-14) Raheja Leasing & Investments P. Ltd. assessee is having interest free funds of ₹.72,21,000/- in share capital and ₹.12.11 Crores in reserves and surplus aggregating to ₹.12.88 Crores which is in far excess of the investments of ₹.89,13,742/- made in the companies yielding exempt income. The Learned Counsel for the assessee submits that, in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd. (supra) which was reiterated in HDFC v. DCIT [383 ITR 529] submits that a presumption can be drawn that investment came out of interest free funds when the interest free funds far exceeds the investments made by the assessee. Therefore, he submits that the disallowance made under Rule 8D(2)(ii) should be deleted.

The Ld.DR relies on the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below and the material placed before us. On a perusal of the balance sheet, we find that capital, reserves and surplus of the assessee for the Assessment Year 2013-14 stood at ₹.12,88,43,430/- and the investments made by the assessee during the year is only ₹.89,13,742/-. Therefore, the capital, reserves and surplus far exceeds the investments in this case. We also find that the borrowings during this year have come down from ₹.80.60 Crores to 69.70 Crores, therefore, in view of the (A.Y: 2013-14) Raheja Leasing & Investments P. Ltd. decision of the Hon'ble Jurisdictional High Court CIT v. HDFC (supra), we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D(2)(ii) as worked out by the Assessing Officer at ₹.6,03,966/- and recompute the disallowance accordingly.

In the result appeal of the assessee is partly allowed.