BIOSTADT INDIA LTD,MUMBAI vs. ASST CIT 6(1), MUMBAI

Ground No.1 & 2 of the grounds of appeal of the assessee relates to partly upholding the action of the Assessing Officer in making disallowance u/s. 14A r.w. Rule 8D of the Act. Learned Counsel for the assessee submits that during the Assessment Years 2008-09 & 2009-10 assessee received dividend income of ₹.40,129/- and ₹.11,51,440/- respectively and assessee itself disallowed 10% of the said dividend income suomoto in the return of income being the expenditure attributable for earning said exempt income. The Learned Counsel for the assessee submits that Assessing Officer however computed the disallowance u/s. rule 8D at ₹.17,42,373/- and ₹.14,46,875/- which comprises of the following: Assessment Direct Indirect 0.5% Average Year. expenses Interest Investments 2008-09 4,013/- 14,13,087/- 3,25,273/- 2009-10 --- 11,79,000/- 2,67,105/-

3 ITA.No.911, 912, 1328 & 1329/MUM/2014 Assessment Years 2008-09 & 2009-10 M/s. Biostadt India Limited 3. Learned Counsel for the assessee submits that the Ld.CIT(A) in so far as the interest is concerned taking note of the fact investment was made on 28.03.2008 at the fag end of the financial year directed the Assessing Officer to consider the interest disallowance only for three days while computing the disallowance u/s. 14A for the Assessment Year 2008-09 and for the Assessment Year 2009-10 accepting the submissions of the assessee that the interest expenditure incurred on investments are to be calculated considering the number of days for which the investments have been made. The computation of the assessee based on the submissions was considered by the Ld.CIT(A) wherein interest disallowance was arrived at ₹.6.64 Lakhs and the Assessing Officer is directed to verify the computation furnished by the assessee and recompute the interest disallowance accordingly.

Learned Counsel for the assessee before us submits that no satisfaction is recorded by the Assessing Officer and Own funds are more than the investments. Therefore, he submits that in view of the decision of the Hon'ble Jurisdictional High Court in the case of HDFC Bank Ltd. v. CIT [383 ITR 529] no interest disallowance should be made. He also placed reliance on the decision of the Coordinate Bench in the case of 4 ITA.No.911, 912, 1328 & 1329/MUM/2014 Assessment Years 2008-09 & 2009-10 M/s. Biostadt India Limited M/s.Beekaylon Synthetics Pvt. Ltd. v. ACIT in ITA.No.2459/MUM/2015 dated 11.07.2017.

Ld.DR vehemently supported the authorities below.

We have heard the rival submissions, perused the orders of the authorities below, case laws relied on. The contention of the Learned Counsel for the assessee that own funds are much more than the investments made which yielded exempt income appears to be true as the shareholders’ funds i.e. capital, reserves and surplus as on 31.03.2008 stood at ₹.71.95 Crores and whereas the investments stood at ₹.10.07 Crores out of which dividend yielding investments were around ₹.7.5 crores. We observe that secured loans are for the purpose of the working capital and vehicles. Similarly, the shareholder’s funds for the year end 31st March, 2009 stood at ₹.77.52 Crores and the investments during the year is at ₹.2.57 Crores. In the circumstance, it can be said that the assessee is having sufficient own funds for making investments and no borrowals were utilized for making the investments. The Hon'ble Jurisdictional High Court in the case of HDFC v. CIT (supra) has held that if assessee possessed sufficient own funds, the presumption was that the investment was made from own funds and not from borrowed funds. Similar view has been taken in the case of CIT v. Reliance Utilities and 5 ITA.No.911, 912, 1328 & 1329/MUM/2014 Assessment Years 2008-09 & 2009-10 M/s. Biostadt India Limited Power Ltd [313 ITR 340]. Further we also observe that the assessee itself disallowed 10% of the dividend income at ₹.4,013/- and ₹.1,15,144/- for the Assessment Years 2008-09 and 2009-10 respectively at its own being the expenditure attributable for earing the exempt income and the Assessing Officer had not given any reason for rejecting the stand taken by the assessee. In the circumstances we hold that there is no need to make any further disallowance more than what the assessee already disallowed suomoto. In the circumstances, we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of the I.T. Rules for the Assessment Years 2008-09 and 2009-10. Ground Nos.1 & 2 of grounds of appeals are allowed.

Coming to the Ground No.3 of the grounds of appeal, the issue is relating to whether dividend from domestic companies is not exempt from tax in view of section 115-O and therefore investments in domestic companies ought not to be included for this computing disallowance u/s.14A of the Act.

Learned Counsel for the assessee fairly concedes that this issue is decided against the assessee by the Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd. Thus, this ground of appeal is decided against the assessee and is dismissed. In view of the 6 ITA.No.911, 912, 1328 & 1329/MUM/2014 Assessment Years 2008-09 & 2009-10 M/s. Biostadt India Limited submissions of the Learned Counsel for the assessee we dismiss this Ground No. 3.

The assessee in its appeal also raised additional grounds of appeal contending that the provisions of Rule 8D are not applicable for computing the disallowance in respect of expenditure relatable to exempt income while computing the book profit u/s. 115JB. The Learned Counsel for the assessee submits that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27] held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Copy of the decision is placed on record.

Ld.DR supported the orders of the authorities below.

On hearing both the parties, we admit the additional grounds and we find that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited (supra) held that the computation

For the Assessment Year 2009-10 assessee also raised ground in respect of the addition made u/s. 145A of the Act. It was contended by the Learned Counsel for the assessee that previous year’s closing stock has not been taken as forming part of current year’s opening stock and made addition by the Assessing Officer. Learned Counsel for the assessee submits that the Ld.CIT(A) confirmed stating that no details were filed.

Learned Counsel for the assessee before us submitted that the method of valuation of stocks as forming part of Tax Audit Report and referring to Point No. 5 submits that during the year the company has complied with the requirements of the Guidance Note issued by the Institute of Chartered Accountants of India [ICAI] with respect to the provisions of section 145A. If the company had followed its earlier practice

Ld.DR has no serious objection in sending back the matter to the Assessing Officer.

On hearing both the parties and perusing the orders of the authorities below. we are of the considered view that this matter has to be restored to the file of the Assessing Officer for fresh adjudication and the contentions of the assessee are left open. The Assessing Officer may examine this issue and allow relief to the assessee in accordance with law.

Coming to the Revenue’s appeals, it is submitted that the Revenue effect is less than 10 lakhs and in view of the CBDT Circular No. 21/2015 dated 10/12/2015 the appeals should be dismissed.

In the result, appeals of the assessee are partly allowed for statistical purpose and the appeals of the Revenue are dismissed.