SANTOSH CHANDULAL MANDLECHA,NASHIK vs. INCOME-TAX OFFICER, NASHIK

PER D. KARUNAKARA RAO, AM :

This is the appeal filed by the assessee against the order of CIT(A)-1,

Nashik, dated 02-03-2017 for the Assessment Year 2013-14.

“1. On the basis of facts and the circumstances of the case and as per law, the CIT(A)-1, Nashik is not justified in confirming the disallowance made by the AO of Rs.2,03,621/- by invoking the provisions of section 14A of the Act read with Rule 8D. 2. On the basis of facts and the circumstances of the case and as per law, the CIT(A)-1, Nashik is not justified in confirming the disallowance made by the AO of Rs.2,03,621/- by invoking the provisions of section 14A under the assumption that the appellant has used the interest bearing funds for making investment in tax free securities particularly when the said investment is not made by the appellant out of interest bearing funds and more particularly when non-applicability of the provision of section 14A was accepted in the assessment order pursuant u/s.143(3) for A.Y. 2011-12. 3. On the basis of facts and the circumstances of the case and as per law, the CIT(A)-1, Nashik is not justified in confirming the disallowance made by the AO of Rs.2,03,621/- by invoking the provisions of section 14A even in respect of

2 ITA No.1007/PUN/2017 Santosh Chandulal Mandlecha

investments on which no any income is earned by the appellant during the year under review.

notice. Acknowledgement is placed on record. However, considering the

smallness of the issue, I proceed to decide the solitary issue of disallowance

u/s.14A of the Act with the assistance of Ld. DR for the Revenue and the

material available on record.

individual and is engaged in the business of manufacturing, supplying and

repairing of electronic equipments under the name and style of M/s. Reliance

Electronics. Assessee filed the return of income on 30-09-2013 declaring total

income of Rs.22,40,010/-. On the basis of information supplied by the assessee,

the AO found that the total turnover of the assessee is Rs.3,00,49,010 and the

assessee declared net profit @ 4.29% which works out to Rs.12,87,957/-. AO

further noticed that, during the year under consideration, the assessee earned

exempt income and made investment. Assessee claimed interest expenditure in

his profit and loss account without apportioning the expenses incurred for

earning the said exempt income. At the end of assessment proceedings

u/s.143(3) of the Act, the AO made addition of interest income of Rs.2,03,621/-

by invoking the provisions of section 14A read with Rule 8D of the Act.

judgments of High Court and the decisions of various Benches of the Tribunal

upheld the action of the AO.

available on record, I find that this solitary issue raised by the assessee is

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squarely covered in favour of the assessee. It is an undisputed fact that the

exempt income is only Rs.1,693/- whereas the disallowance made by the AO is

to the tune of Rs.2,03,621/-. On the faces of it and considering the settled legal

propositions, I find the disallowance made by the AO is not legally sustainable.

Various decisions are in existence for the proposition that disallowance if any

u/s.14A of the Act should not exceed the exempt income which form part of the

total income. Considering these facts and relying on the Hon’ble Bombay High

Court in the case of Reliance Utilities and Power Ltd. (supra), judgment in the

case of CIT Vs. HDFC Bank Ltd., 366 ITR 505 and the judgment of the Hon’ble

Delhi High Court in the said case Cheminvest Limited Vs. CIT 347 ITR 272

(Del.), I find it is obvious inference that assessee has adequate interest free

funds and assessee also earned profits in the current year. All these interest

free funds are sufficient enough to take care of the exempt income yielding

investments considering the principle of presumption, laid down by the

jurisdictional Hon’ble Bombay High Court in the case of Reliance Utilities and

Power Ltd., (supra). Therefore, in my view, the order of the CIT(A) on this

issue requires reversal on this issue. Accordingly, I direct the AO to re-compute

the disallowance made by the AO after granting reasonable opportunity of being

heard to the assessee. Further, the AO shall consider the above cited legal

proposition in the set-aside proceedings. Thus, the grounds raised by the

assessee are partly allowed for statistical purposes.

Order pronounced on this 25th day of May, 2018.

Sd/- (D.KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 25th May, 2018. Satish

4 ITA No.1007/PUN/2017 Santosh Chandulal Mandlecha

आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Nashik 3. आयकर आयु� / The CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune