Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
Date of Hearing – 02.11.2017 Date of Order – 10.11.2017 O R D E R PER SAKTIJIT DEY, J.M.
Captioned appeal by the assessee is against the order dated 19th August 2016, passed by the learned Commissioner (Appeals)–9, Mumbai, for the assessment year 2012–13.
The solitary issue in dispute in the present appeal relates to disallowance of interest expenditure under section 14A r/w rule 8D(2)(ii) on account of earning of exempt income.
2 M/s. Shah Mehta Holding Pvt. Ltd.
Brief facts are, the assessee a registered non–banking financial company (NBFC) is engaged in the business of making loans and advances, investments and trading in securities and commodities derivatives. For the assessment year under consideration, the assessee filed its return of income on 29th September 2012, declaring total income of ` 4,79,70,439. In the course of assessment proceedings, the Assessing Officer while verifying computation of income filed by the assessee found that in the relevant previous year, the assessee had earned exempt income by way of dividend amounting to ` 1,24,357. Whereas, the assessee has voluntarily made a disallowance of ` 10,86,962 on account of expenditure attributable to earning of exempt income. From the working of disallowance made by the assessee it was found by the Assessing Officer that such disallowance has been made towards administrative expenses as per rule 8D(2)(iii). The Assessing Officer found, though, the assessee has incurred interest expenditure, however, it has not allocated any part of such interest expenditure towards its investments in shares giving rise to exempt income. He, therefore, disallowed an amount of ` 12,53,048, towards allocable interest expenditure for earning exempt income as per rule 8D(2)(ii). Further, the Assessing Officer enhanced the disallowance for administrative expenditure under rule 8D(2)(iii) to ` 11,26,695. Thus, the total disallowance, computed by the Assessing Officer in terms of rule 8D, was to the tune of ` 23,79,743. The 3 M/s. Shah Mehta Holding Pvt. Ltd. assessee having already made a suo–motu disallowance of ` 10,86,962, the Assessing Officer restricted the disallowance under section 14A r/w rule 8D to ` 12,92,781.
Though, the assessee challenged the disallowance before the first appellate authority, however, the first appellate authority sustained the disallowance. Of–course he directed the Assessing Officer to re– compute the disallowance under rule 8D(2)(ii) on the shares held as stock in investment only.
Challenging the disallowance made under section 14A, the learned Authorised Representative at the very outset submitted that the assessee is contesting only the disallowance of interest expenditure made under rule 8D(2)(ii) and has accepted the disallowance of administrative expenditure made by the Assessing Officer under rule 8D(2)(iii). Against the disallowance of expenditure under rule 8D(2)(ii), learned Authorised Representative made the following propositions:–
i) Interest free fund available with the assessee far exceeds the investment made in shares. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s HDFC Bank Ltd., 366 ITR 505;
4 M/s. Shah Mehta Holding Pvt. Ltd. ii) Only those investments giving rise to exempt income during the relevant previous year can be considered for computing disallowance under section 14A r/w rule 8D. In this context, he relied upon Special Bench decision of the Tribunal, Delhi Bench, in ACIT v/s Vireet Investment Pvt. Ltd., 82 taxmann. com 515 (SB)(Del.); iii) Shares held as stock–in–trade cannot be considered for computing disallowance under section 14A r/w rule 8D. For such proposition, he relied upon the following decisions:–
1) HDFC Bank Ltd. v/s DCIT, 383 ITR 589; and 2) Pr. CIT v/s State of Patiala, 391 ITR 218 (P&H) iv) Disallowance under section 14A cannot exceed the exempt income earned during the year.
Learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and Assessing Officer.
We have heard rival contentions and perused the material available on record. At the outset, it is necessary to observe, the learned Authorised Representative has categorically submitted before
5 M/s. Shah Mehta Holding Pvt. Ltd. us that the assessee is contesting only the disallowance of interest expenditure made under rule 8D(2)(ii). In fact, the ground raised by the assessee in the memorandum of appeal also say so. Therefore, we will restrict our finding only to the issue of disallowance of interest expenditure made under rule 8D(2)(ii) r/w section 14A r/w rule 8D. On a perusal of the Balance Sheet of the assessee as at 31st March 2012, it is noticed that the assessee was having interest free surplus fund by way of share capital and reserve and surplus amounting to ` 83,87,57,552. Whereas, it’s non current investment are to the tune of ` 34,97,57,215 and current investment in shares is to the tune of ` 66,23,609. Thus, financial statements of the assessee clearly establishes that the assessee has sufficient interest free surplus fund available with it to take care of the investments made in exempt income yielding assets. Therefore, applying the principle laid down by the Hon'ble Jurisdictional High Court in HDFC Bank Ltd. (supra), no disallowance of interest expenditure under rule 8D(2)(ii) can be made. Thus, the disallowance of interest expenditure of ` 12,53,048 made under rule 8D)2)(ii) is hereby deleted. In view of our aforesaid decision, there is no need to deliberate upon the other propositions advanced by the learned Authorised Representative. Accordingly, ground no.1 is allowed.
6 M/s. Shah Mehta Holding Pvt. Ltd.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 10.11.2017