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Before: Shri A. Mohan Alankamony & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 26.07.2017 relevant to the assessment year 2014-15. The only effective ground raised in the appeal of the assessee is with regard to confirmation of disallowance made under section 14A of the Income Tax Act, 1961 [“Act” in short] r.w. Rule 8D of IT Rules.
Brief facts of the case are that the assessee is manufacturers of synchrocones and synchronizers rings and generates electricity through wind mills. The assessee filed its return of income admitting an income of ₹.10,60,79,080/- on 30.09.2014 for the assessment year 2014-15. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 31.08.2015 and served on the assessee on 12.09.2015. Notice under section 142(1) of the Act was also issued on 10.05.2016 and the assessee has filed all the details as called for.
2.1 During the course of assessment proceedings, the Assessing Officer has noticed that the assessee has made huge investments in various mutual funds, etc., which is exempted from total income chargeable to tax. Since, the assessee has not admitted any expenses for making and maintaining investments in mutual funds, etc., by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer determined the expenditure component at ₹.10,03,543/- and brought to tax.
The assessee carried the matter in appeal before the ld. CIT(A). After considering various submissions of the assessee, the ld. CIT(A) dismissed the ground raised by the assessee.
On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee has more than sufficient funds under ‘reserve & surplus’ for making investments and when the assessee got its own sufficient funds for making investments, the Assessing Officer cannot apply Rule 8D and make the disallowance. It was also submitted that the strategic investment of the assessee should be kept outside the scope of determining notional disallowance under section 14A r.w. Rule 8D. By relying on the decision of the Tribunal in assessee’s own case for earlier assessment years, the ld. Counsel for the assessee prayed that similar decision may be given for the assessment year under consideration also. On the other hand, the ld. DR strongly supported the orders of authorities below.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Since the assessee has not admitted any expenditure for making huge investments and maintaining the same, the Assessing Officer worked out the expenditure component and disallowed ₹.10,03,543/-. But, the assessment order did not speak as to whether the assessee had any reserves and surplus for making investments and utilized borrowed funds for making investments. In the appellate order also no complete facts are emanating.
On an identical issue in similar facts and circumstances, for the assessment years 2011-12, 2013-14 & 2012-13 in 1006 & 1007/Mds/2017 vide order dated 08.11.2017, the Tribunal has held as under: “5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. In the assessment order, the Assessing Officer has referred to the balance sheet with regard to the outstanding in secured and unsecured loan account amounting to ₹.13,50,23,594/- and ₹.7,50,000/- respectively and by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer worked out the disallowance. But, the assessment order did not speak as to whether the assessee had any reserves and surplus for making investments and utilized borrowed funds for making investments. In the appellate order also no complete facts are emanating and simply distinguished the case law. 6. Before us, by relying on the balance sheet of the assessee, the ld. Counsel has argued that the assessee has more than sufficient funds under ‘reserve & surplus’ for making investments and when the assessee got its own sufficient funds for making investments, the Assessing Officer cannot apply Rule 8D(2)(ii) and make the disallowance. We find force in the argument of the ld. Counsel. The Assessing Officer has not given any finding with regard to the quantum of interest free funds at assessee’s disposal for investments. In view of the above facts and circumstances, we set aside the orders of authorities below and remit the matter to the file of the Assessing Officer to examine the accounts of the assessee and decide the issue afresh with regard to the disallowance made under Rule 8D(2)(ii) in accordance with after giving an opportunity of hearing to the assessee by keeping in view of the decision of the Hon’ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. (supra), wherein, its own decision in the case of CIT v. Reliance Utilities and Power Ltd. (supra) has been applied.
7. After verification of the accounts, if the Assessing Officer found that the assessee has not made any strategic investments, then the disallowance made under Rule 8D(2)(iii) can be sustained.
With regard to the assessment years 2013-14 and 2012-13, since facts are similar as that of assessment year 2011-12, we remit the matter for all the assessment years to the file of the Assessing Officer for pass speaking order as observed hereinabove at para 6. Thus, the ground raised by the assessee is allowed for statistical purposes.” In view of the above decision of the Tribunal in earlier assessment years, for the assessment year under consideration also, we set aside the orders of authorities below and remit the matter back to the file of the Assessing Officer to comply with the directions given in earlier assessment years as referred hereinabove and decide the issue in accordance with law after allowing an opportunity of hearing to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 04th January, 2018 at Chennai.