STCI FINANCE LTD,MUMBAI vs. DCIT 1(3)(1), MUMBAI

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ITA 120/MUM/2016Status: DisposedITAT Mumbai27 October 2017AY 2012-136 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal restored the issue of disallowance of interest to the AO for verification of utilization of short-term borrowings. The disallowance under Rule 8D(2)(iii) was also set aside and remanded back to the AO.

What were the facts?

The assessee claimed dividend income as exempt and did not attribute any expenses. The AO disallowed interest and administrative expenses under Section 14A read with Rule 8D. The CIT(A) confirmed the disallowance.

What were the issues?

Whether expenses relatable to exempt income were correctly disallowed under Section 14A read with Rule 8D, and whether borrowed funds were used for acquiring tax-free instruments.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

For Respondent: Shri Ram Tiwari, DR

This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-3, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-3/IT/235/2014-15, dated 06-10-2015. The Assessments were framed by the Deputy Commissioner of Income Tax, Circle-1(3)(1), Mumbai (in short DCIT or AO) for the assessment year 2012-13 vide order dated 21-01-2015 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).

2.

The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt

STCI Finance Limited (AY: 12-13) income by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter ‘the Rules’). For this assessee has raised following grounds: -

“1. The learned CIT(A) erred in confirming the action of the AO in making disallowance of INIt 91,50,000/- towards interest expenditure under section 14A of the Act r.w. Rule 81)(2)(ii) of the Income Tax Rules, 1962,

2. The learned CIT(A) erred in confirming the action of the AO in making disallowance of INR 10.89,472/- towards administrative expenditure under section 14A of the Act r.w. Rule SD(2)(iii) of the Income Tax Rules. 1962.”

3.

Briefly stated facts are that the assessee has earned dividend income of ₹ 118.26 lacs and claimed the same as exempt. The AO during the course of assessment proceedings noticed that the assessee has not attributed any expense to the exempt income and hence, he invoked rule 8D(2)(ii) of the Rules and disallowed the interest at ₹ 91.50 lacs and also under rule 8D(2)(iii) of the Rules i.e. average value of investment at the rate of 0.5% of the average investment at ₹ 11 lacs. Thereby, the AO disallowed a sum of ₹ 1,02,39,472/-. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, assessee came in second appeal before Tribunal.

4.

We have heard the rival contention and gone through the facts and circumstances of the case. Before us, the learned counsel for the assessee argued that assessee’s case is squarely covered in its favour by Tribunal decision in for AY 2011-12 vide order dated 01-09-2017, whereby, Tribunal has deleted the disallowance

STCI Finance Limited (AY: 12-13) made by the AO under rule 8D(2)(ii) of the Rules by observing in Para 3 and 4 as under: -

“3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA) and made elaborate submissions. After considering the available material, he held that in the earlier two AYs no disallowance was made under clause (ii) of the Rule 8D (2)of the Rules. He referred to the cases of HDFC Bank Ltd (366 ITR 505) and Reliance Utilities and Power Ltd. (313 ITR 340) and held that assessee’s capital, profit reserves were higher than the investments made in tax-free securities, that it had to be presumed that investments made by the assessee were out of interest refunds, that own fund of the assessee were to the tune of Rs. 784.34 crores, that the investments made by it were of Rs.219.27 crores. Finally, he deleted the addition of Rs.7.92 crores, made by the AO under Rule 8D (2) (ii)of the Rules. With regard to disallowance made under clause (iii), he held that while deciding the appeal for the AY.2010-11 the then FAA had upheld the disallowance keeping in view the appellate order for the AY.2009-10, that substantial investments made by the assessee during the year under appeal. Following the order of his predecessor, he upheld the disallowance made under clause (iii) of the rules. 4.During the course of hearing before us, the Departmental Representative (DR) left the issue to the discretion of the bench. The Authorised Representative (AR) supported the order of the FAA. We find that the FAA has given a categorical

STCI Finance Limited (AY: 12-13) finding of fact that the funds owned by the assessee were sufficient to make investments. Respectfully following the judgments of the Hon’ble Jurisdictional High Court in the case of HDFC Bank and Reliance Utilities(supra), we decide the effective ground of appeal against the AO.”

5.

But, the learned Senior Departmental Representative (“DR”) stated that the assessee during the year under consideration has made new investment in shares at ₹ 17.84 crores and no co-relation has been furnished between the amount borrowed and their utilization thereof. The learned Sr. DR pointed out from the balance sheet that the short term borrowing have also increased during the year under consideration at ₹ 123,600.01 lacs from the earlier year of ₹ 49,499.42 lacs. The learned Sr. DR agreed that the reserve and surplus is ₹ 80,093.57 lacs is available with the assessee as its own fund and non-current investment are to the tune of ₹ 65,793,39 lacs. In view of these facts, the learned Sr. DR requested for verification of facts whether the borrowed funds were not utilized for the purpose of investment in tax free instruments, the matter can be remanded back to the file of the AO.

6.

After hearing both the sides, we are of the view that in the given facts argued by the learned Sr. DR, we restore this issue of disallowance of interest under rule 8D(2)(ii) of the Rules to the file of the AO to verify whether the short term borrowings are utilized for the business purposes or for the purpose of acquiring tax free instruments. In term of the above, the matter is remanded back to the file of the AO.

7.

As regards to disallowance under Rule 8D(ii)(iii) of the Rules, the learned counsel for the assessee fairly agreed that the Tribunal already resorted the matter back to the file of the AO in Assessee’s appeal for the immediate preceding year in for the AY 2011-12

STCI Finance Limited (AY: 12-13) vide order dated 01.09.2017, on the same line the matter can be restored back to the file of the AO. The learned Sr. DR has not objected to the same. In term of the above, we set aside this issue and remand the matter back to the file of the AO. This ground of assessee’s appeal is allowed for statistical purposes.

8.

The next issue in this appeal of assessee is against the order of CIT(A) not allowing credit for TDS. For this assessee has raised following ground No. 3: -

“3. The learned (211(A) erred in not granting credit for TDS of INR 15.43,7831- not reflected in Form 26AS since the parties deducting the TDS has not deposited the tax to the account of Central Government.”

9.

At the outset, it is noticed from the order of CIT(A) that he has already directed the AO to verify the claim of the assessee in regard to credit for TDS and hence, it need no interference. However, the AO will examine the claim for credit of TDS and also corresponding income offered for tax. Accordingly, decide the claim of the assessee. The appeal of assessee is allowed for statistical purposes.

In the result, the appeal of assessee is allowed for statistical 10. purposes.

Order pronounced in the open court on 27-10-2017.

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