MIRAH DEKOR P. LTD,MUMBAI vs. ACIT CEN CIR 14, MUMBAI

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ITA 4952/MUM/2015Status: DisposedITAT Mumbai25 October 2017AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the assessee had sufficient own funds (share capital, reserves, and surplus) to cover its investments in tax-free instruments, thus the presumption that investments were made from borrowed funds did not apply. However, a small disallowance under Rule 8D(2)(iii) was sustained due to the assessee's concession.

What were the facts?

The assessee company earned dividend income, which is exempt from tax. The Assessing Officer disallowed expenses related to this exempt income under Section 14A read with Rule 8D. The CIT(A) upheld this disallowance.

What were the issues?

Whether expenses relatable to exempt income can be disallowed under Section 14A when the assessee has sufficient own funds for investments. Whether the presumption of investment from borrowed funds applies in such cases.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-48, Mumbai, [in short CIT(A)] in appeal No. CIT(A)- 48/I.T.569/DCCC-14/2013-14 dated 06-08-2015. The Assessment was framed by Deputy Commissioner of Income Tax, central Circle-14, Mumbai (in short DCIT or AO) for the assessment year 2011-12 vide order dated 30-09-2013 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).

2. The only issue in this appeal of the assessee is against the order of the CIT(A) confirming the action of the Assessing Officer in disallowing expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of IT Rules, 1962. For this the assessee has raised following three grounds:

Mirah Dekor Pvt. Ltd. (A.Y:11-12) 1. The Ld. CIT(Appeals) erred in confirming the addition made by Ld. A.C.I.T. on account of disallowance of Rs. 17,62,050/- U/s l4A r.w. Rule 8D.

2.

The Ld. CIT (Appeals) erred in holding that expenses attributed towards earning exempt income even when there were no nexus.

3. The Ld. CIT (Appeals) erred in considering the facts that the major investments were made for acquiring strategic business stake.

3.

Briefly stated facts of the case are that the assessee company is engaged in the business of dealing in cloth, textile, fabrics, furniture, gift articles and allied items. During the year under consideration, the Assessing Officer noticed that the assessee has earned dividend income of ` 74,545/- and claimed the same as exempt. But now, before us, the learned counsel for the assessee has fairly agreed that this dividend income is not restricted to ` 74,545/-, it is much higher. However, he could not give the details of exempt income. The Assessing Officer by invoking the provisions of section 14A read with Rule 8D of the I T Rules, made disallowance of interest expenses under rule 8D(2)(ii) at ` 15,93,570/- and under rule 8D(2)(iii) at ` 1,68,480/-, thereby total disallowance at ` 17,62,050/-. Aggrieved, the assessee preferred appeal before the CIT(A), who also confirmed the action of the Assessing Officer. Aggrieved, the assessee is in second appeal before the Tribunal.

4.

We have heard the contentions of both the sides and have also gone through the facts and circumstances of the case. At the outset, learned counsel for the assessee filed the details of own funds and according to him the share capital and reserves and surplus available with the assessee is ` 36,68,15,393/- and investment made in instruments giving exempt income is at ` 3,78,90,113/-. He took us through the order of the Assessing Officer and stated that he has nowhere proved the nexus that interest bearing funds

Mirah Dekor Pvt. Ltd. (A.Y:11-12) having been invested in the instrument giving exempt income or any expenditure is incurred for these investments or for earning of exempt income. In such circumstances, according to the learned counsel the presumption in view of the decision of Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom), is that the investment is made by the assessee out of his own surplus funds. When this was confronted to the learned Senior Departmental Representative, he could not controvert the argument of the learned counsel.

5.

After going through the facts and circumstances in entirety, we are of the view that the assessee is able to show that it is having its own interest free funds in the shape of share capital, reserves and surplus available with the assessee is to ` 36,68,80,795/- as against the investments in tax free instruments of ` 3,78,90,113/-. It means that the presumption drawn by the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. (supra), squarely applies here. In view of the above, we are of the view that no disallowance is attributable under Rule 8D in this case.

6.

As regards the disallowance under Rule 8D(2)(iii) i.e. the average value of investment at ` 1,68,480/-, the learned counsel for the assessee fairly conceded that this addition can be sustained due to smallness of the amount. In view of the above, we restrict the disallowance at ` 1,68,480/- and delete the balance.

In the result, the appeal of assessee is partly allowed. 7.

Order pronounced in the open court on 25-10-2017.

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