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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-1, Kolkata [in short the ld CIT(A)] in Appeal No.962/CIT(A)-1/C-2(1)/2014-15 dated 28.08.2015 against the order passed by the ACIT, Circle-2, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 31.12.2010 for the Assessment Year 2008-09.
Though the assessee has raised several grounds before us, we find that the only effective ground to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance made u/s 14A of the Act read with Rule
Megatherm Electronics pvt. Ltd. A.Yr. 2008-09 8D of the Rules after giving partial relief to the assessee in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is engaged in the business of manufacturing and export of Electrothermic and Entrothermic furnace, Transformers and accessories. The assessee company had filed its return of income for the assessment year 2008-09 on 24.10.2008. The Ld. AO in the course of assessment proceedings proceeded to make disallowance u/s 14A of the act read with Rule 8D of the Rules under the second and third limb of Rule 8D(2) amounting to Rs. 3,26,937/-. The assessee received dividend income of Rs. 7,51,600/- and claimed the same as exempt in the return of income. This dividend was received from its subsidiary company M/s Engel Machine Tools Ltd. (Presently known as EMT Megatherm Pvt. Ltd.). The assessee paid a sum of Rs. 1,05,66,696/- towards interest which was debited in the profit and loss account. The assessee had not disallowed any sum u/s 14A of the Act in the return of income. The Ld. AO made disallowance u/s 14A by applying the provision of Rule 8D of the Rules amounting to Rs. 3,26,937/-. The Ld. CIT(A) observed that the assessee is entitled for partial relief in the following manner: (a) Only the net interest i.e. interest paid minus interest receipt should be considered for the purpose of working out disallowance under Rule 8D(2)(ii) of the Rules. (b) Only dividend bearing investment should be considered for working out the disallowances under Rule 8D(2)(ii) and 8D(2)(iii).
Aggrieved, the assessee is in appeal before us on the following grounds:
Megatherm Electronics pvt. Ltd. A.Yr. 2008-09 1.0 Ground no. 1
1.1 That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-1 [Ld. CIT(Appeals)] erred in upholding the action of the Learned Additional Commissioner of Income Tax, Range-2, [ld. AO] in disallowing proportionate business expenditure amounting to INR 326,937 by applying the provisions of section 14A of the Income Tax Act, 1961 (‘the Act’) read with Rule 8D of the Income Tax Rules, 1962 (‘the Rules’). 1.2 That on the facts and circumstances of the case and in law, the action of the Ld. CIT(A) is grossly erroneous and unjustified in upholding the disallowance of business expenditure made by Ld. AO by mechanically applying section 14A of the Act read with the Rule 8 of the Rules without recording a finding that such expenditure was incurred for earning the exempt dividend income.
1.3 That on the facts and circumstances of the case and in law, the action of the Ld. CIT(A) is grossly erroneous and unjustified in upholding the disallowance of business expenditure made by Ld. AO without appreciating the fact that the investments were made out of owned funds and not borrowed funds. 1.4 That on the facts and circumstances of the case and in law, the action of the Ld. CIT(A) is grossly erroneous and unjustified in upholding the disallowance of business expenditure made by Ld. AO without appreciating the fact that the investments have been made for strategic purposes and not for earning exempt income.
2.0. Ground no. 2
2.1 Without prejudice to ground no. 1, that on the facts and circumstances of the case and in law, the action of the Ld. AO in calculating the disallowance under Rule 8D(ii) and Rule 8D(iii) of the Rules by considering the value of the net current assets instead of total assets is grossly unjustified and erroneous in law.
The appellant craves leave to add to/alter/amend/substitute any of the above grounds of appeal, at the time, before or at the time of hearing of the appeal, so as to enable the Appellate Authority to decide the appeal according to law. 3
Megatherm Electronics pvt. Ltd. A.Yr. 2008-09
The ld. AR at the time of hearing filed a petition in terms of Rule 18(4) read with Rule 29 of the ITAT Rules by filing an additional evidence wherein he sought to prove that the investment in subsidiary company was made out of own funds. The AR also produced the copy of the bank statement of cash credit account to prove that investments were made only out of own funds. He further argued that the investment made on 21.10.2005 amounting to Rs. 30,60,000/- though on the date of making investment, the assessee had utilized the borrowed funds which is evident from the cash credit account, the said borrowings had been duly repaid by the assessee within 14.11.2005 by way of making frequent deposit of own funds of the assessee to the tune of Rs. 4,10,66,325/-. He argued that since the entire borrowed funds have been repaid by the assessee within a short span of time, the ratio laid down by the Hon’ble Calcutta High Court in the case of Dhanuka & Sons reported in 339 ITR 319 (Cal), would come to the rescue of the assessee. In respect of other investment made in subsidiary company on 28.01.2005 amounting to Rs 25,50,000/-, he argued that the same was made only out of own funds which is evident from the bank statement of cash credit account. In view of these arguments he stated that no disallowances need to be made on account of interest under Rule 8D(2)(ii) of the Rules. With regard to the disallowance made under third limb of Rule 8D(2) he argued that the Ld. CIT(A) had relied on the decision of this Tribunal and had directed to consider only dividend bearing investment for the purpose of making disallowance under Rule 8D(2) of the Rules.
We have heard the rival submissions. At the outset, we find that the assessee had filed additional evidence before us pointing out various factual aspects with Megatherm Electronics pvt. Ltd. A.Yr. 2008-09 regard to availability of own funds for making investments. However, we find that these papers were not furnished before the Ld. AO. We also find that these papers are crucial for adjudication of the issue before us and hence deem it fit to admit these additional evidences in terms of Rule 18(4) read with Rule 29 of the ITAT Rules. Hence, we direct the Ld. AO to consider these additional evidences filed before us and rework the disallowances to be made u/s 14A of the Act read with Rule 8D of the Rules afresh in accordance with law. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 05.01.2018