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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI A.K. GARODIA & SMT. ASHA VIJAYARAGHAVAN
O R D E R
Per A.K. Garodia, Accountant Member
This appeal is filed by the revenue and CO is filed by the assessee and these are directed against the order of CIT (Appeals)-I, Bangalore dated 30.11.2012 for AY 2009-10.
CO No.65/Bang/2013 Page 2 of 6 2. Ground raised by the revenue in its appeal are as under:-
“1) The order of the CIT (A) is opposed to law and facts of the case. 2) The learned CIT (A) erred in law and in fact in directing the Assessing Officer to accept the disallowance out of the interest expenses of Rs.14, 18,38,064/ - computed by the assessee as against the disallowance made by the Assessing Officer as per clause (ii) of sub-rule(2) of Rule 8D of Income Tax Rules r.w.s. 14A of the Income Tax Act of Rs. 17,27,52,979/-. 3) For these and such other grounds that may be urged at the time of hearing, the Hon'ble Tribunal may allow the appeal in the interest of justice and equity.”
Grounds raised by the assessee in the CO are as under:-
“1. On the facts and circumstances of the case and in law, the Cross objector prays that the disallowance of interest determined U/s 14A of Rs.14,18,38,064/- was supported by a report from an independent firm of Chartered Accountant, who was engaged to examine the books of account and determine the amount of interest disallowance U/s 14A. The disallowance of interest amount of Rs. 14,18,38,064/- is also certified by the Tax auditor and the same is as per the books of account of the cross objector determined having regard to its books of account.
On the facts and circumstance of the case and in law, the Cross objector prays that no disallowance of interest over and above the amount of Rs. 14,18,38,064/- determined having regard to its books of account based on ratio of average investments in share (as reduced by investments directly identifiable out of identifiable funds such as investments made out of IPO proceeds and QIP proceeds and investments in Growth Mutual Funds) to average assets (as reduced by investments made out of identifiable funds such as investments made out of IPO proceeds and QIP proceeds) can be made by applying the formula in Rule- 8D as well as by disregarding the books of account.
CO No.65/Bang/2013 Page 3 of 6 3. On the facts and circumstance of the case and in law, to invoke Rule 8D, the AO should, after considering the accounts of the Cross objector, not been satisfied with the correctness of the claim of the Cross objector in respect of such expenditure in relation to income which does not form part of total income under this Act and such non-satisfaction must be objective. Thus, to invoke Rule 8D, the AO should provide a justifiable reason for not being satisfied with the claim of the Cross objector which in the Cross objector's case is absent; Without Prejudice: 4. On the facts and circumstances of the case and in law, the amount of disallowance of interest of Rs.14,18,38,064/- worked out having regard to its books of account on nexus basis of cross objector was higher than the amount of disallowance of Rs.9,51, 11,172/- worked out in accordance with the method prescribed in Rule 8D of the IT Rules. CROSS OBJECTION NO. 2: 1. The Cross objector craves leave to add, alter and/or amend all or any of the foregoing cross objections stated above.”
It was submitted by the ld. DR of the revenue that in para 3.9 of his order, relief was allowed by the CIT (Appeals) on this basis that assessee has proved that the source of certain investments is out of interest free funds and the question of apportioning any interest expenditure for computation of disallowance u/s. 14A of the Act does not arise. But his decision is without any reasoning or basis as to how the assessee has proved that source of certain investments is out of interest free funds. He supported the assessment order and contended that on this issue, the CO No.65/Bang/2013 Page 4 of 6 order of CIT (Appeals) should be reversed and that of AO should be restored.
As against this, Shri Jagadish K., employee of the assessee company, who appeared on behalf of assessee company, supported the order of CIT (Appeals). Regarding the CO of the assessee, it is submitted that the disallowance upheld by the CIT(Appeals) is excessive and in fact the CIT(A) has enhanced the disallowance on account of indirect expenses to Rs.11,73,87,442 as against the amount of disallowance of Rs.9,83,00,803 determined by the AO in the assessment order, which amounts to enhancement and since no notice u/s. 251(2) of the Act was issued by the CIT(A), the enhancement made by him is not justified and valid.
We have considered the rival submissions. We find that in the assessment order, the AO had worked out the disallowance u/s. 14A by applying Rule 8D of the I.T. Rules and he has calculated the disallowance out of interest expenditure on the basis of proportionate investment in tax exempt investments and total assets. In addition to that, he has made disallowance of 0.5% of average amount of tax exempt investment. In this manner, he has worked out total disallowance at Rs.27,10,53,782. As against this, the ld. CIT(A) has upheld the disallowance of Rs.26,00,40,736 as against the total disallowance made by the AO u/s. 14A; of Rs.27,10,53,782. Hence it is seen that there is no enhancement made by CO No.65/Bang/2013 Page 5 of 6 the ld. CIT(A) in respect of disallowance u/s. 14A and therefore this ground of assessee’s CO has no merit.
In fact, the ld. CIT(A) has reduced the disallowance out of interest expenditure and has increased the disallowance out of administrative expenses. But while doing so, the CIT(A) has not indicated the reasoning and basis of giving a finding that some of the investments are made by the assessee out of interest free funds available with the assessee. Under these facts, we deem it fit and proper that this issue should go back to the file of CIT(Appeals) for fresh decision and accordingly, we set aside the order of CIT(Appeals) and restore the entire matter back to his file for fresh decision, after providing adequate opportunity of being heard to both sides and he should pass a speaking and reasoned order.
In the result, the appeal of the revenue is allowed for statistical purposes, whereas CO of the assessee is dismissed.
Pronounced in the open court on this 30th day of September, 2016.