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Income Tax Appellate Tribunal, BANGALORE BENCH “ B ”
Before: SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.9.11.2015 of
Commissioner of Income Tax (Appeals)-2, Bangalore for the Assessment Year
2011-12.
There is a delay of 135 days in filing the appeal. The assessee has filed
petition along with Affidavit for condonation of delay.
2 ITA No.1257/Bang/2016 3. The arguments on condonation of delay from both sides are heard. It has
been stated in the Affidavit that after receipt of the order by the employee of
the assessee-company, it was not communicated to the person concerned to
take a decision of filing the appeal. The Affidavit has been filed by the CEO &
M.D. of the assessee-company and it has been explained that due to the bona
fide mistake and inadvertent, the person who has received the impugned order
of the CIT (Appeals) could not place the same before the M.D. for taking a
decision of further course of action. The order was traced out at a later stage
and immediately thereafter the assessee took step to file the appeal however
there is a delay of 135 days due to the circumstances which were beyond the
control of the assessee. Thus it has been pleaded that the delay in filing the
appeal may be condoned.
On the other hand, the ld. DR has opposed the condonation of delay and
submitted that the explanation furnished by the assessee is vague and has not
brought out the sufficient reason for the delay in filing the appeal.
Having considered the rival submissions as well as relevant material on
record, I find that there is nothing on record to indicate that by filing the appeal
belatedly, the assessee intended to achieve any ulterior purpose or motive.
3 ITA No.1257/Bang/2016 Therefore having regard to the facts and circumstances of the case, I am
satisfied that the assessee has reasonable cause for not filing the appeal within
the period of limitation and accordingly the delay of 135 days in filing the
appeal is condoned.
The assessee has raised the following grounds :
“ 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the order of the assessing officer. 2. The learned ClT (A) failed to appreciate that the assessing officer erred in disallowing the claim of interest of the Appellant by applying the provisions of Section l4A of the IT Act read with Rule 80 of the IT Rules. 3. The learned CIT (A) ought to have held that the Appellant having utilized the borrowed funds only 'to the tune of Rs.l,75,OO,OOOI- and also agreed for disallowance of interest on the said borrowal on prorata basis, the excess interest disallowed by the assessing officer was without sanction and accordingly the learned CIT (A) ought to have deleted the disallowance. 4. The learned CIT(A) ought to have appreciated that the interest on the borrowed money in relation to the investment in the tax exempted investments having been identified, there was no application of Rule 80(2)(ii) of the [T Rules read with Section 14A of the IT Act to justify further disallowance of interest to the tune of Rs.14,78,147/-. 5, The learned CJT(A) ought to have appreciated that interest disallowance under' Section 14A of the IT Act cannot exceed the actual interest in relation to the exempted income and Rule 80 of the IT Rules could not be stretched to make artificial disallowance as proposed by the assessing officer and accordingly he ought to have deleted impugned disallowance as 'made by the assessing officer.
4 ITA No.1257/Bang/2016 6. The learned CIT(A) ought to have appreciated that there was no administrative expenses in relation to the e x e m p t e d income and accordingly the provisions of Rule 80(2)(iii) of the IT Rules has no application and accordingly he ought to have deleted the disallowance ofRs.46,250/- as made by the assessing officer. 7. The learned CIT(A) ought to have appreciated that the assessing officer having failed to discharge the onus of proving the nexus of administrative expenses to the exempted income, the application of Rule 8D(2)(iii) read with Section 14A of the IT Act to disallow Rs.26,2501- by the assessing officer is bad in law and accordingly he ought to have deleted the disallowance of Rs.26,2501- as made by the assessing officer. 8. Without prejudice, the disallowances upheld by the learned CIT(A) are arbitrary, excessive and ought to be deleted in full. 9. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
The only issue arises from the grounds of the assessee's appeal is
regarding disallowance made under Section 14A of the Income Tax Act, 1961 (in
short 'the Act'). The Assessing Officer noted that the assessee has borrowed
huge funds from bank amounting to Rs.2 Crores on which it has paid interest of
Rs.66,30,939. The A.O. further noted that the assessee has made investment in
mutual funds yielding tax free income of Rs.3,17,781. The Assessing Officer
held that the assessee has used borrowed fund for the purpose of investment
in mutual funds and accordingly made a disallowance of Rs.20,13,923 on
5 ITA No.1257/Bang/2016 account of interest. The assessee challenged the action of the Assessing Officer
before the CIT (Appeals) but could not succeed.
Before the Tribunal, the ld. AR of the assessee has submitted that the
assessee was into the business of system integration called specialized net work
solutions and services, consultancy, software development and services, etc. In
the year 2009-10, the Govt. of India, Ministry of Power launched a major
programme for power distribution automation called R-APDRP. For the
implementation of the said programme the assessee has expertise in the
communication field and hence tied up with major power suppliers like Areva,
GE, ABB, etc. and given proposal of worth about Rs.50 Crores to these
companies for getting orders from the Government. The ld. AR has submitted
that the assessee was very optimistic and confident of getting orders of atleast
Rs.10 Crores and in order to prepare itself with initial funds, the assessee has
taken bank loan of Rs.2 Crores which was lying idle due to the delay in getting
the orders from the Government. Thus the loan taken for working capital was
not utilized by the assessee during the Assessment Year under consideration
and therefore it was parked in mutual funds till the business starts. The ld. AR
has submitted that the interest expenditure on the loan is allowable business
6 ITA No.1257/Bang/2016 expenditure and therefore the same cannot be disallowed under Section 14A of
the Act. The borrowed funds were used for business purpose and not for
earning the exempt income but to reduce the interest liability. Since the
interest expenditure is allowable under Section 36(1) of the Act therefore the
provisions of section 14A are not attracted. He has relied upon the following
decisions :
(i) CIT Vs. Indo Swiss Jewels Ltd. & Anr. (2008) 284 ITR 389.
(ii) CIT Vs. Varun Shipping Co. Ltd. (2011) 334 ITR 263.
On the other hand, the ld. DR has submitted that there is no dispute that
the assessee has used borrowed fund for the purpose of investment in the
mutual funds yielding tax free income. Therefore the provisions of section 14A
are applicable in the case of the assessee. The Assessing Officer has pointed
out that out of the loan of Rs.2 Crores, an investment in mutual funds were
made to the extent of Rs.1.75 Crores. Therefore, the assessee has directly used
borrowed funds for the purpose of investment. He has relied upon the orders
of the authorities below.
I have considered the rival submissions as well as perused the material on
record. There is no dispute that the assessee took loan of Rs.2 Crores on
7 ITA No.1257/Bang/2016 7.12.2010 from ICICI Bank and the investment in mutual funds were made on
14.12.2010 to 18.12.2010 immediately after the said loan taken from bank. It
was explained by the assessee that due to the delay in the orders from the
Government the loan amount was lying idle and therefore invested in mutual
funds. Explaining the reason of using the borrowed fund for investment, the
assessee contended that the investment was made to mitigate the burden of
expenditure on borrowed fund. This contention of the assessee is not
supported by the bare fact of the case where there is direct nexus between the
loan taken on 7.12.2010 and investment made in mutual funds on 14.12.2010
to 18.12.2010. The assessee has pre-decided to use the loan taken for working
capital for investment in mutual funds without explaining the circumstances
and any new development between the loan taken and investment made.
Therefore it manifest from the record that there was nothing to show that
there would be delay in the orders from Govt. and after waiting a reasonable
period, the assessee decided to invest the borrowed fund in mutual funds.
Hence, it is apparent that the assessee pre-decided to use the loan amount in
mutual funds and the explanation of the assessee that it was lying idle is
unfounded and contrary to the facts and record as there is no time gap
8 ITA No.1257/Bang/2016 between the loan amount taken and investment. In the facts and
circumstances of the case, the disallowance made by the authorities below
under Section 14A cannot be faulted with. Accordingly, the impugned order of
the CIT (Appeals) is upheld.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 08-09-2016.
Sd/- (VIJAY PAL RAO) JUDICIAL MEMBER
*Reddy gp
Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.
By Order
Asst. Registrar, ITAT, Bangalore