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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य,राजे�� के लेखा सद�य लेखा सद�य राजे�� के राजे�� के अनुसार राजे�� के अनुसार अनुसार -Per Rajendra,AM: अनुसार Challenging the orders,dated of the CIT(A)-II,Mumbai the Assessing Officer (AO)and the assessee have filed cross-appeals for the above-mentioned Assessment Year(AY.) Assessee- company,engaged in the business of trading and investment in shares and IPO funding,filed its return on 28.09.2008,declaring income of Rs.4.58 crores.The AO completed the assessment on 30/12/2010 under section 143 (3) of the Act, determining its income at Rs.6.71 crores. ITA/5091/Mum/2012 : 2.Solitary ground of appeal
,raised by the AO,is about deleting the disallowance made under section 14A read with the rule 8D of the Income Tax Rules, 1962(Rules).During the assessment proceedings,the AO found that the assessee had shown exempt income of Rs.12.90 lakhs,that it had not made any disallowance u/s. 14A of the Act.He asked it to explain as to why expenditure incurred for earning exempt income should not be disallowed as per the provisions of section 14. A of the Act.After considering the submission of the assessee dtd.15.11.2010,he held that it had not only invested in shares but had also traded in shares,that it had used interest bearing funds for IPO funding and making loans also,that it did not produce cash flow to prove that no interest bearing funds found way to investments, 5091/M/12(08-09) M/s. Angular Trading P.Ltd. that it had mixed funds,that significant portion of interest bearing funds must have found its way into various investments and stock in trade of shares,that some administrative expenses must have been incurred.Referring to the provisions of section 14A r.w.r.8D of the Rules,he made a disallowance of Rs. 2.12 crores(Rs.2.07 crores under the head interest expenditure and Rs.5.24 lakhs on account of 0.05% of average investment on the first and last day of the year under appeal. 2.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,the assessee argued that it had incurred interest expenditure of Rs. 5.07 crores,that same was incurred for business purposes of financing, trading in shares and for IPO applications,that major interest expenditure was on account of financing activities,that gains arising out of IPO activities were offered for taxation under the head business income,it had paid interest amounting to Rs.3.08 crores for carrying out share business,that it had offered the income arising out of it for taxation as a part of business income.It furnished the details of interest paid and received for the year under appeal.After considering the available material,the FAA held that the submission made by the assessee that interest expenditure directly related to IPO loan and F&O trading loan should be excluded from the working of the disallowance had force.Referring to the order of his predecessor for the earlier AY.,where he had deleted the interest expenditure of IPO funding and other laons,he directed the AO to exclude interest on IPO funding (Rs.13.85 lakhs +1.49 crores)and interest on trading loan(F&O segment of Rs.3.08 crores)for disallowance purposes u/s.14 A of the Act.As far as balance interest of Rs. 34.94 lakhs [general interest(Rs.33.73 lakhs) and other interest(Rs.1.21lakhs)] is concerned,he observed that it pertained to general loan and other interest and that same had to be disallowed under Rule 8D(ii)of the Rules.Act.He also upheld the working of disallowance under Rule8D(iii)of the Rules. 2.2.During the course of hearing before us, the Departmental Representative ( DR) supported the order of the AO and stated that assessee had not filed the cash flow statement. The Authorised Representative(AR) supported the order of the FAA.He did not object to the disallowance of Rs. 5.24 lakhs. 2.3.We have heard the rival submissions and perused the materilas before us.We find that out of the total interest expenditure of Rs.5.07 crores,the FAA had deleted disallowance of Rs.4.72crores(Rs.3.06 crores+Rs.1.49 crores+13.85 lakhs), that the assessee was engaged in business of funding IPOs.It had also incurred interest expenditure on trading loan (F&O shares).Incomes from both the activities were offered under the head business income. 2 5091/M/12(08-09) M/s. Angular Trading P.Ltd.
Thus,the interest payment to the extent of Rs.4,72,05,839/- was directly related to the regular business of the assessee-it had do nothing with investment made by it and earning of exempt income.Business related expenses have to be allowed for business activities.The AO has not brought on record anything to prove that the interest paid by the assessee on account of IPO funding or trading of shares in F&O segment had anything to do with its investment activities.Therefore,in our opinion,the FAA had rightly excluded the interest of Rs.4.72 crores from the disallowance made u/s.14A r.w.r 8D of the Rules.As,there is no infirmity in the order of the FAA about deleting the disallowance of Rs.4.72 crores,so,confirming his order,we decide the effective ground of appeal against the AO. ITA/5191/Mum/2012:
3.In its appeal,the assessee has also raised only one ground of appeal and it also deals with the computation of disallowance under section 14A read with rule 8D of the Rules. While dealing with the appeal of the AO,we have already discussed the facts of the case and reasons for sustaining the addition made by the AO. As stated earlier,the FAA had held that out of the total interest of Rs.5 07, 00, 615/- debited to the profit and loss account interest paid on general loan, amounting Rs.233.73 lakhs and other interest of Rs.1.21 lakhs was to be considered for disallowance under rule 8D (2)(ii) of the Rules.Besides,he upheld the disallow -ance of Rs. 5.24 lakhs under rule 8D (2) (iii) also. 3.1.Before us,the AR argued that assessee ’s own funds were sufficient for making investments, that it had reserves and surplus of Rs.4.37 crores, that investments were of Rs.2.48 crores only. He relied upon the cases of HDFC Bank Ltd. (366ITR505) and Reliance Utilities and Power Ltd.(313ITR340). He also referrred to the cases of Trade Apartment Ltd. (ITA/1277/Kol/2011-AY.2008-09,dated 30/03/2012) and also referred to assessee’s own case for the AY.2007
08. (ITA/46/Mum/2011,dated 11/09/2014). The DR supported the order of the FAA. 3.2.We have heard the rival submissions.We find that the FAA has also not considered availability of assessee’s own funds during the year under consideration. The assessee had opening balance of Rs.4.33 crores of reserves and surplus, that it had made investment of Rs. 54.40 lakhs only during the year under consideration. Honorable courts have held that if the assessee’s own funds were sufficient to make investment than it has to be presumed that borrowed funds were not utilised for making investments.We find that in the case before us funds owned by the assessee for the year under appeal were more than sufficient to make