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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI SANJAY GARG
PER: SHAMIM YAHYA This appeal by the assessee is directed against order of learned CIT-A dated 22/01/2016, and pertains to assessment year 2011– 12. 2. The grounds of appeal read as under; On the facts and circumstances of the case, the Ld. CIT-A erred in confirming the addition u/s. 14A amounting to Rs.62,91,848/- Apcotex Industries Ltd. ITA no.3031/Mum./2016 without appreciating the fact that there was no expenditure incurred to earn the Exempt income. The appellant company craves the leave to add, amend, alter and/or delete the above ground of appeal at or before the time of hearing.
3. Brief facts of the case are as under: The Assessing Officer observed from the computation of income that the appellant company had shown an amount of Rs.28,09,606/- as dividend income and Rs.20126289/- as long term capital gain which was claimed exempt u/s. 10 of the Act. The appellant company contended that no expenses were directly incurred for the purpose of earning of exempt income, and hence, it was not included in the disallowance u/s. 14A of the Income Tax Act, 1961. Therefore, in the computation of income only an amount of Rs.25,77,913/- had been disallowed u/s. 14A of the Income Tax Act, 1961. The A.O. opined that the appellant company failed to furnish any evidence to prove the no direct expenses were incurred for earning of exempt income. Further the appellant company had accepted the Portfolio Management Fees amounting to Rs.36,37,963/- were directly attributable to the exempt income. Therefore, Ld. AO felt that he disallowance of under section 14A of the Income Tax Act 1961 had to be computed under the provisions of Rule 8D is at Rs.88,69,761/-
4. Before the Ld. CIT-A assessee made following submission:
Apcotex Industries Ltd. ITA no.3031/Mum./2016 Disallowance of Ps. 62,91,8481- U/s. 14A: “The Ld. Assessing Officer in the assessment order applying Rule 8D computed total disallowance @ Rs.88,69,761/-. Since the Appellant Company had already disallowed Rs.25,77,913/- U/s 14A in return of income filed, the AO made the Net Disallowance of Rs.62,91,848/-U/s 14A. On perusal of Para 6.3.2 of the Assessment Order, it will be appreciated that disallowance towards interest has been made to the extent of Rs.77,47,653/- and further 0.5% towards the administrative expenditure amounting to Rs.11,22,1081-. Thus totaling to Rs.88,69,761/-. The Ld. Assessing Officer failed to appreciate that there can be no disallowance of interest since the Appellant Company was having Share Capital and Reserves amounting to Rs.6419.42 lacs as at 31- 3-2011 against the Investments of Rs.2550.04 lacs as at 31-3-2011. Thus it would be appreciated that the investments were made out of free reserves of the company and hence no disallowances is warranted on account of interest u/s 14A. The appellant company places reliance on the judgment rendered by Jurisdictional Hon’ble Bombay High court in case of HDFC Bank Ltd, 366 ITR 505 and Reliance Utilities& Power Ltd, 313 ITR 340 (Bom), where in it has been held that; Apcotex Industries Ltd. ITA no.3031/Mum./2016 "the presumption needs to be drawn that interest free funds have been utilized for the purpose of investments and therefore there could not have been any disallowance. "where own funds are more than the invested funds, no disallowance of interest is warranted." The average expenditure under Rule 8D has been worked out at Rs.11,22,108/- which is less than the disallowance made by the Assessee himself at Rs.25,77,9131-. In view of the above decision rendered by Hon’ble Bombay High Court the amount of the disallowance done by the assesse company of expenses u/s 14A of Rs.25,77,913 is just and proper and no further interference on the same is warranted. In view of the above facts the appellant company pray’s that the addition of Rs.621,91,848/- made by the Ld. AO needs to be deleted.”
However learned CIT-A was not convinced. Ld. CIT-A held as under: “i) Having considered the entire gamut of facts, I do not find any fallacy in the computation made by the Ld. AO. as the appellant has not challenged the direct expenditure of Rs.36.37 lacs. However, while challenging the interest disallowance, the appellant has wrongly taken the figure at Rs.25.77 lacs in its pleadings as against the Apcotex Industries Ltd. ITA no.3031/Mum./2016 disallowance of Rs.41.09 lacs made by the Ld. AO at page 5 of the assessment order. ii) As regard the appellant's reliance on HDFC Bank & Reliance Utilities (supra), reference is made to the decision of Hon'ble Mumbai Bench of ITAT in the case of HDFC Bank Ltd. in dated 23.09.2015 where it was held that the decision of Hon'ble Bombay High in the case of Godrej & Boyce 328 ITR 81 had to be given precedence. It is further held therein that the case of Reliance Utilities Power Ltd., 313 ITR 340(Bom) was in the context of Sec. 36(1)(iii) and was even considered in the decision in the case of Godrej & Boyce (supra). Accordingly, both these decisions cited by the Ld. AR were considered by the Hon’ble Tribunal in a later decision in HDFC (order dated 23.09.2015), and hence, respectfully following the same, the pleading made by the A.R must be rejected. Accordingly, ground no. 3 is dismissed.”
Against the above order assessee is in appeal before us we have heard both the counsel and perused the records. Ld. Counsel of the assessee contended that assessee has sufficient interest free fund to make the investment. Hence no disallowance on account of interest should be made. Ld. Counsel further contended that assessee has only incurred P.M.S. expanses which has already been deducted by the assessee in the computation. In light of the assessee’s suomoto Apcotex Industries Ltd. ITA no.3031/Mum./2016 disallowance no further disallowance needs to be made. In this regard Ld. Counsel place reliance upon jurisdiction High Court decision in the case of CIT vs Sharada Erectors Pvt. Ltd. in I.T appeal no. 680 of 2014 vide order dated. Oct 3rd, 2016. 76 taxman.com 107. In this case it was held that: “IT: Where interest-free funds available with an assessee were sufficient to meet its investment, it should be presumed that investments were made out of interest-free funds available and not out of borrowed fund; therefore, partial disallowance of interest paid on loan would not be justified.”
Further Ld. Counsel submitted that the decision of ITAT Mumbai in the case HDFC Bank Ltd. in ITA 374/Mum/2012 dated 23.09.2015. relied by the Ld. CIT-A has already been set aside by Hon’ble High Court. Ld. Counsel submitted that in view of Hon’ble Bombay High Court decision in the case HDFC Bank Ltd. 366 ITR 505 and reliance utility in power limited 313 ITR 340 no disallowance should have been made in this case. Per contra Ld. DR relied upon the orders of authorities below.
Upon careful consideration we find that authorities below have not followed the mandate of Hon’ble jurisdictional High Court as mentioned above. It has been expounded by Hon’ble jurisdictional High Court that when interest free fund of the assessee are sufficient Apcotex Industries Ltd. ITA no.3031/Mum./2016 to make the investment for earning exempt income no disallowance on account of interest is called for. Further assesse has claimed that the only expenses incurred is the P.M.S fee which has already been disallowed by the assessee himself. However, we note that in the assessment order AO has made adverse interference in this regard, which appears to be a not proper appreciation of facts. In light of above in our consider opinion the issue needs to be remitted to the file of the assessing officer.
The assessing officer shall examine the factual veracity of the assessee submission and decide as per the exposition of Hon’ble jurisdiction High Court as above.
In the result this appeal by the assessee stands allowed for statistical purposes.