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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI AMIT SHUKLA
सुनवाई की तायीख / Date of Hearing : 06.12.2016 घोषणा की तायीख /Date of Pronouncement : 23.12.2016 आदेश / O R D E R
PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against impugned order dated 21.1.2015, passed by Ld CIT (A)-9, Mumbai for the assessment year 2011- 2012. In this appeal, the assessee is mainly challenged the disallowance u/s 14A of Rs. 6,83,463/- which has been made under Rule 8D of the Income Tax Rules, 1962 (the Rules).
Brief facts are that, the assessee-company is engaged in sub-broking, arbitrage and trading in shares an derivatives and providing portfolio management services. During the year, assessee has earned tax free dividend income of Rs. 1,66,701/-, which has been claimed as exempt. In the computation of income, for the purpose of disallowance u/s 14A of the Act, the assessee has suo moto disallowed Rs. 18,408/-. However, Ld Assessing Officer proceeded to make the disallowance under Rule 8D and made disallowance of interest expenditure under Rule 8D(2)(ii) of Rs. 5,40,388/- and disallowance of indirect expenditure under Rule 8D(2)(iii) of Rs. 1,43,074/-. After setting off of the disallowance made by the assessee, the net disallowance has worked out to Rs. 6,65,054/-.
Before the Ld CIT (A), the detailed submissions were made on various points like, the assessee had surplus / interest free funds from where the assessee had made investment in securities and secondly, certain investments made in the shares were stock-in-trade, therefore, same should not form part of working of the average value of investment under Rule 8D(2)(iii). The assessee‟s various contentions on this issue have been incorporated in detail by the Ld CIT (A) from pages 3 to 12 of the appellate order. However, CIT (A) confirmed the disallowance made by the AO and directed the AO to only remove the investments which are taxable and not to include the interest on the term loan which has been utilised for acquiring office premises.
Before us, Ld Counsel for the assessee submitted that so far as the availability of surplus funds are concerned, the assessee had funds of more than Rs. 6.97 Crs in the form of „reserves & surplus‟ and share capital. Against the said funds, the investment made is only Rs. 35,77,702/-. Thus, in view of the principle laid down by the Hon‟ble jurisdictional High Court in the cases of CIT vs. Reliance Utilities & Power Ltd [2009] 313 ITR 340; and CIT vs. HDFC Bank Ltd[2014] 366 ITR 505, no disallowance of interest should be made. As regards to the disallowance of indirect expenditure, Ld Counsel submitted that some of the shares were kept as stock-in- trade, which were not for the purpose of investment or for earning of dividend income and therefore same should not be included for the purpose of disallowance and secondly, no reasons has been given by the AO as to why the disallowance offered by the assessee was not correct.
On the other hand, Ld DR relied upon by the order of the CIT (A).
After considering the rival submissions and on perusal of the impugned orders as well as the relevant material placed on record, we find that so far as the disallowance of interest expenditure under Rule 8D(2)(ii) is concerned, the same cannot be made in the light of the fact that the assessee had huge surplus funds which far exceeds the investments made in shares. Thus, in view of the ratio laid