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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 10.4.2014 passed by the learned CIT(A)-17, Mumbai and it relates to A.Y. 2010-11.
The assessee is aggrieved by the decision of the learned CIT(A) in confirming the disallowance made by the Assessing Officer u/s. 14A of the I.T. Act.
We have heard the parties and perused the record. The assessee is a Member of various commodities exchanges and trades in commodities on its own account and also on behalf of its clients. The assessee has also made investments in equity and preference shares. During the year under consideration, assessee received dividend income of ` 28.56 lakhs and claimed the same as exempt. It disallowed a sum of ` 5,70,403/- u/s. 14A of the I.T.
Act. The Assessing Officer, however, computed the disallowance as per Rule 8D of the I.T. Rules as under:- a) Disallowance of indirect interest : ` 5,13,960/- expenditure b) Disallowance of expenses at 0.5% average value of investment : ` 21,93,745/- Total : ` 27,07,706/- The learned CIT(A) confirmed the same and hence the assessee has filed this appeal before us.
With regard to the disallowance of interest, learned AR submitted that the own funds available with the assessee as on 31.3.2010 was ` 51.51 crores and investments made as on that date was ` 43.87 crores. Learned AR further submitted that the opening balance of own funds available with the assessee was ` 49.70 crores. Accordingly, he submitted that no disallowance out of interest is required to be made as per the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (366 ITR 505), since own funds available with the assessee is in excess of value of investments. With regard to the disallowance of expenditure, learned AR invited our attention to the Schedule of investments and submitted that the assessee has brought forward the entire amount of investments from the preceding year and no new investment has been made during the year under consideration. He further submitted that the investment includes preference shares of ` 30 crores and the remaining investments have been made in the companies under the same management. He submitted that the strategic investments are excluded for the purpose of computing disallowance u/s. 14A of the Act and further preference shares are not considered for computing average value of investments. Accordingly he submitted that the disallowance made by the assessee under section 14A of the Act is reasonable and tax authorities are not justified in enhancing the same.
On the contrary, learned Departmental Representative submitted that the assessee did not prove that own funds have been made used for making investments.
Having heard the rival submissions, we are of the view that there is merit in the contentions of the assessee with regard to the disallowance of interest expenditure, since the own funds available with the assessee is in excess of the value of investments and hence no disallowance out of interest expenditure is called for in view of the decision of Hon'ble Jurisdictional High Court rendered in the case of HDFC Bank Ltd. (supra). Since no new investments have been made during the under the year under consideration and the entire value of investments have been brought forward from the preceding year, we are of the view that the disallowance of ` 5,70,403/- made by the assessee under Rule 8D(2)(iii) is quite reasonable and satisfies the requirement of section 14A of the Act. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to restrict the addition u/s. 14A of the Act to the amount disallowed by the assessee.
In the result, appeal filed by the assessee is allowed. Order has been pronounced in the Court on 18.11.2016