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Income Tax Appellate Tribunal, “SMC” BENCH, KOLKATA
Before: Dr. Manish Borad
Banwari Lall Pasari ………. Appellant (PAN: AACFB7611A) Vs. Asstt. Commissioner of Income Tax, Circle-34, Kolkata. ………… Respondent Appearances by: Shri S. Jhajaria, AR appeared for Appellant. Shri P. P. Barman, Addl. CIT, DR appeared for Respondent. Date of concluding the hearing : 16.07.2024 Date of pronouncing the order : 23.07.2024 ORDER This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2015-16 is directed against the order passed u/s 250 of the Income Tax Act, 1961 in short the “Act”) by Ld. Commissioner of Income-tax (Appeal), Addl/JCIT(A), Thiruvanantpuram [in short Ld. “CIT(A)”] dated 08.03.2024 arising out of the assessment order u/s 143(3) of the Act by ACIT, Circle-34, Kolkata dated 19.12.2017.
Grounds of appeal
raised by the assessee are reproduced as under:
1. For that in view of the facts and in the circumstances, the Ld. CIT(A) was wholly unjustified in affirming the action of the AO in disallowing Rs.45,84,110/- u/s l4A read with Rule 8D and such action of the Ld. CIT(A) was unjustified and not in accordance with law and judicial Banwari Lall Pasri AY : 2015-16 precedents and in view of the facts and in the circumstances it may be held accordingly.
2. Without prejudice to Ground No. 1 above, the Ld. CIT(A) was wholly unjustified in affirming the action of the AO in disallowing Rs.41,18,363/- u/s sec. 14A read with Rule 8D(2)(ii) on account of interest and such action of Ld.CIT(A) in such respect is bad in law and it may be held accordingly.
3. Without prejudice to Grounds No.1 & 2 above, the Ld. CIT(A) erred in not appreciating the fact that the appellant had substantial own fund out of which investments were made and in view of the facts and in the circumstances invocation of sec. 14A read with Rule 8D(2)(ii) is bad in law and it may be held accordingly.
4. Without prejudice to Ground No.1, 2 & 3 above, the Ld. CIT(A) failed to consider the judgment of Jurisdictional High Court in considering only those investment out of which exempt income has been earned and in view of the facts and in the circumstances it may be held accordingly.
5. For that in view of the facts and in the circumstances, the Ld. CIT(A) was wholly unjustified in affirming the action of the AO in making disallowance u/s 80G of Rs.1,00,000/- on the alleged ground that in absence of approval u/s 80G for the concerned trust and in view of the facts and in the circumstances Ld. CIT(A)'s action is bad in law and it may be held accordingly.
6. For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds at the time of hearing.”
Though the assessee has raised six grounds of appeal but the issues are mainly – (i) Disallowance u/s. 14A read with Rule 8D(2)(ii) of the Income-tax Rules, 1962 (hereinafter referred to as the “Rules”) is at Rs.41,18,363/- and (ii) Disallowance u/s. 80G of Rs. 1,00,000/-.
4. At the outset, Ld. Counsel for the assessee submitted that disallowance u/s 14A of the Act is uncalled for since the assessee has sufficient own funds to cover up the investment made in Banwari Lall Pasri AY : 2015-16 equity shares and there being no finding of the AO establishing a nexus between the borrowed funds and its application for making investment in equity shares, therefore, the alleged disallowance is uncalled for. Reliance placed on the decision of this coordinate bench in assessee’s own case for AYs 2012-13 and 2013-14 in & 2115/Kol/2016 dated 14.03.2018. As regards second issue about disallowance u/s. 80G is concerned, prayer made to restore the issue to the Ld. AO to whom assessee shall furnish necessary details of the done and other evidence to prove that the donation is eligible for 80G benefit.
On the other hand, Ld. DR vehemently argued supporting the orders of the lower authorities.
I have heard both the sides and perused the material available on record. So far as the issue of disallowance u/s. 14A read with Rule 8D(2)(ii) of the Rules is concerned, I note that Ld. AO made the impugned addition observing that the assessee had paid interest amounting to Rs.1,27,01,371/- on the secured and unsecured loans and has invested Rs.8,41,51,171/- in the shares, Rs.85,37,024/- in Unit investments and Rs.1,77,69,558/- in stock in trade of shares and securities. Ld. AO has made the impugned disallowance by only focussing on the secured and unsecured loans taken by the assessee and the interest expenditure incurred. I, however, on perusal of the Balance Sheet of the assessee firm placed in the paper book page 118 and more specifically the partner’s capital account appearing in the Income tax return, notice that the total partner’s capital at the year end stood at Rs.13.95 Cr. The total of partner’s capital Banwari Lall Pasri AY : 2015-16 is more than the investment made in the equity shares and units. It has been consistently held by the Hon’ble court including that by the Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. - (2009) 313 ITR 340 (Bom.) that “if there were funds available both interest free and overdraft/loans taken, then a presumption would arise that investment would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment and, therefore, no part of the interest on borrowings could be disallowed on the basis that investment were out of interest bearing funds.”
Respectfully following the ratio laid down by the Hon’ble Court and also considering the fact that assessee firm’s capital is more than the investment in equity shares and there being no satisfaction recorded by the AO to prove any nexus between the borrowed funds and its application for making investment in the equity shares, I am inclined to hold that no interest disallowance u/s. 14A of the Act is called for under Rule 8D(2)(ii) of the Rules read with section 14A of the Act. Accordingly, the finding of the Ld. CIT(A) is set aside and impugned disallowance u/s. 14A of the Act is deleted. Ground Nos. 1 to 4 are allowed.
So far as ground no. 5 is concerned it relates to disallowance u/s. 80G of the Act of Rs. 1,00,000/-. The assessee has given donation of Rs. 1,00,000/- to Om Kareswar Trust but in absence of approval u/s. 80G of the Act the benefit of section 80G was denied. Before me, prayer has been made that the assessee posses all the necessary information about the approval
Banwari Lall Pasri AY : 2015-16 u/s. 80G of the Act in the case of donee Om Kareswar Trust and if an opportunity is provided then the same shall be filed before the Ld. AO. I, hereby restore the issue of deduction u/s. 80G of the Act to the file of the Ld. AO to verify the veracity of the claim of the assessee and if necessary evidence are filed to the satisfaction of the AO proving that the assessee has made a valid claim of deduction u/s. 80G of the Act, the same may be allowed in accordance with law. This ground of appeal of the assessee is allowed for statistical purposes.
9. In the result, appeal of the assessee is partly allowed for statistical purposes. Order is pronounced in the open court on 23rd July, 2024.