DCIT, CHENNAI vs. ARUN EXCELLO FOUNDATIONS P LTD., CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.1163/Mds/2016 :- 2 -:

2012 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The Revenue has raised the following grounds of appeal:- 2.

‘’2.1 The learned CIT(A) erred in deleting the disallowance made u/s.14A of Rs. 1,34,19,012/-. 2.2 The learned CIT(A) ought to have appreciated the Board's Circular No. 5/2014 dated 11-02-2014 wherein it is states that disallowance u/s. 14A can be made even in cases where the taxpayer has not earned exempt income in any particular.

2.3 The learned CIT(A) ought to have appreciated the fact that on similar issue, the decision of the Jurisdictional ITAT in the case of EIH Associated Hotels in for A.Y.2008-09 dated 17-07-2013,the department has filed appeal u/s.260A which is pending before the Hon'ble High Court.

The Brief facts of the case are that the assessee is in 3. business of Engineering contract works and filed Return of income on 30.09.2011 with total income of �98,89,240/- and the Return of income was processed u/s.143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s.143(2) of the Act was issued.

The ld. Authorised Representative of assessee appeared from time to time and filed details. The ld. Assessing Officer on perusal of the financial statements found that assessee company disclosed investments of �29,56,80,000/- and under the provisions of Sec. 14A of the Act no deduction shall be allowed in respect of expenditure

ITA No.1163/Mds/2016 :- 3 -: incurred in relation to such exempted income on investments income which does not form part of total income. In the financial year 2010- 2011, the assessee company claimed interest on borrowed funds �2,32,65,576/- and it was explained that Borrowed funds were not utilized for investment purpose and no portion of interest on borrowed capital pertains to such investments. Further, the investments are made on the decisions of Board in the mutual funds and shares and dividend income is received without incurring any expenditure and no expenditure in the nature of administration overheads are charged.

The ld. Assessing Officer having not satisfied with submissions of ld. Authorised Representative has applied the provisions of Sec. 14A r.w.r8D and relied on judicial decisions and calculated disallowance u/s.14A r.w.r. 8D �1,34,19,012/- and passed order u/s.143(3) of the Act dated 19.03.2014. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative argued the grounds and explained that no borrowed funds were utilized for the purpose of investments. The ld Commissioner of Income Tax (Appeals) considered the grounds and submissions and findings of the ld. Assessing Officer and came to a conclusion that since there is no exempted income received by the ITA No.1163/Mds/2016 :- 4 -: assessee relied on decision of the Co-ordinate Bench and Delhi High Court directed the ld. Assessing Officer to delete the addition u/sec.

14A of the Act and allowed the appeal of the assessee. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative argued that 5. the Commissioner of Income Tax (Appeals) erred in deleting the disallowance without considering the fact that the disallowance u/s.14A of the Act can be made were the assessee has not earned any exempted income and relied on the decision of Co-ordinate Bench on similar issue were the Revenue having not satisfied with decision of ITAT filed an appeal before Hon’ble Jurisdictional High Court and same is pending and prayed for allowing the appeal.

Contra, ld. Authorised Representative relied on the orders 6. of the ld. Commissioner of Income Tax (Appeals) and vehemently opposed to the grounds.

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Representative contention that the assessee company made investments out of funds generated in the business and the loans obtained were not utilized for the purpose of investments and the assessee company has claimed interest charges in profit and loss account on borrowed funds only. The ld. Authorised Representative emphasized that the investments made out of internal accruals of Business operations. But before us, the assessee company could not substantiate the investments with cash flow statement and bank account. The ld. Assessing Officer has relied on provisions of Sec.14A r.w.r. 8D(2) and calculated disallowance. The contention of the Department before the Tribunal that the Revenue has not accepted the decision of Tribunal and an appeal has already been filed before Jurisdictional High Court and the same is pending. This Tribunal is of the considered opinion that mere pendency of appeal before the jurisdictional High Court cannot be a reason to take a different view.

The order of Tribunal is binding on all the authorities in the State of Tamil Nadu and Union Territory of Pondicherry. Therefore, we remit the disputed issue to the file of ld. Assessing Officer to verify whether borrowed funds are utilized for the purpose of investments and expenditure related to such investments are not charged to Profit and Loss account ant calculate the disallowance u/s.14A r.w.Rule 8D on merits and the assessee shall be provided adequate opportunity of ITA No.1163/Mds/2016 :- 6 -: hearing before passing the order. The appeal of the Revenue is allowed for statistical purpose.

In the result, the appeal of the Revenue is allowed for 8. statistical purpose.

Order pronounced on Wednesday, the 27th day of July, 2016, at Chennai.