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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI G.S.PANNU& SHRI SANJAY GARG.
ORDER PER G.S.PANNU,A.M:
The captioned appeal filed by the Revenue pertaining to assessment year 2011-12 is directed against an order passed by CIT(A)- 4, Mumbai dated 21/10/2014, which in turn arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 04/02/2014.
(Assessment Year : 2011-12) 2. The only grievance of the assessee in this appeal is with regard to a disallowance of Rs.1,99,127/- representing interest expenditure by applying Rule 8D(2)(ii) of the Income Tax Rules, 1962 (in short ‘the Rules’) for the purposes of section 14A of the Act.
In brief, the relevant facts are that assessee company was found to have earned dividend income to the tune of Rs.73,80,000/-, which was exempt from tax. In the return of income assessee had made a suo-motu disallowance under section 14A of the Act. In the course of assessment proceedings the Assessing Officer proceeded to compute the disallowance under section 14A of the Act in accordance with Rule 8D of the Rules and accordingly, the total disallowance was computed at Rs.2,06,127/-. Accordingly, the aforesaid amount of Rs.2,06,127/- was additionally disallowed while computing the total income. Be that as it may, the present plea of the assessee is that the disallowance of Rs.1,99,127/- on account of interest expenditure in terms of Rule 8D(2)(ii) of the Rules out of total disallowance of Rs.2,06,127/- is unjustified.
The Ld. Representative for the assessee explained that so far as the opening investments are concerned, no interest can be attributable to the same as in the immediately preceding assessment year of 2010- 11 no disallowance under section 14A of the Act has been made out of interest expenditure. Similarly, with regard to the investments made during the year, the Ld. Representative for the assessee pointed out that the profits for the year under consideration are much more than the value of such investments and in this context he has referred to the copy of the Annual Aaccounts placed in the Paper Book at pages 7 to (Assessment Year : 2011-12) 12. It was, therefore, contended that in view of the judgment of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT, 383 ITR 529 (Bom) interest expenditure could not be made a subject-matter of disallowance under section 14A of the Act.
On the other hand, Ld. Departmental Representative merely relied upon the order of the Assessing Officer.
We have carefully considered the rival submissions. The plea of the assessee is that in the present case, the interest free funds, in the shape of profits are available which are more than the investments made and, therefore, the presumption is that such investment is out of interest free funds available with the assessee. The aforesaid presumption is supported by the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd., 313 ITR 340 (Bom). The said presumption was applied by the Hon'ble Bombay High Court while interpreting section 14A of the Act in the case of CIIT vs. HDFC Bank Ltd., 366 ITR 505(Bom). Such a position has been further endorsed by the Hon'ble Bombay High Court subsequently in the case of the HDFC Bank Ltd. vs. DCIT reported in 383 ITR 529 (Bom). Thus, considering the factual matrix brought out by the Ld. Representative for the assessee, it is quite clear that the investments in question can be presumed to have been made out of interest free funds and, therefore, no interest expenditure can considered while applying Rule 8D(2)(ii) of the Rules for computing the disallowance under section 14A of the Act. Thus, we direct the Assessing Officer to delete the disallowance of Rs.1,99,127/- made by invoking Rule 8D(2)(ii)of the Rules r.w.s. 14A of the Act.