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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Joginder Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Joginder Singh (Judicial Member) Both these appeals are by the assessee for Assessment years 2009-10 & 2010-11, aggrieved by the impugned orders dated 29/01/2013 and 02/09/2013 of the Ld. First Appellate Authority, Mumbai, on the ground stated in the grounds of appeal which are broadly with respect to disallowance u/s 14A and 36 of the Income Tax Act, 1961 (hereinafter the Act) read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the Rules). The assessee has disallowed the interest etc.
During hearing of these appeals, the ld. counsel for the assessee contended that identical issue arose for consideration for Assessment year 2008-09, wherein, the Tribunal send these issues to the file of Ld. Assessing Officer. Reliance was placed upon the decision in CIT vs HDFC Bank Ltd. 366 ITR 505 (Bom.) and CIT vs. Reliance Utilities Power Ltd. [2009] 313 ITR 340 (Bom). Assessee also filed paper book running into 6 pages containing balance sheet as on 31/03/2010. On the other hand, the ld. DR, defended the conclusion arrived at in the impugned order by adding that the impugned years may also be sent to the file of the ld. Assessing Officer so that the same can be examined in the light of the aforesaid decisions.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is an manufacturer and exporter of cut & 6423/Mum/2013 3 Revashankar Gems Ltd. and polished diamonds. For the Assessment year , 2009-10, the assessee received a sum of Rs.3,96,590/- as dividend income and suo moto made a disallowance of Rs.39,659/- u/s 14A of the Income Tax Act, 1961 (hereinafter the Act), being 10% of the dividend income. The ld. Assessing Officer made disallowance u/s 14A of the Act r.w.r. 8D of the Rules. The stand of the assessee before us is that the Assessing Officer did not consider that the interest paid was in respect of specific loans taken as such as car loans and export packing credit loans, which were not considered for calculating proportionate interest.
2.2. Likewise, the assessee was allotted an office at Bharat Diamond Bourse, for which installments were paid by the assessee. In addition, the assessee gave advances for booking other premises. It was claimed by the assessee that no amount was specifically borrowed to acquire these assets and the assessee was having adequate interest free funds. We also find that for Assessment year 2008-09 in order dated 04/09/2013. The Tribunal deliberated upon identically on the issues in hand and held as under:-
“This appeal filed by the assessee on 21.0.2011 against the order of CIT (A)-9, Mumbai dated 30.6.2011 for the assessment year 2008-2009. 2. In this appeal, assessee raised the following grounds which read as under: “ The CIT (A) erred,- 1.1. in confirming a disallowance u/s 14A by mechanically applying Rule-8D. & 6423/Mum/2013
4. Revashankar Gems Ltd.
1.2. Without prejudice, in erroneously computing the disallowance by including interest pertaining to loans specifically taken for other purposes. 2.1. in disallowance of interest assumed to be extended on investment in property at Bharat Diamond Bourse and other similar advances given which were business assets. 2.2. in not appreciating that no funds had been specifically borrowed for the purposes of making this investment and that hence noting were disallowable on this account. 2.3. in not appreciating that the appellant had adequate non- interest bearing funds available with it and that hence no disallowance of interest was called for. 3.1. in disallowing interest paid to the extent that sums of money were advanced to a partnership firm where the appellant was a partner on an interest free basis. 3.2. in not appreciating that the appellant had business transactions as well with the said firm and hence these advances were for commercial expediency. 3.3. in assuming that interest free advance given to the firm was given from borrowed funds of the company as a whole and in disallowing proportionate interest expense; 3.4. in not appreciating that the assessee had adequate interest free funds to make these advances.”
At the outset, Shri Apurva R. Shah, Ld Counsel for the assessee brought our attention to the grounds raised before us and mentioned that there are couple of issues raised in this appeal. They are (i) the applicability of Rule-8D r.w.s. 14A of the Act without rejecting the reasoning given by the assessee for making disallowance and (ii) the disallowance u/s 36-1(iii) of the Act, when the assessee has adequate excess interest free funds.
3.1. Referring to the first issue, Ld Counsel mentioned that the assessee earned dividend income of Rs. 5,55,299/- which was exempted u/s 10(34) of the Act. Assessee made disallowance towards the expenditure for earning the said exempt income @ 10% of the exempt income. Without rejecting the claim of the assessee, AO invoked the provisions of section 14A read with Rule-8D of the Act and relied on the binding judgment of the jurisdictional High Court judgment in the case of Godrej & Boyce Mfg. Ltd. vs. & 6423/Mum/2013 5 Revashankar Gems Ltd.
DCIT, 328 ITR 81. CIT (A) confirmed the same. In this background of the facts, Ld Counsel mentioned that invoking the said provisions mechanically without rejecting the claim of the assessee ie Rs. 55,530/- is the expenditure incurred for earning of the exempt income, is unsustainable in law and relied on the jurisdictional High Court judgment in the case of Godrej & Boyce Mfg. Ltd (supra). In this regard, Ld Counsel prayed for setting aside the issue for reexamination and applying of the jurisdictional High Court judgment on this issue.
3.2. On the other hand, Ld DR has relied on the orders of the Revenue Authorities and mentioned that he has no objection if the issue remanded to the files to the files of the AO for fresh examination of the issue.
3.3. We have heard both the parties and perused the orders of the Revenue Authorities as well as the material placed before us. We find merit in the prayer of the Ld Counsel to remit the matter to the files of the AO for examination of the issue afresh. Therefore, we remand the matter to the files of the AO to re-adjudicate the issue in accordance with the jurisdictional High Court judgment in the case of Godrej & Boyce (supra) after granting a reasonable opportunity of being heard to the assessee. It is the settled law that the AO is under obligation to reject the claim of the assessee by giving speaking order on this issue before he resort to thrust on the assessee the provisions of rule 8D r w section 14A of the Act. Accordingly, issue no.1 is remanded and relevant conclusions of the revenue authorities are set aside.
The second issue relates to the disallowance u/s 36(1)(iii) of the Act in respect of the interest claim of the assessee. At the outset, Ld Counsel mentioned that the assessee has sufficient interest free funds and in this regard, he brought our attention to para 2.2 of the impugned order and mentioned that the advances are not out of interest bearing funds. Further, Ld Counsel mentioned that assessee has Rs. 26.9 Crs worth of interest free funds by way of capital, reserves and interest free loans, which is quantitatively much higher than the advances given by the assessee. It is the claim of the assessee that considering the jurisdictional & 6423/Mum/2013 6 Revashankar Gems Ltd.
High Court judgment in the case of CIT vs. Reliance Utilities Power Ltd. [2009] 313 ITR 340 (Bom), the benefit should be given to the assessee considering the existence of excess interest-free funds. Further, Ld Counsel fairly mentioned that the facts about the issue of existence of excess funds were not examined by the lower authorities. Therefore, for this purpose, this issue may also be set aside for examining the same afresh in the light of the binding judgment of the Hon’ble High Court in the case of Reliance Utilities Power Ltd (supra).
4.1. On the other hand, Ld DR relied on the orders of the Revenue Authorities and he has no objection if the matter is remanded back to the files of the AO for fresh examination of the issue.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the material placed before us. On hearing both the parties, we find merit in the Ld Counsel’s arguments. It is a fact that neither the AO nor the CIT (A) have really gone into the issue of existence of excess funds and have given categorical findings about this fact. Therefore, in our considered opinion, this issue should also be set aside to the files of the AO for fresh adjudication considering the judgment of the Supreme Court in the case of Reliance Petro-products (supra) as well as the relevant law in force. Accordingly, issue no.2 is remanded and relevant conclusions of the revenue authorities are set aside.
In the result, appeal of the assessee is allowed for statistical purposes.”
In the light of the foregoing discussion, we direct the ld. Assessing Officer to examine the case of the assessee and decide afresh in the light of the directions contained in the aforesaid order of the Tribunal dated 04/09/2013. Needless to mention here that the assessee be given opportunity of being heard with further liberty to furnish evidence, if any, in & 6423/Mum/2013 7 Revashankar Gems Ltd. support of its claim. Thus, both the appeals are allowed for statistical purposes only.
Finally, both these appeals of the assessee are allowed for statistical purposes.
This order was pronounced in the open court in the presence of Ld. representatives from both sides at the conclusion of the hearing on 16/06/2016.