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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of the learned CIT (A)-23, Mumbai passed in appeal No.CIT (A)-23/ACIT- 12(2)/IT-292/2011-12 dated 07-02-2014. Assessment was framed by the ACIT, Circle -12 (1), Mumbai for assessment year 2009-10 vide his order dated 15-12-2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
The only issue in this appeal of the assessee is against the order of the learned CIT (A) confirming the action of the AO in disallowing expenses relatable to earning exempted income by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as “the Rules”).
Briefly stated, the facts that the AO during the course of assessment proceedings noticed that the assessee has earned exempt income being dividend of Rs.12,35,406/- and interest on PPF at Rs.78,619/-. According to the AO, the assessee has claimed expenses relating to interest and finance charges to the tune of Rs.42,54,630/- out of total expenses of Rs.70,50,098/-. According to the AO the assessee would have utilized some portion of the loan in purchase of shares which have yielded dividend income and also the sources of investment in the PPF as profits that have accumulated every year from trading in shares, which was also financed by borrowed capital on which interest was paid. According to him, the expenditure must have been incurred for earning the exempt income. The assessee suo moto made disallowance under Rule 8D (2) (i) of the Rules at Rs.42,391/- and also disallowance under Rule 8D(2) (iii) of the Rules at Rs.2,95,294/-. But the AO noted that he did not find the working of disallowance acceptable for the reason that the assessee has not made any disallowance of interest expenses under Rule D(2) (ii) of the Rules. Accordingly, he worked out the disallowances as under:- “a) Under Rule 8D(2)(i) Rs. 42,391/- b) Under Rule 8D(2)(ii) Rs.56,87,655/- c) Under Rule 8D(2)(iii) Rs. 3,20,601/- Total Rs.60,50,647/-.” Aggrieved, the assessee preferred appeal before the learned CIT (A).
The learned CIT (A) confirmed the action of the AO in respect to disallowance of interest expenses vide Para 3.8 of his order by observing as under:- “3.8 Coming to the submissions of the assessee that no interest fund was utilized in making the investments, I find that the assessee has given the figure of the amount of interest funds available with her to contend that since such funds were more than the investments in quoted equity shares and PPF, hence, it is to be presumed that the interest free funds were utilized in making such investments. This contention of the assessee cannot be accepted and no such presumption can be made. The assessee has to show with clear evidence that all investments which come under the purview of sec. 14A have been actually made from out of the interest free funds have been utilized for such purposes. It is only to address the situation where no such correlation can be made that Rule 8D(2)(ii) has been brought into the statute. In view of the above and in view of the fact that the assessee has furnished no evidence to show that only the interest free funds claimed to be available with her have been utilized for making investments which come under the purview of section 14A, no such presumption can be drawn and the contention of the assessee cannot be accepted. Therefore, disallowance of interest expenditure in relation to the income which does not form part of the total income of the assessee will have to be worked out as per the method prescribed in Rule 8D(2) (ii) of the I. T. Rules,1962. ….”.
Aggrieved against the action of the learned CIT (A), confirming the order of the AO, the assessee came in second appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee filed complete statement of working of expenditure and calculation of disallowance u/s 14A of the Act under Rule 8D (2)(i) and Rule 8D (2) (iii) of the Rules which is as under:-
Calculation of disallowance under section 14A 1. Investment in shares Total purchases 54,49,459 Total sales 1,68,91,098 Rs. 2,23,40,557 2. Stock-in-trade Total purchases 47,65,98,077 Total sales 47,34,32,353 Rs. 95,00,30,430 Working as per Rule 8D Expenditure directly related to exempt income. Sr. Particulars Working Amount No. i) Securities Transaction Tax Rs.2,23,40,557*0.125% 27,926 ii) Dmat charges Rs.44,478*2,23,40,557 1,022 (2,23,40,557+95,00,30,430) iii) Service tax Rs.1,92,821*2,23,40,557 4,430 (2,23,40,557 +95,00,30,430) iv) Transaction cost Rs.3,92,266*2,23,40,57 9,013 (2,23,40,557+95,00,30,430) Rs. 42,391 The learned Counsel for the assessee also filed the details of expenditure of interest not attributable to any particular income for the reasons that assessee’s non-interest bearing funds are more than of investment in shares, hence, there can be no disallowance invoking the provisions of Rule 8D(2) (ii) of the Rules. In this respect, he filed the following details:- “Expenditure by way of interest not attributable to any particular income Particulars Amount I Non Interest bearing funds a) Capital amount 2,23,54,176 b) Advance for purchase of shares 1,60,00,000 c) Payable to partnership firm – ADD investments 1,80,36,420 Total 5,63,90,596 II Investment in shares Rs. 4,34,94,528
Note: Since capital and non interest bearing funds are more than the amount of investment in shares hence, no disallowance under Rule 8D”. Further the learned Counsel for the assessee has also filed the working of disallowance of 0.5% of average value of investment and according to the assessee which comes to Rs.2,52,903/- and not as computed by the AO at Rs.3,20,601/- and he filed the following computation:- “Half per cent of average value of investment Opening investment in shares 5,76,66,378 Closing investment in shares 4,34,94,528 Rs. 10,11,60,906 0.5% of Rs.10, 11, 60,906 = Rs.2, 52,903/- 2.” The learned Counsel for the assessee, on query from the Bench replied that the complete details in respect to assessee’s own funds was available before the AO during the course of assessment proceedings in the account of the assessee and before the learned CIT (A) also. He referred to Para 3.4 of the learned CIT (A), wherein the contention of the assessee in respect to availability of own interest free funds is dealt with as under:- “3.4 Without prejudice to the above contention, the assessee has submitted that she has no grievance with the calculation for disallowance under Rule 8D(2)(i) at Rs.42,391/-. With regard to Rule 8D(2)(ii), the assessee has submitted that her investment in quoted equity shares as at 31.03.2009 is Rs.2,82,41,048/- and her investments in PPF is Rs.10,78,858/-. Hence, a total investments were Rs.2,93,19,906/- as against that she had a capital as at 31.03.2009 of Rs.2,23,54,176/- advance for purchase of shares from Mr. Deepak Dalal (Husband) of Rs.1,60,00,000/- and amount payable to partnership firm of Rs.1,80,36,420/-, totally amounting to Rs.5,63,90,596/-. It has been submitted
Rule 8D(2)(ii) in as much as the capital and non interest bearing funds available with the appellant is far in excess of the investments in quoted equity shares and public provident fund that have yielded dividend income and interest income respectively, which are exempted from tax ……”. In view of the above, the learned Counsel for the assessee submitted that complete details in respect to availability of assessee’s own interest free funds were before the lower authorities. Hence, in this position, the learned Counsel for the assessee stated that the assessee’s case is squarely covered by the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bombay). We find from the above arguments and the facts of the case that Revenue has not disputed the availability of assessee’s own interest free funds as detailed out by the assessee before the learned CIT (A) and now before us also. Hence, this being the position, the issue in the present appeal is squarely covered by the decision of the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra). In view of the above facts, we delete the disallowance in respect to interest.
As regards to the disallowance made by the AO and confirmed by the learned CIT (A) in respect to 0.5% of the average value of the investments, we find that none of the authorities below has found fault with the computation made by the assessee in respect to disallowance of 0.5% of average value of the investments. Hence, this being the position
and the correctness being not challenged, no further disallowance can be made. This issue of assessee’s appeal is also allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 16/06/2016.