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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
ITA Nos. 3455 & 3494/Ahd/2014 Nova Properties Pvt Ltd vs. ACIT Assessment year: 2011-12 & 2010-11 Page 1 of 5
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD [Coram: Pramod Kumar AM and Rajpal Yadav JM] ITA Nos. 3455/Ahd/2014 & 3494/Ahd/2014 Assessment Year: 2011-12 & 2010-11 respectively
Nova Properties Pvt Ltd .......…………...........Appellant 10th Floor, Commerce House-4, Beside Reliance Petrol Pump, Prahladnagar, Satellite, Ahmedabad -380015 [PAN : AABCN 4138 N] Vs. ACIT ............................Respondent Circle-5, Ahmedabad
Appearances by: PM Mehta for the appellant Mudit Nagpal for the respondent Date of concluding the hearing : 21.09.2017 Date of pronouncing the order : 22.09.2017 O R D E R Per Pramod Kumar, AM: 1. These two appeals by the assessee are directed against separate orders of the learned Commissioner of Income-tax (Appeals)-XI, of even dated 07.10.2014 passed in Assessment Years 2011-12 & 2010-11 respectively. In both these appeals common issues have been raised and therefore, both these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
Grievances raised by the assessee-appellant are as follows:-
AY : 2011-2012 “1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance u/s 14A of Rs.17,85,152/-. The Learned CIT(A) ought to have appreciated that entire disallowance made by Assessing Officer deserves to be deleted.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance, without
ITA Nos. 3455 & 3494/Ahd/2014 Nova Properties Pvt Ltd vs. ACIT Assessment year: 2011-12 & 2010-11 Page 2 of 5
considering the fact that AO has not recorded satisfaction regarding incorrectness of disallowance made u/s 14A r.w. Rule 8D for Rs.20,000/- which is suo moto disallowed by appellant in the Return of Income and further erred in confirming action of Assessing Officer for treating such expenditure under Rule 8D(i) when no such direct expenditure is incurred.
In law and in the facts and circumstances of the appellant’s case, the learned C1T(A) has erred in affirming the disallowance of proportionate interest expenditure for Rs.6,46,044/- made u/s 14A of the Act, without appreciating the fact that the appellant has sufficient interest free funds available to cover the investments yielding tax free income.
3.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in not allowing netting off of interest expenditure with interest income. The Learned CIT(A) ought to have appreciated that as the interest income was more than interest expense and the appellant has net positive interest income, the interest expenditure cannot be considered for disallowance u/s 14A read with Rule 8D.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in upholding the disallowance of proportionate interest expenditure, without appreciating the fact that investments which not yield any tax free income should not be considered for the purpose of disallowance under section 14A of the Act.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in affirming the disallowance in respect of administrative for Rs.14,31,884/- made u/s 14A of the Act, without appreciating the fact that all the expenses claimed are meant for running day to day affairs of the company and not for the purpose of earning any tax free income.
5.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in upholding the disallowance of administrative expenses for Rs.14,31,884, when expenditure claimed in the Return of Income is just Rs.87,600. The Learned CIT(A) ought to have appreciated that the appellant suo moto disallowed Rs. 20,000 u/s 14A in its Return of Income hence, in any case, the disallowance cannot exceedRs.67,600 ( Rs.87,600 - Rs.20,000).
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing ground of the appellant's appeal before him challenging the levy of interest u/s.234B, 234C & 234D of the Act, on the ground that levy of interest was consequential in nature. The appellant denies its liability to pay interest.” AY : 2010-2011 “1. In law and in the facts and circumstances of the appellant's case, the
ITA Nos. 3455 & 3494/Ahd/2014 Nova Properties Pvt Ltd vs. ACIT Assessment year: 2011-12 & 2010-11 Page 3 of 5
learned CIT(A) has grossly erred in upholding the disallowance u/s 14A of Rs.6,46,824/-. The Learned CIT(A) ought to have appreciated that entire disallowance made by Assessing Officer deserves to be deleted.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance, without considering the fact that AO has not rejected the methodology opted by appellant for calculating disallowance u/s 14A r.w. Rule 8D for Rs. 56,822/- in the Return of Income.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in affirming the disallowance of proportionate interest expenditure for Rs. 1,24,192/- made u/s 14A of the Act, without appreciating the fact that the appellant has sufficient interest free funds available to cover the investments yielding tax free income.
3.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in not allowing netting off of interest expenditure with interest income. The Learned CIT(A) ought to have appreciated that as the interest income was more than interest expense and the appellant has net positive interest income, the interest expenditure cannot be considered for disallowance u/s 14A read with Rule 8D.
3.2 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in not adjudicating the appellant's alternate contention that it has already disallowed interest on TDS for Rs.25,434 in Return of Income, hence while computing proportionate disallowance of interest expenditure u/s 14A. such interest cannot form part of total interest considered in numerator for Rs 3,75,450.
In law and in the facts and circumstances of the appellants case, the learned CIT(A) has erred in not dealing the appellant's plea that opening investment of Rs.14,35,58,095/- includes fixed deposits for Rs.11,56,53,540/- from which taxable income has been earned and already offered to tax, hence the same requires to be reduced from opening investments for the purpose of making disallowance u/s 14A of the Act.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in affirming the disallowance in respect of administrative for Rs, 5,79,454/- made u/s 14A of the Act, without appreciating the fact that all the expenses claimed are meant for running day to day affairs of the company and not for the purpose of earning any tax free income.
5.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in upholding the disallowance of administrative expenses for Rs. 5,79,454, when expenditure claimed in the Return of Income is just Rs. 33,217. In any case, the disallowance could not exceed the amount of expenditure claimed in Return of Income, hence the same requires to be restricted to Rs. 33,217.
ITA Nos. 3455 & 3494/Ahd/2014 Nova Properties Pvt Ltd vs. ACIT Assessment year: 2011-12 & 2010-11 Page 4 of 5
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing ground of the appellant's appeal before him challenging the levy of interest u/s.234B, 234C & 234D of the Act, on the ground that levy of interest was consequential in nature. The appellant denies its liability to pay interest.”
Learned representatives fairly agree that the above grievances in both assessment years under consideration are covered, in favour of the assessee, by the decision dated 14.07.2016 of the Co-ordinate Bench of this Tribunal in assessee’s own case for the assessment years 2008-09 & 2009-10 wherein the Tribunal has, inter alia, observed as follows:-
“4. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to disallowance of expenses u/s.14A of the Act. The undisputed fact is the assessee has earned tax free amounting to Rs.58,41,551/- and has also incurred interest expenses. It is assessee’s submission that it has interest-free funds which are more than the amounts invested from which it has earned exempt income and in such a case the presumption is that investments are out of interest-free funds and, therefore, no disallowance on account of interest can be made. This submission of the assessee has not been controverted by the Revenue but however its argument is that assessee has not kept interest-free and interest- bearing funds separately and therefore it is not possible for the assessee to pin point as to which of the funds have been used for making the investments. We find that Hon’ble Bombay High Court In the case of Reliance Utilities & Power Ltd. reported at (2009) 313 ITR 340 (Bom.) has held that if there are funds available, both interest-free and overdraft and / or loan taken, then a presumption would arise that investments would be out of interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. Before us, ld.Sr.DR has not placed any contrary binding decision in its support. In such a situation, relying on the aforesaid decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra), we are of the view that no disallowance of interest u/s 14A of the Act can be made in the present case. As far as the issue of net interest for the purpose of disallowance u/s.14A is concerned, we find that the Coordinate Bench of Tribunal in the case of Safar Reality Pvt.Ltd. vs. ACIT (ITA Nos.2334/Ahd/2012 & 1842/Ahd/2012, order dated 29/11/2013) has approved the theory of netting off of interest income with interest expenditure. Considering the totality of the aforesaid facts, we are of the view that in the present case, no disallowance u/s.14A is called for and thus direct the deletion of addition made by the AO. Thus, the ground(s) of assessee are allowed. As far as the appeal of Revenue for AY 2009-10 is concerned, since in AYs 2008-09 & 2009-10 the ground of assessee is decided in assessee’s favour, the ground raised by Revenue has become academic and, therefore, requires no adjudication and therefore dismissed. Thus, this ground of assessee is allowed.”
ITA Nos. 3455 & 3494/Ahd/2014 Nova Properties Pvt Ltd vs. ACIT Assessment year: 2011-12 & 2010-11 Page 5 of 5
We see no reason to take any other view of the matter than the view so taken by the co-ordinate bench. Respectfully following the same, we uphold the grievances of the assessee and allow both appeals filed by the assessee for AYs 2010-11 and 2011-12.
In the result, the appeals are allowed. Pronounced in the open court today on the 22nd day of September, 2017.
Sd/- Sd/-
Rajpal Yadav Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 22nd day of September, 2017 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order