BODHESH TRADE-INVEST P.LTD,MUMBAI vs. ITO 8(1)(2), MUMBAI

The present appeal preferred by the assessee is directed against 19th the order dated August 2013, passed by the learned Commissioner (Appeals)–16, Mumbai, for the assessment year 2006– 07.

Briefly the facts are, the assessee is a company filed its return of income for the assessment year under consideration on 20th October 2006, declaring income of ` 31,960. The assessment was completed under section 143(3) of the Act, vide order dated 24th December 2008, by determining the total income at ` 9,60,175, which was subsequently rectified under section 154 of the Act to ` 2,31,960. Subsequently, the learned Commissioner, in exercise of power under section 263 of the Act, examined the assessment records and found the assessment order to be erroneous and prejudicial to the interests of Revenue, as the Assessing Officer has failed to tax an amount of ` 1,11,62,456, as deemed dividend under section 2(22)(e) of the Act and further to make necessary disallowance under section 14A. He, therefore, directed the Assessing Officer to re–frame the assessment accordingly. As it appears, being aggrieved with the revision order of the learned Commissioner, the assessee preferred appeal before the Tribunal. The Tribunal, vide order dated 23rd September 2011, passed in ITA no.3793/Mum./2011, while reversing the order of the learned Commissioner on the issue of taxability of deemed dividend under section 2(22)(e) of the Act, however, upheld the revision order on the issue of applicability of section 14A and directed the Assessing Officer

Being aggrieved of such disallowance, the assessee preferred appeal before the first appellate authority. The learned Commissioner (Appeals), after considering the submissions of the assessee, observed that the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (supra), has held that the dividend income being tax free would come under the purview of section 14A of the Act. He, however, observed that as per the said decision, rule 8D, would not be applicable prior to assessment year 2008–09. Hence, the disallowance under section 14A of the Act has to be worked out on reasonable basis. Applying the said principles, the learned Commissioner (Appeals) finally concluded that the disallowance under section 14A of the Act by the Assessing Officer by applying the rate of interest adopted by the assessee itself is reasonable. Accordingly, he confirmed the disallowance.

The learned Counsel for the assessee submitted before us that the Assessing Officer was not correct in holding that unsecured loan of ` 88.53 lakh were utilised in investment in shares and further the said unsecured loan was interest bearing. It was submitted, some of the M/s. Bodhesh Trade–Invest Pvt. Ltd. 5 unsecured loan being interest free, the Assessing Officer was not justified in quantifying the disallowance on the unsecured loan of ` 88.53 lakh. Further, referring to Schedule–9 of Profit & Loss account for the year ended 31st March 2006, the learned Counsel for the assessee submitted that the assessee had derived profit from sale of shares amounting to ` 95,69,790, which was invested in shares. Therefore, it cannot be said that interest bearing funds were entirely used for investment. He further submitted that if at all any disallowance is to be made under section 14A of the Act, it cannot exceed an amount of ` 1,26,156, which is the net of interest received and interest paid.

The learned Departmental Representative, on the other hand, strongly relying upon the findings of the learned Commissioner (Appeals) in Para–2.3 of his order submitted, as the Assessing Officer has made disallowance under section 14A of the Act, in the light of the decision of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (supra), by complying to the directions of the Tribunal, there is no need to interfere with the order of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. Before we proceed to decide the issue, it is necessary to look into the specific directions of the Tribunal

On a perusal of the aforesaid findings of the co–ordinate bench, it is amply clear that the Bench has refused to interfere with the directions of the learned Commissioner on the issue of applicability of section 14A of the Act. Therefore, the Assessing Officer considering the fact that assessee has utilised unsecured loan of ` 88,53,817, which is interest bearing for investing in shares has computed the disallowance by applying the interest rate as adopted by the assessee itself. That being the case, we do not find any infirmity in the order of the Assessing Officer in computing the disallowance under section 14A of the Act and the learned CIT(A) confirming the same. Though the learned Counsel for the assessee has submitted before us that entire unsecured loan of ` 88,53,817, is not interest bearing and some unsecured loans are also interest free, but, in the absence of any material submitted by the assessee to demonstrate such fact, it is difficult to accept the contention of the learned Counsel for the M/s. Bodhesh Trade–Invest Pvt. Ltd. 7 assessee. In the aforesaid view of the matter, we are inclined to uphold the disallowance made by the Assessing Officer and sustained by the first appellate authority. Accordingly, grounds raised by the assessee are dismissed.

In the result, assessee’s appeal stands dismissed. Order pronounced in the open Court on 09.10.2015