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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 28-09-2017 passed by the Commissioner of Income Tax (Appeals)-6, Pune [„CIT(A)‟] for assessment year 2012-13.
The assessee raised sole ground of appeal questioning the action of CIT(A) in confirming the order of AO in disallowing expenditure for the purpose of section 14A by applying Rule 8D of the Rules. Further, the assessee also raised additional grounds of appeal without prejudice to the original ground of appeal that the investments which did not yield any taxable income should be reduced for the purpose of computing the disallowance u/s. 14A read with Rule 8D of the Rules in the facts and circumstances of the case.
Since, original grounds of appeal and additional grounds of appeal are interlinked basing on same identical facts, we proceed to hear both the grounds together and to pass a consolidated order for the sake of convenience.
4. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing and sale of Pulp and Paper. The assessee filed return of income declaring a loss under the normal provisions of the Act and declared an amount of Rs.5,85,06,165/- u/s. 115JB of the Act. The AO assessed the income of the assessee as declared under book profit u/s. 115JB of the Act vide order dated 24-02-2015 u/s. 143(3) of the Act wherein, apart from other additions inter alia made an addition of Rs.10,08,000/- for the purpose of 14A by applying the method contemplated under Rule 8D of the Rules. The CIT(A) confirmed the same.
5. Heard both the parties and perused the material available on record. We note that the assessee disclosed dividend of Rs.26,93,380/-. The AO asked the assessee to explain why disallowance u/s. 14A should not be made. The assessee vide its submissions dated 07-11-2014, 20-11-2014 and 02-12-2014 stated that no interest bearing funds have been utilized for making the investments as these investments made out of the own funds and free reserves, contended no disallowance should be made on account of interest. However, the AO proceeded to compute the expenditure by applying the procedure prescribed in Rule 8D of the Rules Rs.4.94 Lakhs under Rule 8D(2)(ii) and Rs.5.14 Lakhs under Rule 8D(2)(iii) totaling to Rs.10.08 Lakhs. The CIT(A) confirmed the addition on account of interest expenditure taking into consideration the admission of the assessee that the investments made arising out of borrowed funds. The ld. AR argued that no such statement ever made by the assessee and the finding of the CIT(A) is incorrect. He reiterated the submissions as made before the AO and also CIT(A) that the own funds of assessee are more than the investments made and argued no disallowance u/s. 14A by applying Rule 8D is warranted. We note that the average investments as made by the assessee and as recorded by the AO in its order at Page No. 7 are Rs.1029.09 Lakhs whereas the share capital, reserves and surplus of assessee are at Rs.103 Crores which is evident in the Balance sheet as on 31-03-2012 at Page 13 of the paper book. It is a settled principle that when the own funds consisting of share capital, reserves and surplus are more than the investments made relating to exempt income a presumption is to be made that the assessee made investments from own funds rather than from borrowed funds. It is evident from the Balance sheet that the assessee has more than the reserves than its investments and there is no dispute by the ld. DR in this regard. Therefore, applying the same when there are own funds, the disallowance u/s. 14A by applying Rule 8D of the Rules is not warranted. Thus, the order of CIT(A) is not justified and the addition of Rs.4.94 Lakhs is deleted.
6. Regarding computation of expenditure under Rule 8D(2)(iii) concerned the ld. AR prayed to remand the issue to the file of AO for computation of expenditure taking into consideration the investments yielded exempt income. Therefore, we deem it proper to remand the issue to the file of AO with a direction to compute the expenditure relating to exempt income by applying Rule 8D(2)(iii) for the purpose of section 14A by excluding the investments which did not yield exempt income. Thus, the sole original ground and additional grounds are allowed for statistical purpose.
In the result, the appeal of assessee is allowed for statistical purpose.
Order pronounced in the open court on 05th August, 2021.
Sd/- Sd/- (R.S. Syal) (S.S. Viswanethra Ravi) VICE PRESIDENT JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 05th August, 2021. RK आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(A)-6, Pune 4. The Pr. CIT-5, Pune ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, 5. ऩुणे / DR, ITAT, “B” Bench, Pune. गार्ड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रतत// True Copy// आदेशानुसार / BY ORDER,
तनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune