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Income Tax Appellate Tribunal, DELHI BENCH “G” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI PRADIP KUMAR KEDIA
आदेश /O R D E R PER C.N. PRASAD, J.M.
This appeal is filed by the Assessee against the order of the Ld.
Commissioner of Income Tax (Appeals)-9, New Delhi dated 23.10.2018 for the AY 2014-15 in sustaining the disallowance made u/s 14A read with Rule 8D(2)(ii) and 8D(2)(iii) of the Act.
In so far as the disallowance under Rule 8D(2)(ii) i.e. interest is concerned the Ld. Counsel for the assessee submits that the assessee has sufficient own non-interest bearing funds much more than the 1 investments made as can be seen from the audited financial statements and, therefore, when once the own non-interest bearing funds are much more than the total investments no interest disallowance is warranted.
Reliance was placed on the following decisions: -
1. South Indian Bank Ltd. vs. CIT (130 taxmann.com 178) (SC); 2. CIT vs. UTI Bank Ltd. (142 taxmann.com 136) (SC); 3. PCIT vs. Sintex Industries Ltd. (93 taxmann.com 24) (SC).
Coming to the disallowance made under Rule 8D(2)(iii), the Ld. Counsel for the assessee submits that the AO considered the entire investments for the purpose of computing the disallowance without considering only those investments on which dividend income was earned. Ld. Counsel submits that for the purpose of computing the disallowance under Rule 8D(2)(iii) only those investments which yielded had dividend income shall be considered. For this proposition the Ld. Counsel relied on the following decisions: -
PCIT vs. Caraf Builders & Constructions (P) Ltd. (101 taxmann.com 67) (Del.) [SLP dismissed by SC in PCIT vs. Caraf Builders & Constructions] (112 taxmann.com 322); 2. ACB India Ltd. vs. ACIT (374 ITR 108) (Del.); 3. ACIT vs. Vireet Investment (165 ITD 27) (Del.) (SB).
The Ld. Counsel further submits that if the investments on which dividend yielded was considered for the purpose of disallowance the disallowance works out to Rs.3,13,585/- being 0.5% of average investments of Rs.6,26,17,020/-.
Ld. DR supported the orders of the authorities below.
Heard rival submissions, perused the orders of the authorities below and the financial statements furnished before us.
On perusal of the balance sheet as on 31.03.2014 and as on 31.03.2013 of the assessee which is placed at page 5 of the paper book the shareholder’s funds and investments are as under: -
Particulars As on 31.03.2014 As on 31.03.2013 (Rs.) (Rs.) Share Capital 12,34,56,300/- 12,34,56,300/- Reserves and Surplus 1,01,69,34,002/- 87,66,52,407/- Total Own Funds 114,03,90,302/- 100,01,08,707/- Total Investments 21,54,41,494/- 17,55,14,187/- 8. As can be seen from the above details, the assessee has sufficient interest free own funds which are much more than the investments and therefore the presumption would arise that the investments would be out of own interest free funds. In such event there cannot be any disallowance u/s 14A read with Rule 8D(2)(ii). Thus, we direct the AO to delete the interest disallowance made u/s 14A read with Rule 8D(2)(ii) of I.T. Rules.
Coming to the disallowance in respect of indirect expenses under Rule 8D(2)(iii), only those investments which yielded dividend income should be considered for the purpose of computing the disallowance under this clause. It is the contention of the assessee that the disallowance if computed taking into consideration only those investments which yielded dividend income the disallowance cannot 3 exceed Rs.3,13,585/- being 0.5% of average investments of Rs.6,27,17,020/-. However, the contentions have to be verified by the AO. Thus, we direct the AO to compute the disallowance under Rule 8D(2)(iii) of the Act by considering only those investments which yielded dividend income following the decision of the Jurisdictional High Court in the case of ACB India Ltd. vs. ACIT (supra) and also verify the computation made by the assessee in this regard and if the computation of the assessee is found to be correct the same may be applied and the disallowance may be restricted to Rs.3,13,585/- under Rule 8D(2)(iii).
In the result, appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on 23.05.2023