TMI Blog2014 (11) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have been incurred has to be worked out @ 0.5% on the average value of investments - As the AO has correctly computed disallowance in terms with rule 8D(2)(iii), it is upheld – Decided partly in favour of assessee. - ITA No. 1653/Hyd/2012 - - - Dated:- 10-10-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Shri G.V.N. Hari For the Respondent : Shri D. Sudhakar Rao ORDER Per Saktijit Dey, J. M. This is an appeal by the assessee against the order dated 31/08/2012 of the CIT(A)-IV, Hyderabad pertaining to the AY 2009-10. 2. The dispute in the present appeal is confined to addition of an amount of ₹ 14,23,29,696 u/s 14A read with Rule 8D of the IT Rules. 3. Briefly the facts are, assessee is a company engaged in the business of micro finance. For the AY under consideration, it filed its return of income on 30/09/2009 declaring total income of ₹ 153,31,02,225. During the assessment proceeding, AO while examining the final accounts of the assessee noticed that the assessee has earned exempt income towards dividend earned on investments made in mutual funds. On further verification, he found that while investments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 8D(2)(iii). Thus, the total disallowance made by the AO was to the tune of ₹ 14,23,29,696, which was added to the income of assessee for the impugned assessment year. Being aggrieved of the addition made, assessee preferred an appeal before the CIT(A). Learned CIT(A) also sustained the disallowance by holding as under: 6. I have gone through the facts of the case and the submissions of the appellant. The appellant has not disputed that it had made investments in the month of March, 2009 out of the loans disbursed to it by its bankers. Even if such funds had to be invested as those were lying idle for want of immediate disbursal, and even of the purpose of such investment was to minimize the interest burden, it cannot be denied that such investment resulted in earning of income/dividend which was not to form part of the total income. Therefore, the very fact of such investment indeed attracted the provisions of section 14A of the Act. 6.1 Once the provisions of section 14A were attracted, the disallowance of relatable expenditure was indeed warranted. Since the expenditure incurred exclusively for such investment could not be made out separately, and the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and surplus as well as current liabilities are more than the investments made in the mutual funds. Therefore, when surplus fund is available with assessee to make investments in the mutual funds, no disallowance can be made u/s 14 A by presuming that borrowed funds were utilized in making investments in mutual funds. In support of such contention, leaned AR relied upon the decision of Hon'ble Bombay High Court in case of CIT Vs. HDFC Bank Ltd., in ITA No. 330 of 2012 dated 23/07/14 and the decision of ITAT , Delhi Bench in case of ACIT Vs. Mohan Exports Pvt. Ltd., 82 DTR 110. Referring to the P L A/c, learned AR submitted that assessee has more interest income than interest expenditure, therefore, there is a net surplus of interest income. It was, therefore, submitted that when assessee is having net positive income from interest, then, no disallowance of interest expenditure can be made u/s 14A read with rule 8D. In this context, learned AR relied upon a decision of ITAT, Ahmedabad Bench in case of ITO Vs. Karnavathi Petrochem Pvt. Ltd., in ITA No. 2228/Ahm./12, dated 05/07/2013. Learned AR submitted, as would be evident from the facts on record, except for the month of March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or shares, investments from which will not form part of total income, then, disallowance has to be made as per section 14A rule 8D(2)(iii) of the Act. Thus, it was submitted that disallowance having been made in terms with mandatory statutory provision, CIT(A)'s order has to be sustained. 6. We have considered the submissions of the parties, perused the orders of the revenue authorities as well as other materials on record. We have also carefully applied our mind to the decisions relied upon by the parties before us. The undisputed facts are, assessee during the year has earned exempt income from dividend on mutual funds amounting to ₹ 90,34,811. It is also not disputed that investments in mutual funds at the beginning of the year is at ₹ 1,42,46,585 and at the end of the year the same was at ₹ 2,950,566,474. There is no doubt that there is substantial increase in the investments made in the mutual funds during the year. However, on perusal of the month-wise investments and availability of funds, details of which are placed at page 34 of the assessee's paper book, it is to be noted that assessee is having reserves and surplus more than the investments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment is made by assessee for a month or few days. Further, a link is required to be established between the actual amount of investment made out of borrowed funds. When AO has not undertaken any such exercise, presumptive disallowance on account of interest expenditure cannot be sustained. Though we respectfully agree with the ratio laid down by Hon'ble Bombay High Court in case of Godrej and Boyce Manufacturing Co. Ltd. (supra), it needs to be stated that the said decision cannot be considered to be laying down a proposition that disallowance of interest expenditure has to be made irrespective of the fact whether there is nexus between the borrowed funds and the investment made by assessee which resulted in earning of exempt income and further whether assessee has actually incurred any interest expenditure towards earning of exempt income. That being the case, we do not find any reason to sustain the addition of ₹ 13,49,17,666, towards interest expenditure under rule 8D(2)(iii). However, so far as disallowance of ₹ 74,12,030 @ 0.5% on the average value of investment under rule 8D(2)(III) is concerned, we are of the view that the same is in order. Reading of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
