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M/s Bhupinder Investment Co. Pvt. Ltd. Versus Dy. Commissioner of Income Tax Circle 10 (2) , Mumbai

2016 (6) TMI 529 - ITAT MUMBAI

Disallowance u/s 14A r.w.r 8D - Held that:- From the records, we find that the assessee’s own fund comprising the share capital and reserves were to the tune of ₹ 20,06,22,262/- vis a vis the investments in shares of ₹ 11,12,76,771/- and the loan funds were ₹ 5,19,09,835/- at the year end. Thus ,it is amply clear from the above facts that the assessee’s own funds were far more than the value of investments in shares and there is merit in the submissions and arguments of the ld. .....

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st free funds available with the company, if the interest free funds are sufficient to meet the investments.

So far as the addition made under rule 8D(2)(iii) is concerned, the assessee company has demonstrated before us that the AO has completely ignored the facts of strategic investments of ₹ 1,36,65,695/- in the associate concerns which were intended not for the purpose earning gain or tax free income but to acquire the control over those concerns. A working of the disallowan .....

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he AO to delete the addition of ₹ 13,99,868/- as made u/r 8D(2)(ii) and ₹ 2,92,780/- as made u/r 8D (2)(iii). - Decided partly in favour of assessee. - I.T.A. No. 6326/Mum/2011 - Dated:- 9-6-2016 - Shri Mahavir Singh, JM And Shri Rajesh Kumar, AM For the Assessee : Shri Ketan Panchmia For the Revenue : Shrimati Bharti Singh ORDER Per Rajesh Kumar, A. M This appeal by the assessee is directed against the order dated 18.5.2011 of Commissioner of Income Tax (Appeals)-21, Mumbai (Hereina .....

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ssee filed is return of income on 27.9.2008 declaring current year s loss at ₹ 2,45,41,832/- under the normal provisions of Act and at ₹ 1,23,59,022/- under section 115JB of the Act. The case was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has exempt income to the tune of ₹ 14,97,49,864/- earned by way of dividend income and .....

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wing the expenses as claimed by the assessee which comprised of ₹ 13,99,868/- under 8D(2)(ii) being proportionate interest relating to exempt income and ₹ 3,53,586/- being 0.5% of average value of investment on the opening and closing day of the previous year under rule 8D (2)(iii). The AO finally completed the assessment u/s 143(3) vide order dated 21.10.2010 at a loss of ₹ 1,51,04,500/- by making the disallowance of ₹ 86,98,053/- including the disallowance u/s 14A amoun .....

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i.e. reserves and surplus and therefore, interest expenditure was not attributable to earning of exempt income. I have considered the appellant's this argument. Schedule - 6 of the balance sheet contains the details of investment i.e. quoted shares, long term investments and also unquoted shares. The appellant was holding shares of various scrips as appearing in the Schedule-6 of investments. The details shows that in respect of various scrips, the opening and closing balance were the same .....

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ng that as on date of purchase of new investment there were positive balances in the bank accounts. Similarly, though the appellant has claimed but has failed to prove that the investments made in earlier years were also made out of surplus funds. In the facts and circumstances, the appellant's claim was not substantiated by facts that the investments were not made by use of borrowed funds. As per decision of Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. 234 CTR 1, .....

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isfaction u/s.14A(1) of the Act regarding the incorrectness of the appellant's claim that no expenditure was incurred in relation to income which does not form part of total income. In my considered view, the satisfaction recorded by AO u/s 14A(1) was correct and on justified reasons. Once the satisfaction is recorded u/s.14A(1) of the Act, the applicability of provision of sec.14A(2) and the provisions of Rule 8D are mandatory and automatic. Therefore, the AO was justified in working out ti .....

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unds were far more than the cost of investment held by the assessee. The ld. CIT(A) also failed to appreciate above facts and wrongly came to this conclusion that the assessee failed to demonstrate dates of purchase of new investments and bank balance by completely ignoring the facts of the case. The ld AR also submitted that where the assessee have its own funds beside having interest bearing funds and investment in shares and securities , it has be to presumed that investments in shares and se .....

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estment and no loan funds were utilized for the purpose of investment in the share and securities . The ld. AR, in defence of his arguments, placed reliance on the decision of CIT V/s RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (Bom) and the decision in the case of CIT V/s HDFC BANK LTD. [2014] 366 ITR 505 (Bom). The ld. Counsel, therefore submitted that the addition of ₹ 13,99,868/- made by the AO u/s 14A r.w.r.8D(2)(ii) was unwarranted and be deleted in view of the ratio laid do .....

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owth schemes of mutual funds amounting to ₹ 8,15,61,466/- which are not tax free income yielding investment and therefore he submitted that the AO be directed to work out the disallowance by reducing the cost of strategic investment of ₹ 1,36,65,695/- and investment in growth schemes of Mutual funds amounting to ₹ 8,15,61,466/- for the purpose of section 14A r.w.rule 8D (2)(iii). The ld. counsel while drawing our attention to the page 5 of the paper book submitted that the corr .....

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that the assessee s own fund comprising the share capital and reserves were to the tune of ₹ 20,06,22,262/- vis a vis the investments in shares of ₹ 11,12,76,771/- and the loan funds were ₹ 5,19,09,835/- at the year end. Thus ,it is amply clear from the above facts that the assessee s own funds were far more than the value of investments in shares and there is merit in the submissions and arguments of the ld. counsel of the assessee that disallowance under rule 8D (2)(ii) of & .....

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nt to meet the investments. In the case of HDFC BANK LTD (supra) the Hon ble jurisdictional High Court held that the petitioner was possessing sufficient interest free funds namely investment in tax free securities funds and consequently there is a presumption that the investment which has been made in the tax free securities is out of interest free fund available with the assessee. This decision has also reached finality as revenue has not challenged the decision before the Hon ble Apex Court. .....

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