TMI Blog2018 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. AO had not applied his mind or had proceeded on incorrect assumption of facts as alleged by the Ld. CIT in his revision order. CIT had passed revision order u/s 263 on the very same issue for assessment years 2011-12 and 2012-13. We find that the Ld. AO had disallowed an additional over and above the amounts disallowed by the assessee voluntarily u/s 14A read with Rule 8D of the Rules under all the three limbs. In both these orders, the Ld. AO had issued detailed questionnaire to the assessee vide 142(1) notice for assessment years 2011-12 and 2012-13 raising specific query in this regard and assessment has been completed after due consideration of the reply received by the assessee and after proper application of mind by the Ld. - Decided in favour of assessee. - I.T.A No. 310/Kol/2015, I.T.A Nos. 634 & 635/Kol/2016 - - - Dated:- 3-1-2018 - Hon ble Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Appellant : Shri P.J. Bhide, Advocate For the Revenue : Shri G. Mallikarjune, CIT DR ORDER Per M.Balaganesh, AM 1. These appeals by the assessee arise out of the separate orders of the Learned Principal Commissioner of Income Tax(Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of ₹ 2,82,39,620/-. No appeal was preferred against this order by the assessee on this issue. 4. The Ld. CIT sought to revise the assessment framed by the Ld. AO on 23.03.2012 treating it as erroneous in as much as it is prejudicial to the interest of the revenue on the ground that the Ld. AO had not made properly verified the workings for disallowance u/s 14A read with Rule 8D of the Rules. According to the Ld. CIT, total interest paid by the assessee on borrowed funds works out to ₹ 1,61,44,852/- which should have been considered by the Ld. AO while working out the disallowance made under Rule 8D(2)(ii) of the Rules. The assessee replied before the Ld. CIT that the assessee gave the workings of utilization of borrowed funds for the purpose of business and for the purpose of making investments, the proportionate interest attributable thereon were considered by the assessee while making the disallowance under Rule 8D(2)(ii). It was further pleaded that the ld. AO had not made any disallowance u/s 36(1)(iii) of the Act which goes to prove that the borrowed funds were indeed utilized only for the purpose of business of the assessee. It was also pleade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary, before or at the time of hearing of Appeal. 5. The Ld. AR at the outset placed before the copy of the section 142(1) questionnaire issued by the Ld. AO dated 31.01.2013 for the assessment year 2010-11 wherein a specific query was raised with regard to disallowance u/s 14A read with Rule 8D of the Rules. He also drew our attention to the assessment order wherein the Ld. AO have made elaborate discussion on the issue of disallowance u/s 14A read with Rule 8D and had even enhanced the disallowance by ₹ 1,01,235/-. He argued that this clearly goes to prove that the Ld. AO had duly applied his mind on the subject mentioned issue and hence, the same cannot be considered as lack of enquiry by the Ld. AO. It cannot be said that the same amounts to incorrect assumption of facts or misinterpretation of law on the part of the Ld. AO. Accordingly, he argued that the same cannot be the subject matter of revision u/s 263 of the Act. He also stated on merits that admittedly no disallowance of interest paid on borrowed funds was made u/s 36(1)(iii) of the Act by the Ld. AO, which goes to prove that borrowed funds had been used only for the purpose of business of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest Amount a) Citycorp Finance India Pvt. Ltd. 100921 iv) It was further stated that interest amount of ₹ 703707/- was paid on the loan from Morgan Stanley Capital India Pvt. Ltd. which was used for investment in shares. It was also stated before the Ld. CIT that this sum should not be allowed by the Ld. AO u/s 14A. 6. The Ld. AR however argued that this sum of ₹ 703797/- was not at all discussed by the Ld. CIT in his entire revision order u/s 263 of the Act. The Ld. CIT did not discuss the breakup of the loans and its utilization thereon as detailed above in his revision order. He further argued that the dividend income derived by the assessee would be treated only as business income of the assessee as admittedly the shares were held as stock-in-trade by the assessee. In support of this, he placed reliance on the decision of Hon ble Punjab Haryana High Court in the case of Pr. CIT vs. State of Patiala reported in 391 ITR 218 (P H) wherein it has held that the CBDT Circular No. 18 dated 02.11.2015 curves out a distinction between stock-in-trade and investment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-in-trade. The availability of own funds as argued by the Ld. AR had not been conclusively proved by the assessee as having used for investments, which should have been verified by the Ld. AO. 8. In defence, the Ld. AR argued that there was absolutely no whisper about the disallowance of interest in the sum of ₹ 703797/- as agreed by the assessee in the entire order of Ld. CIT u/s 263 of the Act. This goes to prove that the Ld. CIT had completely ignored the entire contentions of the assessee and had proceeded to revise the assessment with a pre-conceived notion of treating the order of the Ld. AO as erroneous and prejudicial to the interest of the revenue. He also argued that the Ld. CIT however held that stock-in-trade is not included in the current assets by the assessee which is factually incorrect as could be evident from the perusal of the balance sheet. 9. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. At the outset, we find that the entire exercise of the revisionary jurisdiction u/s 263 of the Act had been invoked by the Ld. CIT on the aspect of arriving at figure of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goes to prove that the interest payments other than ₹ 651821 have been used by the assessee only for his business purposes and not for any investments. We find that even though the assessee had agreed before the Ld. CIT that a sum of ₹ 703797/- represents interest payment being utilized for investment in shares which ought to have been considered for disallowance under second limb of Rule 8D(2) of the Rules, the Ld. CIT had not looked into the same and had not even whispered about the same in his entire revision order. Apart from this, we also find that the Ld. CIT had made a mention that stock-in-trade is not included in current assets of the assessee in his balance sheet which is factually incorrect. We have perused the balance sheet of the assessee which is enclosed in the paper book and which is forming part of the records of the lower authorities. From the same, we find that the assessee has dual portfolio i.e. shares held as investments as well as shares held as stock-in-trade. In view of the same, we hold that in the facts and circumstances of the case disallowance u/s 14A of the Act read with Rule 8D of the Rules need to be made in the instant case. Hence, reli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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