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TMI Blog2020 (2) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the order of Ld.CIT(A), assessee is now in apepal before us and has raised the following grounds : "Disallowance u/s 14A r.w.r. 8D 1. The learned CIT(A) erred in confirming the addition of Rs. 2,51,677/- made by the A.O. u/s 14A r.w.r. 8D of the Income Tax Rules without appreciating that the said disallowance was not warranted on facts of the case. 2. The learned CIT(A) failed to appreciate that the assessee had not earned any exempt income in respect of the major tax free investments and hence, these investments ought to have been excluded while computing the average investments for the purpose of determining the disallowance u/s 14A r.w.r. 8D(2)(ii) and 8D(2)(iii) of the Income Tax Rules. 3. The learned CIT(A) erred in confirming the disallowance of Rs. 1,82,945/- u/s 14A r.w.s. 8D(2)(ii) in respect of proportionate interest expenditure incurred for earning exempt income without appreciating that the interest free own funds available with the assessee to the tune of Rs. 7.79 Crs. were far more than the tax free investments made by the assessee and in the absence of any nexus between borrowed funds and tax free investments, it could be safely presumed that the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and therefore, it is prayed that the A.O may please be directed to assess the correct total income after computing the addition u/s 2(22)( e) in accordance with the provisions of the Act. 7. The assessee prays that the above claims are purely legal in nature and all the relevant facts regarding the same are already on record and hence, in view of the ratio laid down by Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers and Shareholders P. Ltd. [349 ITR 336], it is prayed that the above grounds may please be admitted and the same may be adjudicated on merits. Addition u/s 23 on account of deemed rent- 8. The learned CIT(A) erred in confirming the addition of Rs. 1,21,800/- made by the A.O. u/s 23 by estimating the deemed rent in respect of the flat owned by the assessee at Pune without appreciating that the said addition was not justified. 9. Without prejudice to the above contention, the assessee submits that the deemed rent estimated by the A.O. is on a higher side and the A.O. may be directed to adopt the municipal ratable value as deemed rent in view of the ratio laid down by Hon'ble Bombay High Court in the case of Smt. Smitaben N. Ambani v. CWT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 383 ITR 529 (Bom) has held that when interest free funds available with the assessee are in excess of investments and then the investments are presumed to be out of interest free funds. The relevant observations of the Hon'ble Bombay High Court are as under : "15. It is clear that for the first time in the case of HDFC Bank Ltd. (Supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities and Power Ltd. (Supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd.(Supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (Supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (Supra) on the above issue has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities, it is presumed that it has been paid for out of the interest free funds. Consequently, we do not find any merit in the above submission made at the hearing on behalf of the Revenue." 7. Before us, Revenue has not placed any contrary binding decision in its support. In view of all these facts and following the decision of Hon'ble Bombay High Court in the case of HDFC Vs. DCIT (supra), we are of the view that no disallowance of interest under Rule 8D(2)(ii) is called for. Thus, the ground of the assessee is allowed. 8. Ground Nos.4, 4.1, 5 and 6 are considered together. 8.1. During the course of assessment proceedings, AO noticed that assessee was a major shareholder in M/s. Kamal Infrabuild Pvt. Ltd., (KIPL) from which the assessee had received loan and as per the books of accounts, the assessee had received Rs. 83,77,846/- from KIPL. AO was of the view that since the amount was advanced to shareholder by closely held company from the accumulated profits, provisions of Sec.2(22)(e) of the Act become applicable. The assessee was therefore asked to explain as to why the amounts received by the assessee not be treated as deemed dividend u/s 2(22)(e) of the Act to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - that was offered by the assessee in the return of income. He thereafter submitted that due to misinterpretation of the legal provision, the assessee had offered a higher price amount of Rs. 25,96,585/- as deemed dividend in the return of income filed by the assessee. He thereafter submitted that where the amount is not liable to tax then the same cannot be assessed to tax because the same has been wrongly offered to tax by the assessee in the return of income. He therefore submitted that the AO be directed to grant relief of the excess amount of deemed dividend offered to tax by the assessee. Ld. D.R. on the other hand, supported the order of AO and Ld.CIT(A). 11. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to taxability u/s 2(22)(e) of the Act. It is an undisputed fact that assessee is liable for the taxation of deemed dividend and assessee has suo-moto offered Rs. 25,96,585/- as deemed dividend u/s 2(22)((e) of the Act in the return of income filed by the assessee. The deemed dividend was worked out by the assessee on the basis of Reserves and Surplus of the lender company as on 31.03.2013. Before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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