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TMI Blog2014 (7) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus of inter interest free funds and investment made – Decided partly in favour of Assessee. Addition on the ground of mismatch of ITS details – Held that:- FAA has already given substantial relief to the assessee on production of confirmations - assessee had not produced any evidence from remaining two parties - no evidence has been filed assessee was aware of the mismatch from the date of assessment but till date it has not been reconcile the remaining two items - matter should not be sent back to the AO - Had the assessee produced the same kind of evidence, it would have definitely remitted back the matter for verification – the order of the FAA is upheld – Decided against Assessee. - ITA No. 5622/M/2012 - - - Dated:- 11-6-2014 - Sh. Vijaypal Rao And Rajendra,JJ. For the Appellant : Shri D. V. Lakhani For the Respondent : Shri P. K. Shukla O. P. Singh ORDER Per Rajendra, A. M. Challenging the order dt. 01. 06. 2012 of the CIT(A)-21, Mumbai, assessee-company has raised following Grounds of Appeal: 1. On the facts circumstances of the case the Learned Commr. of Income Tax (Appeals) has erred in confirming the disallowance the sum of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of ITS details. The appellant prays that the addition made is not justified as the appellant has not earned any such income in A. Y. 2009-10. The addition made by Learned Assessing Officer may be deleted. 9. The appellant craves the permission to add, alter or amend the grounds of appeal at the time of hearing. Assessee-company, engaged in the business of Asset Structured Finance Business, Syndication Business and Advisory Business filed its return of income on 23. 09. 2010 declaring income of ₹ 2, 53, 95, 18, 949/-. Assessing Officer (AO)finalised the assessment on 30. 12. 2011 determining the total income of the assessee at ₹ 273, 31, 05, 200/-. 2. First ground of appeal is about disallowance made by the AO under section 14A r. w. Rule 8D of the Income-tax Rules, 1962(Rules)of the Act. During the assessment proceedings, AO found that during the year the assessee had earned dividend of ₹ 23, 81, 31, 028/-which was claimed as exempt on gross basis. In the return/ computation of income the assessee disallowed expenses of ₹ 7, 91, 07, 453/-u/s. 14A of the Act. The AO asked assessee as to why the disallowance should not be made as per formula provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns held that provisions of Rule 8D were applicable where the investments were held as stock in trade. He relied on the ITAT Delhi Special Bench decision in the case of Cheminvest Ltd. (121ITD318)wherein it was held that the disallowance u/s. 14A was to be made even if interest from funds utilised for acquisition of shares was allowable u/s. 37(l) of the Act. The AO, therefore, worked out the disallowance u/s. 14A r. w. Rule 8D and disallowed an amount of ₹ 26, 78, 43, 504/- 3. During appellate proceedings, before the First Appellate Authority (FAA)the assessee reiterated the arguments taken before AO. In respect of administrative expenses, the assessee submitted that no direct expenditure was incurred in earning of exempt income. FAA, after considering the assessment order and the arguments of the assessee held that he did not agree with the submission of the assessee that the provisions of sec. 14A r. w. Rule 8D were not applicable since its net worth was more than investments and the funds were borrowed (on which interest has been paid) for the purpose of business and not for the business of making investments, that on similar facts in the AY. 2008-09 he had upheld the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat investments made by the assessee, during the year, were far less than the funds available with it and therefore no interest cost should be disallowed, that the assessee had not incurred any administrative or managerial expenses for the purpose of earning exempt income, that shares capable of yielding taxable and exempt income should not be considered for calculating disallowance, that the interest received by the assessee was more than the interest paid and hence no disallowance should be made. He relied upon the cases of Reliance Utilities and Power Ltd. (313 ITR 340, Mum HC), UTI Bank Ltd. (215 Taxmann, Gujarat High Court) BNP Paribas SA (214 Taxmann, Bombay High Court). AR also relied on the decision of Bombay High Court in the case of Reliance Utilities Power Ltd. (313 ITR 430)on the proposition that in case of a company which had interest free funds available, it would be always assumed that the company had invested its own funds and interest free funds for the purpose of making investments. DR supported the order of the AO and the FAA. 5. We have heard the rival submission and perused the material before us. We find that similar issue had arisen in the earlier asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance is called for, then same should be made on that basis only. His main contention has been that the assessee s networih and availability of funds is far more than investment which are capable of yielding exempt income and, therefore, no interest cost should be attributed for working out the disallowance. If the assessee has huge funds which also consist of interest free funds, then resumption would be that investments have been made out of interest free funds, available with the assessee and, therefore, interest cost cannot; he made attributable. However, availability of interest free funds and investments which ore capable of yielding exempt income has not been examined properly either by the Assessing Officer or by the learned Commissioner(Appeals). Therefore, respectfully following the decision of the Hon ble Jurisdicti - onal High Court in Reliance Utilities and Power Ltd. (supra), we direct the Assessing Officer to re-examine the nexus of inter interest free funds and investment made. In case, the interest tree funds are more than the investment, then interest should be cost excluded from the working of the disallowance and in that situation only administrative cost ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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