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TMI Blog2016 (7) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... Y HIGH COURT ) and in the case of HDFC Bank Ltd. v. DCIT (2014 (8) TMI 119 - BOMBAY HIGH COURT ) and decision of HDFC Bank Limited v. DCIT [2016 (3) TMI 755 - BOMBAY HIGH COURT] and hence no disallowance is warranted for interest paid by the assessee company under Section 14A of the Act read with Rule 8D(2)(ii) of Income Tax Rules, 1962 . Also as the assessee company had made disallowance of ₹ 73,740/- voluntarily of its own under Section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 and the learned CIT(A) confirmed the same amount in his appellate orders dated 27-08-2012 which has led to double disallowance of the same amount which is added twice to the income of the assessee company which is not permitted under the Act. Hence we order deletion of the additions made by the AO as sustained by learned CIT(A) u/s 14 A of the Act read with Rule 8D of Income Tax Rules, 1962. It is also not brought on record that the Revenue is in appeal against the appellate orders of the learned CIT(A) - Decided in favour of assessee - I .T.A. No.7383/Mum/2012 - - - Dated:- 14-6-2016 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares. The assessee company submitted that the assessee company had acquired these shares long back and no part of such investments in shares had been out of borrowed funds. It was submitted that the borrowed funds had been utilized by the assessee company for the purpose of business and not for the purpose of acquisition of equity shares. It was observed by the A.O. that the opening and closing balance of investment shown by the assessee company was at ₹ 1,47,48,012/- and ₹ 1,47,48,012/- respectively, however, the assessee company had not attributed any expenditure which had been incurred for earning exempt income from investments yielding exempt income. Thus as per the AO, the assessee company has not made disallowance of any expenditure incurred for earning exempt income as the assessee company cannot earn any income from investments without systematic management. The investment decisions are very complex and requires substantial market research and day to day analysis of market trends and both indirect and direct expenses are to be incurred which need to be disallowed u/s 14A of the Act . The A.O. held that all expenses connected with the exempt income have to be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,48,012/- + ₹ 1,47,48,012 2 = ₹ 1,47,48,012 Thus, total expenditure disallowed u/s 14A was ₹ 7,45,425/- out of which interest expenditure of ₹ 6,71,684/- and amount equal to one half percent of the average of the value of investment, income from which does not form part of the total income of ₹ 73,741/- was disallowed under Rule 8D of Income Tax Rules, 1962, vide assessment orders dated 29.12.2011 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment orders dated 29.12.2011 passed by the A.O. u/s 143(3) of the Act, the assessee company carried the matter before the learned CIT(A) in first appeal. 5. Before the learned CIT(A), the assessee company submitted that the interest expenses of ₹ 25,13,455/- incurred by the assessee company on account of borrowings was not utilized for the purpose of investments in shares and therefore no part of the money has been applied towards investment in equity shares. It was submitted that the assessee company acquired these equity shares long back and no part of such investments has been out of borrowed funds, hence, no part of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (B)7,66,67,080 The average of total assets A+B = 8,34,70,490 2 The assessee contended that based upon the correct working, the total disallowance u/s 14A of the Act would work out to ₹ 5,17,831/- as under:- 1. Expenditure directly related to dividend income Rs.4,44,091 2. Interest not directly attributable A*B/C A. Interest 25,13,455 B. Avg. value of investment 1,47,48,012 Opening bal. 1,47,48,012 Closing balance 1,47,48,012 C Avg. of total assets 8,34,70,490 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,70,490 2 Hence as per learned CIT(A), the disallowance under this head comes to ₹ 4,44,091/- and not ₹ 6,71,684/- as done by the A.O. and disallowance of ₹ 4,44,091/- was confirmed by learned CIT(A) vide appellate orders dated 27-08-2012. The other contention of the assessee company was with regard to 0.5% of the average value of investments, which was dismissed by the ld. CIT(A) because as per learned CIT(A) the AO has followed Rule 8D of Income Tax Rules, 1962 correctly and disallowance of ₹ 73,741/- was confirmed by learned CIT(A) vide appellate orders dated 27-08-2012. 6. Aggrieved by the appellate orders dated 27-08-2012 of the learned CIT(A), the assessee company filed second appeal with the Tribunal. 7. The learned Counsel for the assessee company submitted that disallowance of 0.5% of average investment as contemplated u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 was voluntarily disallowed by the assessee company on its own in the computation of income filed with return of income filed with the Revenue. The learned counsel drew our attention to page 7 of paper book filed before the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.47 crores in shares yielding exempt income which is same as in the preceding year as no fresh investment has been made during the year, while net owned funds of the assessee company comprising share capital and reserves are to the tune of ₹ 1.86 crores as on 31-03-2009 and ₹ 1.91 crores as on 31-03-2008 which are far in excess of the investments made by the assessee company of ₹ 1.47 crores in shares yielding exempt income. The assessee company has stated that the borrowed funds are utilized for project and none of the borrowed funds were used for the purposes of making investments in shares yielding exempt income which is also not controverted by the Revenue. In any case since there are net owned funds which are far in excess of investment in shares as set out above, presumption will apply as per decisions of Hon ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340(Bom HC) and in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505(Bom HC) and decision of Hon ble Bombay High Court in writ petition in HDFC Bank Limited v. DCIT(2016) 67 taxmann.com 42(Bom. HC) and hence no disallowance is warranted for interest paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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