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TMI Blog2018 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... that no expenditure was incurred for earning the dividend. However, the AO has disallowed deemed interest expenditure of ₹ 6.10,968/- U/s 14A u/r 8D ignoring the fact about sufficient availability of own funds with the company for the purpose of investment in the shares. CIT(A) noted that AO has wrongly calculated addition u/s 14A, as total assets of the company as on 31.03.2008 were ₹ 56,17,79,311/- as against ₹ 3,66,92,065/- as considered in the assessment order which resulted in to wrong calculation of addition on this count. Accordingly, the ld. CIT(A) reduced the addition to ₹ 29,560/- as against ₹ 6,10,968/- made by the AO.The ld. DR. has not disputed the said calculation. - I.T.A No. 144/Agra/2014 - - - Dated:- 20-3-2018 - Shri A.D. Jain, Judicial Member And Shri Dr. Mitha Lal Meena, Accountant Member Appellant by Shri Waseem Arshad, Sr DR Respondent by Shri SC Gupta, CA ORDER DR. MITHA LAL MEENA, A. M. This appeal by the assessee is directed against the order of the ld. CIT(A)-II, Agra, dated 09.12.2013 wherein the assessee has taken the following effective grounds of appeal: 1. That the Ld. Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration as on 31.03.2008 is ₹ 3,01,34,498/-. In this impugned order, the AO has also given reference to the A.Y.2006-07 and A.Y.2007-08 to arrive at the conclusion that interest-bearing fund has been diverted for non-business purposes. Therefore, after considering the explanation of the assessee and placing reliance on the decision of Punjab and Haryana High Court in the case of CIT vs Abhishek Industries Ltd. (286) ITR 1, the AO held that implicit is the fact that borrowed funds have also been utilized for earning business income and the purposes other than the business and therefore, in view of the AO, the assessee failed to discharge its onus to prove that no part of the borrowed funds have been utilized for the purpose other than the business and hence, by pointing out that it is now judicially settled that where the utilization for non business purposes is made out of composite fund of borrowings and other funds, it cannot be presumed that such utilization was made out of the former or the latter. Accordingly, the AO held that it is clearly established that the assessee is not entitled for full allowance of interest as claimed by it u/s 36(1)(iii) and he made the calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, no amount of investment made in shares has been found as made out of the interest bearing loan and hence, no such expenditure on account of payment of interest can be taken in this part and therefore, the AO has also taken the amount in this part as 'nil1. The second sub part (ii) provides for computation in respect of expenditure incurred by the assessee by way of interest during the previous year which is not directly attributable to any particular income or receipts. In this part, as per the decision of the Hon'ble Kolkata Bench, it will have to be shown by the AO that the said interest is not directly attributable to any particular income or receipts. Similar to the case REI Agro Ltd., vs DY. Commissioner of Income-tax (supra), the assessee in the instant appeal had substantial capital and interest free fund and there is no finding of the AO that the assessee had used the borrowed fund for purchase of shares and since the share capital and reserve and surplus of the assessee is more than the amount of investment, it can be very well concluded that investment in shares has not been made out of borrowed funds but out of own funds. I have already discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de as per the third part (iii) of sub rule (2) of Rule 8D. For this purpose, average value of investment is to be computed as average of investment appearing in the balance sheet of the assessee on the first day and last day of the previous year. On perusal of the balance sheet of the assessee for the year under consideration, I have found that the amount of investment made by the assessee (appellant) in shares is ₹ 59,12,000/- as on 31.03.2007 as well as on 31.03.2008. Therefore, I find that the AO has correctly taken the value of average investment at ₹ 59/12,000/- in the assessment order. Therefore, even if there is no finding that any expenditure was increased by the assessee (appellant) on payment of interest on the fund utilized for the purchase of shares, as per the computation made by Rule 8D(2)(iii), the amount of ₹ 29,560/- is certainly held to be incurred for earning of exempt income as envisaged in provisions of section 14A because of investment made by the assessee (appellant) in shares and hence, the amount of ₹ 29,560/- is to be disallowed as per Rule 8D(2)(iii) read with section 14A by following the decision of Hon'ble Kolkata Bench ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment. 5. The ld. counsel for the assessee filed paper book I and II comprising of submissions made before the AO, CIT(A), case laws and statement of accounts. The relevant part is reproduced hereunder: 1) Assessee company Company is engaged in trading of Tata diesel vehicles, spare parts and servicing and repairing and also leasing of vehicles. In the process of expansion better accessibility, assessee-company choice to have showroom at developed commercial area at Sanjay Place, Agra. For the purpose it has advanced progressive payments totaling ₹ 3,01,34,498/- for the purchase of showroom over a period of time to M/S ASB Health Care P Ltd., which includes ₹ 6,200/- paid during the year under consideration. However, learned Assessing Officer has considered it as interest free loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in fact, there was no disallowance on this issue till A.Y.2005-06. For the first time, it was cropped in the A.Y.2006-07 and it was decided in favour of assessee by ITAT, Agra in ITA No.40/Agr/2011 dated 25-11-2011, relying on the decision of hon ble Supreme Court in the case of SA Builders Ltd. vs CIT(A) 288 ITR 1 (PBP.81 to 92) held that the assesse has advanced money for the purpose of its business as a measure of commercial expediency. The Hon'ble Allahabad High Court rejected the revenue appeal(PBP-94) and this position has been accepted by the Department in subsequent assessment year 2009-10 and thereafteras evident from the assessment order passed for AY 2009-10(ABP, Page- 39). The ld DR has notcontroverted this fact. 7. As regards to the issue of 14A, the counsel relied on the order of the CIT(A). The written submission of the ld AR read as under: Disallowance of interest u/s 14A read with Rule 8D: Section 14A was introduced in the Income Tax Act, 1961 by the Finance Act, 2001 with retrospective effect from 1st April 1962. It is hereby confirmed that, no disallowance prior to assessment year 2006-07 was made in the case on this count. As all the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in tax free investment and the nexus is established by the department. Section 14A could not be applied on mere assumption. Recently Hon'ble HIGH COURT OF PUNJAB AND HARYANA in case of Commissioner of Income tax, Jalandhar-1 vs Deepak Mittal [2013] 38 taxmann.com 83) held that when assessee claims that he had not made any expenditure on earning such income, the Assessing Officer in terms of sub section (2) of section 14A was to proceed further to collect such material or evidence to determine expenditure, if any, incurred by the the assessee but the Assessing Officer instead relying on rule 8D of the Rules applied as a formula, which was clearly a wrong application introduced as a substitute for sub-section (2) of section 14A and thus, was not permissible in law. In view of foregoing submission, it is prated to direct to delete the addition made u/s 14A of the /.Tax Act to the income of the assessee company. 8. We heard both the parties and perused the material on record. We find that in the A.Y.2006-07, the very same issue of commercial expediency was decided in favour of assessee by ITAT, Agra in ITA No.40/Agr/2011 dated 25-11-2011, relying on the decision of hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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