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TMI Blog2020 (11) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made by the AO u/s.l4A of the Act r.w.r.BD of the Income-tax Rules, 1962 to the extent of Rs. 1,54,676/-. 4. The learned CIT(A) has erred both in law and on the facts of the case in not following the binding decisions of Hon'ble Gujarat High Court allowing credit of owned funds while computing the disallowance u/s 14A of the Act r.w. Rule 8D of the Income-tax Rules, 1962. 5. The learned CIT(A) has erred both in law and on the facts of the case in confirming that disallowance U/S.14A is to be made while calculating book profit u/s. 115JB. 6. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of the AO of disallowing employee's contribution towards PF and ESIC amounting to Rs. 6,09,138/- u/s 36(1)(va) r.w.s.2(24)(x) of the Act. 7. Alternatively and without prejudice to the above, the matter should be remanded to the AO to verity whether the sum was deposited within 21 days from the end of the month of payment of salary as contemplated under the provisions of Employees Provident Funds & Miscellaneous Provisions Act, 1952 and Employees State Insurance Act, 1948. 8. Both the lower authorities have passed the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar disallowance has been deleted. The ld. Departmental Representative was fair enough not to controvert these undisputed facts. 7. We have gone through the decision of Co-ordinate Bench of the ITAT as cited above by the ld. counsel and noticed that identical issue on similar fact has been adjudicated and disallowance was deleted. He relevant part of decision of Co-ordinate Bench is reproduced is under:- " 11.We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates to the disallowance of the interest expenses paid on the money borrowed from the related parties as specified under section 40A(2)(b) of the Act. The assessee has paid interest at the rate of 24% whereas the Revenue was of the view that the rate of interest at 18% is reasonably enough. Accordingly the interest paid over and above the rate of 18% on the money borrowed was disallowed by the AO which was subsequently confirmed by the learned CIT(A). 12. Under the provision of section 40A of the Act the AO can make the disallowance under section 40A of the Act, if he is of the opinion that the expenditure in respect of which payment has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have become bad prior to that year. The Tribunal was, therefore, justified in holding that since no additions had been made in earlier years, the opening debit balance could not be considered during the current year and the enquiry had to be limited to the increase in the current year only. 14. In view of the above, we hold that there cannot be any disallowance on account of interest expenses being excessive paid to the related parties under section 40A of the Act. Hence we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Respectfully following the decision of Co-ordinate Bench as cited above, disallowance on excess interest payment made u/s. 36(1)(iii) is deleted. Therefore, this ground of appeal of the assessee is allowed. Ground No. 2 (Disallowance of Rs. 1,54,676/- u/s. 14A of the act) 8. During the course of assessment, the Assessing Officer has noticed that assessee has earned dividend income of Rs. 1,54,676/- as exempt income. However, no disallowance u/s. 14A was made. Therefore, the Assessing Officer has computed the disallowance u/s. 14A r.w. Rule 8D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished considering the finding of fact both by the CIT(A) and Tribunal". 23. Similarly, we also rely on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:- "Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A." 24. Similarly, we also find support from the judgment of Hon'ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the head note reads as under: If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A ". 25. In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above under the provision of section 14A r.w.r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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