ACIT Vs Lodha Developers Limited (ITAT Mumbai)
ITAT Mumbai held that disallowance of interest expenditure under Rule 8D(2)(ii) of the Income Tax Rules is not sustainable since the assessee’s own interest-free funds were substantially higher than the investment. Accordingly, appeal of revenue dismissed and order of CIT(A) upheld.
Facts- The assessee is a company engaged in the business of real estate construction and development. Post scrutiny assessment, AO made addition towards ERP / Software Expenses – Rs. 1,06,60,841/-; Disallowance under Section 14A read with Rule 8D – Rs. 78,91,710/- and Debenture Redemption Reserve under Section 115JB – Rs. 37,50,00,000/-.
CIT(A) allowed the appeal of the assessee.Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that the finding that the assessee’s own funds were substantially higher than the investments has not been controverted by the Revenue. Once such a factual finding stands, the presumption recognised by judicial precedents comes into play, and disallowance of interest under Rule 8D(2)(ii) does not survive. Further, with respect to disallowance under Rule 8D(2)(iii), the learned CIT(A) has merely directed the Assessing Officer to recompute the same in accordance with the decision of the Special Bench in Vireet Investment Pvt. Ltd., by considering only those investments which have yielded exempt income during the year. This direction is consistent with the statutory framework and does not run contrary to the ratio laid down in Godrej & Boyce.
