Express Industrial Services Pvt. Ltd Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that as assessee is having sufficient own funds hence investments which yield exempt income can be presumed to be made out of interest free funds. Accordingly, disallowance of interest in terms of rule 8D(2)(ii) of the Income Tax Rules unsustainable.
Facts-
During the year under consideration, the assessee received dividend income of Rs.17,92,385/- and claimed the same as exempt u/s.10(34) of the Act. No disallowance of expenses was suomoto made by the assessee in the return of income for the purpose of earning such exempt income. The assessee pleaded that no investments were made during the year and overall the investments had reduced during the year when compared with earlier year. The ld. AO however, did not heed to the contentions of the assessee and proceeded to invoke computation mechanism provided in Rule 8D(2) of the Rules
Assessee is also challenging the disallowance of foreign travel expenses.
Conclusion-
We find that assessee is having sufficient own funds and hence, it could be reasonably presumed that the investments which had yielded exempt income to the assessee had been made out of interest free funds available with the assessee. We direct that there could be no disallowance of interest in terms of Rule 8D(2)(ii) of the Rules. AO is directed accordingly to delete the same.
The entire details of foreign travel expenditure together with the purpose of travel were duly furnished by the assessee before AO together with the bills and vouchers. We further find that the foreign travel expenditure included air ticket, hotel and boarding charges, expenses incurred towards visa conveyance etc., and sales promotion expenditure. All these expenditure should only be construed as incurred for the purpose of business of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.1571/Mum/2020 for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT(A), Mumbai-8/10974/2016-17 dated 23/01/2020 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) by the ld. Asst. Commissioner of Income Tax, Circle-3(1)(2), Mumbai (hereinafter referred to as ld. AO).
2. The first issue to be decided in this appeal is with regard to disallowance u/s.14A of the Act r.w.Rule 8D(2) of the Rules.
3. We have heard rival submissions and perused the materials available on record. We find that the assessee company is engaged in the business of providing management consultancy services for activities in connection with procurement and sourcing of natural / mineral resources and in the trading business of bullion more specifically gold. The assessee had further explored its objective to carryout farming activities in order to diversify its business operations. The return of income for the A.Y.2014-15 was filed by the assessee on 22/09/2014 declaring total income of Rs.1,85,94,950/-. During the year under consideration, the assessee received dividend income of Rs.17,92,385/- and claimed the same as exempt u/s.10(34) of the Act. No disallowance of expenses was suomoto made by the assessee in the return of income for the purpose of earning such exempt income. The assessee pleaded that no investments were made during the year and overall the investments had reduced during the year when compared with earlier year. The ld. AO however, did not heed to the contentions of the assessee and proceeded to invoke computation mechanism provided in Rule 8D(2) of the Rules as under:-
