Case Law Details

Case Name : Milind Pralhad Bhandarkar Vs DCIT (ITAT Pune)
Appeal Number : ITA No. 1559/PUN/2017
Date of Judgement/Order : 26/10/2020
Related Assessment Year : 2010-11
Courts : All ITAT (7472) ITAT Pune (254)

Milind Pralhad Bhandarkar Vs DCIT (ITAT Pune)

The issue under consideration is whether CIT(A) is correct in confirming the disallowance made by the Assessing Officer u/s.14A read with Rule 8D(2) of the Income Tax Rules, 1962?

ITAT states that, the Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. held that “it would be presumed that the investment made by the assessee would be out of interest free funds available with the assessee.” In the present case as discussed above, the assessee’s own funds were more than the investment made. Therefore, by applying the principle laid down by the Hon’ble High Court of Bombay, the disallowance as confirmed by the CIT(A) under Rule 8D(2)(ii) is deleted. Regarding the disallowance made under Rule 8D(2)(iii), ITAT do not find any infirmity with the findings of the CIT(A) and therefore, the same is confirmed. Thus, the appeal filed by appeal is allowed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by the assessee against the order dated 30.11.2016 passed by the Commissioner of Income Tax (Appeals)-3, Pune [„CIT(A)‟] for the assessment year 2010-11.

2. The assessee has raised two grounds of appeal amongst which only issue emanates challenging the action of CIT(A) in confirming the disallowance made by the Assessing Officer u/s.14A read with Rule 8D(2) of the Income Tax Rules, 1962 (hereinafter referred to as „the Rules‟).

3. Apart from the main grounds of appeal mentioned above, the assessee has also raised additional ground of appeal pointing out that the Assessing Officer instead of taking total investment as denominator, taken total asset in computing disallowance under Rule 8D(2) of the Rules.

Interest Free Funds

4. Heard both sides and perused the materials available on record. The assessee is an individual engaged in the business of resale of EMT machines and weighing scales. During the course of assessment proceedings, the Assessing Officer noted that the assessee had increased interest expenses and also secured loan in the opening balance on which the interest was paid. The Assessing Officer asked the assessee to explain why the provision under Rule 8D(2) should not be applied. It was explained that the assessee had not incurred any expenditure earning exempt income and there was no direct costs involved in funding the investment. The Assessing Officer found the submissions of the assessee not acceptable and proceeded to invoke the provision of Rule 8D(2) in computing disallowance for the purpose of Section 14A of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). Accordingly, he disallowed Rs.4,35,518/- under Rule 8D(2)(ii) and Rs.2,76,260/- under Rule 8D(2)(iii) of the Rules vide its order dated 15.02.2013.

5. We note that the assessee challenged the order of the Assessing Officer in respect of disallowance made u/s.14A before CIT(A) on the ground that without recording satisfaction in respect of accounts of the assessee, the Assessing Officer disallowed expenditure for the purpose of Section 14A of the Act which is bad in law. The CIT(A) confirmed the disallowance made by the Assessing Officer.

6. Before us, the Ld. AR referred to the additional ground raised and submitted that the Assessing Officer by mistake considered total asset as denominator for computing expenditure under Rule 8D(2) instead of total investment and referred to a chart annexed therein. On perusal of the same, we note that as rightly pointed out by the Ld. AR, the Assessing Officer has taken the total asset as denominator and it is a mistake apparent on record. Further, the Ld. AR contended that total investment as on 31.03.2009 and 31.03.2010 are Rs.6,28,19,223/- and Rs.4,76,84,968/- respectively which are below the total tax free funds of assessee. We note that in the chart supplied by the Ld. AR, which is on record, that the assessee’s own funds Rs.7,37,05,514/- as on 31.03.2009 and Rs.9,15,06,853/- as on 31.03.2010 which clearly establishes that the assessee’s own sufficient funds for making investment. Therefore, in our opinion, the disallowance of interest expenses made by the Assessing Officer and confirmed by the CIT(A) is liable to be deleted.

7. The Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. reported in 366 ITR 505 held that “it would be presumed that the investment made by the assessee would be out of interest free funds available with the assessee.” In the present case as discussed above, the assessee’s own funds were more than the investment made. Therefore, by applying the principle laid down by the Hon’ble High Court of Bombay, the disallowance as confirmed by the CIT(A) under Rule 8D(2)(ii) is deleted. Regarding the disallowance made under Rule 8D(2)(iii), we do not find any infirmity with the findings of the CIT(A) and therefore, the same is confirmed. Thus, Ground Nos. 1 and 2 along with additional ground of appeal are partly allowed.

8. In the result, appeal of the assessee is partly allowed.

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