Continental Device India P.Ltd, New Delhi V. DCIT, Circle-6(2), New Delhi

ITA 5818/DEL/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1899 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 03-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHASHI KAJLE
• Assessee Lawyers: ANUBHAV JAGGI
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 14A; 143(2)

Judgement Text

1 ITA No. 5818/Del/2019, Continental Device India Ltd. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘B’ : NEW DELHI) BEFORE DR. B.R.R.KUMAR, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 5818/Del/2019 (Assessment Year : 2015-16) M/s. Continental Device India Pvt. Ltd. C-120, Naraina, Industrial Area, New Delhi - 110028 PAN : AAACC1835E Vs. The Dy. Commissioner of Income Tax, Circle -6(2), Delhi (APPELLANT) (RESPONDENT) Assessee by Sh. Anubhav Jaggi, CA Revenue by Ms. Shashi Kajle, Sr. DR Date of hearing: 02.05.2022 Date of Pronouncement: 19.05.2022 ORDER PER ANUBHAV SHARMA, JM: The appeal has been preferred by the assessee against order dated 13.06.2019 in appeal no. 229/18-19/ 10143/17-18 for the assessment year 2015- 16 passed by Ld. Commissioner of Income Tax (Appeals)-31, New Delhi, in appeal pending before it against the order dated 07.12.2017 passed by the Dy. Commissioner of Income Tax, Circle -6 (2), New Delhi. 2. The facts in brief are that the assessee filed its return of income on 30.09.2015 declaring total income at Rs. 2,94,66,590/-. The case of assessee was selected under CASS for scrutiny and accordingly various notices u/s 143(2) and 142(1) were issued from time to time. The AO noticed that the assessee has 2 ITA No. 5818/Del/2019, Continental Device India Ltd. claimed certain amount of income as exempt and itself has disallowed a sum of Rs. 2,87,797/- u/s 14A as was evident from Clause 21(h) of Form 3CD. The amount of investment was Rs. 89,66,30,000/- as on 31.03.2015 as compared to Rs. 85,70,81,000/- as on 31.03.2014. Accordingly vide notice dated 21.08.2017, the Ld. AO required the assessee to explain as to why expenditure in relation to the income not chargeable to tax be not disallowed u/s 14A r.w.Rule 8D. In response, the assessee filed a reply dated 24.09.2017 stating that disallowance at 0.5% of average value of investment from which tax free income was received, had already been disallowed in view of the decisions of Hon'ble Jurisdictional High Court in the cases of ACIT Vs Vireet Investment Pvt Ltd (2017) 82 taxmann.com 415 and ACB India Ltd Vs ACIT (2015) 374 ITR 108. The Ld. AO was not satisfied with the explanation of assessee and he proceeded to make the disallowance as per Rule 8D. 3. In appeal the Ld. CIT(A) held that the disallowance u/s 14A cannot exceed the total exempt income claimed by the appellant, therefore the AO was directed to restrict the disallowance to the extent of Rs. 37,94,067/- observing that if the same after computation as per Rule 8D exceeds the same. 4. Now in appeal, the assessee has raised following grounds of appeal :- “Ground No. 1 That the Ld. CIT(A) was not justified in restricting the disallowance u/s 14A r.w.r. 8D at Rs. 37,94,067/- as against the disallowance of Rs. 2,78,797/- computed by the assessee under Rule 8D(2)(iii). Ground No. 2 On facts & circumstances of the case, the disallowance u/s 14A r.w.r. 8D may be restricted to Rs. 2,78,797/- only. Ground no. 3 That each ground is independent of and without prejudice to the other grounds raised herein. Prayer The assessee prays that the relief as per grounds of appeal above may kindly be allowed to it and the appellant may also be 3 ITA No. 5818/Del/2019, Continental Device India Ltd. allowed to add, delete, amend or substitute any ground(s) of appeal either at or before the date of hearing.” 5. Heard and perused the record. 6. On behalf of the assessee it was submitted that in the remand report submitted by the Ld. AO it was mentioned that no borrowed funds were used by the assessee in making the investments but Ld. CIT(A) by relying upon certain judgments which had no relevance held that some part of interest bearing funds must have been used for making investment. It was submitted that Ld. CIT(A) failed to take into consideration that no part of interest can be disallowed because the assessee was having sufficient own interest free funds. It was submitted that total investment of the assessee are 89.66 crores while total interest free funds available with the assessee are Rs. 104.60 crores. It was also submitted that in assessee’s own case for the assessment year 2014-15, ITA No. 71/Del/2018 and for assessment year 2016-17, ITA No. 8314/Del/2019, the Co-ordinate Benches have held that no disallowance of interest can be made and the same was directed to be deleted. 6.1 On the contrary Ld. DR supported the findings of the Ld. CIT(A). 7. Appreciating the matter on record and the contentions raised it can be observed from the order of Ld. CIT(A) that in the remand report received, the Ld. AO had submitted that no borrowed fund were utilized and that assessee company increased only investment of Rs. 1.25 crores in assessment year 2015-16 on 04.04.2014 from existing refunds. It was also submitted that no fresh investment have been made on which exempt income earned. These submissions of the ld. AO have been reproduced by the Ld. CIT(A) at page 11 of its order 7.1 However, the CIT(A) failed to consider these remand report and proceeded on the premises that as assessee itself has disallowed a sum of Rs. 2,78,797/- u/s 14A, hence, it was clear that provisions of section 14A were applicable [Para 4.2, order of CIT(A)]. Further Ld. CIT(A) observed that as there are common bank accounts for exempt income as well as business income therefore, on principle of 4 ITA No. 5818/Del/2019, Continental Device India Ltd. common pool of funds proportionate disallowance under Rule 8D(2)(ii) of the Act out of interest is called for but restricted it to total amount of exempt income of Rs. 37,94,067/- 8. The Bench is of considered view that Ld. CIT(A) has failed to take into consideration the settled proposition of law that if assessee has sufficient of its own funds which are higher than investments made in the instruments yielding tax free income then a presumption is required to be drawn that all the investments in the tax free yielding income have been made out of assessee’s own funds and no part of interest expenditure can be disallowed u/s 14A. Reliance in this regard can be placed on the judgment of Hon’ble Supreme Court of india in South Indian Bank Ltd. vs. CIT 2021TIOL 236. 9. Further, the Ld. CIT(A) has failed to take into consideration the remand report of the Ld. AO which established that no exempt income has been received by the assessee during the year under consideration. 10. In assessee’s own case for assessment year 2014-15 and 2015-16 similar circumstances existed and the disallowances were deleted which could not be distinguished on the fact by Revenue. 11. Thus, the Bench is of considered opinion that Ld. CIT(A) had fallen in error in restricting the disallowance at Rs. 37,94,067/- as against the disallowance of Rs. 2,78,797/- computed by the assessee. Grounds are allowed and the resultantly the appeal is also allowed. Order pronounced in open court on this 19 th day of May, 2022. Sd/- Sd/- (B.R.R.KUMAR) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 19 .05.2022 *Binita, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI