Assistant Commissioner of Income-tax, V. Endurance Technologies Pvt. Ltd., Aurangabad

ITA 988/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7445 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 30-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: ABHAY AVCHET
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.988/PUN/2015 / ASSESSMENT YEAR : 2008-09 A SSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, AURANGABAD. . / APPELLANT V/S ENDURANCE TECHNOLOGIES PVT. LTD., NO.K-228, MIDC WALUJ, AURANGABAD. PAN AAACE7066P. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK & SHRI ABHAY AVCHET REVENUE BY : SHRI MUKESH JHA, JCIT. / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 1, AURANGAB AD DT.27.04.2015 FOR THE ASSESSMENT YEAR 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUS INESS OF MANUFACTURING OF AUTOMOBILE PARTS, WIND POWER GENERATION AND OTHER ACTIVITIES. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 30.09.2008 DECLARING TOTAL LOSS OF / DATE OF HEARING : 10.08.2017 / DATE OF PRONOUNCEMENT: 13.09.2017 2 RS.19,50,53,243/-. THEREAFTER THE ASSESSEE REVISED ITS RE TURN OF INCOME ON 30.09.2008 DECLARING TOTAL LOSS AT RS.19,50,09,663/- . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASS ESSMENT WAS FRAMED U/S 143(3) R.W.S 144C VIDE ORDER DT.22.12.2011 ACCE PTING THE RETURNED LOSS. THEREAFTER LD.CIT PASSED ORDER UNDE R 263 ON 26.03.2014 AND DIRECTED THE AO TO REFRAME THE ASSESSMEN T ORDER AFTER CONSIDERING THE OBSERVATIONS MADE BY HIM. PURSUANT TO THE DIRECTIONS OF CIT, AO PASSED ORDER ON 25.09.2014 U/S 143(3 ) R.W.S. 263 AND THE TOTAL LOSS WAS DETERMINED AT RS.14,26,51,327/-. AGGRIEVED BY THE ORDER OF AO, ASSE SSEE CARRIED THE MATTER BEFORE LD.CIT(A) WHO VIDE ORDER DT.27.04 .2015 (IN APPEAL NO.ABD/CIT(A)-1/302/2014-15) GRANTED SUBSTANT IAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A ), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLL OWING GROUNDS : 1. WHETHER THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) WAS CORRECT IN INTERPRETING THE PROVISION OF SECTION 14A R.W.R. 8D IN THE LIGHT OF DECISION OF JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. HDFC BANK LTD. (2014) 366 ITR 5 05 (BOM) AND IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DY. CIT REPORTED IN (2010) 43 DTK (BOM) 328 ITR 81 (BOM). 2. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN TREATING AS THE INVESTMEN T MADE OUT OF OWN FUNDS IN THE LIGHT OF DECISION OF JURISDICTIONA L HIGH COURT RENDERED IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 221 CTR (BOM) 435 (2009) 313 ITR 340 (2009) 178 TAXMAN 135 AND CIT VS. RELIANCE INDUSTRIES LTD. (2011) 339 ITR 632 (BOM) 3. THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE VACATED. 3. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETHER. 4. LD.CIT IN THE ORDER PASSED U/S 263 HAD DIRECTED THE AO TO RE-CONSIDER THE DISALLOWANCE OF EXPENDITURE U/S 14A AND VERIFY AS TO WHETHER THE ENTIRE INVESTMENTS MADE WERE OUT OF INTE REST FREE 3 FUNDS. PURSUANT TO THE DIRECTIONS OF LD.CIT, AO ON PERUS ING THE BALANCE-SHEET OF THE ASSESSEE AS ON 31.03.2008 NOTICED T HAT TOTAL INVESTMENTS WAS RS.2804.17 MILLIONS. HE WAS OF THE VIEW THAT THE INVESTMENTS WERE MADE TO DERIVE EXEMPT INCOME. AO ASKED THE ASSESSEE TO FURNISH COMPUTATION U/S 14A R.W.R 8D OF IN COME TAX RULES. AO NOTED THAT NO COMPUTATION WAS FILED BY THE AS SESSEE AND THAT IT WAS ASSESSEES SUBMISSION THAT THE INVESTME NTS WERE MADE OUT OF OWN INTEREST FREE FUNDS OF THE COMPANY. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW THAT PROVISIONS OF SEC.14A WERE APPLIC ABLE TO THE ASSESSEE. HE THEREFORE WORKED OUT THE TOTAL DISALLO WANCE U/S 14A OF THE ACT AT RS.2,68,51,385/- (ON ACCOUNT OF DISALLOWANC E OF INTEREST UNDER RULE 8D(2)(II) AT RS.2,25,64,030/- AND OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) AT RS.42,87,350/-) AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE B Y HOLDING AS UNDER : 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME, IT HAS BEEN NO TICED THAT THE APPELLANT HAS RAISED VARIOUS CONTENTIONS 6.3.1 THE FIRST CONTENTION IS THAT THE A.O. HAS CON SIDERED INVESTMENT IN VARIOUS COMPANIES INCOME OF WHICH IS TAXABLE AND NOT EXEMPT AS ASSUMED BY THE A.O AND HENCE THE DISA LLOWANCE MADE BY THE A.O. IS INCORRECT DUE TO ABOVE MISTAKE OF THE A.O. THE ABOVE CONTENTION OF THE APPELLANT AS PER DETAILED S UBMISSION FILED BY THE APPELLANT REPRODUCED IN EARLIER PARAGRAPH IS FOUND TO BE CORRECT AND HENCE ACCEPTED. 6.3.2 THE SECOND CONTENTION RAISED BY THE APPELLANT IS THAT THE APPELLANT IS HAVING OWN FUNDS ON ACCOUNT OF SHARE C APITAL RESERVES, PROFIT & LOSS ACCOUNT BALANCE, SHARE PREMIUM AND SUBSIDY TO THE EXTENT OF RS.3082.64 MILLIONS AND RS.2801.79 MILLIONS AS ON 31/03/2007 AND 30/03/2008 RESPECTIVELY WHEREAS INVESTMENTS YIELDING EXEMPT IN COME AS ON 31/03/2007 AND 31/03/2008 WERE RS.1043.88 MILLIONS AND RS.671 MILLIONS RESPECTIVELY WHICH IS MUCH LESS THA N THE ABOVE MENTIONED INTEREST FREE OWN FUNDS AVAILABLE WITH TH E APPELLANT COMPANY. THE CONTENTION OF THE APPELLANT THAT IN TH E CASES WHERE THE INTEREST FREE OWN FUND IS MORE THAN INVESTMENT EARNING EXEMPT INCOME DISALLOWANCE U/S 14A R.W.RULE-8D IS NOT JUST IFIED IS 4 SUPPORTED BY THE RECENT DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. (2014) 366 ITR 5 05 (BORN). IN THIS CASE, IT HAS BEEN HELD THAT WHERE ASSESSEE'S C APITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITIES, IT WOULD HAV E TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT O F INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND NO DISALLOWAN CE WAS WARRANTED U/S 14A. THE ABOVE PROPOSITION OF LAW IS ALSO SUPPORTED BY T HE DECISIONS OF HON'BLE ITAT, PUNE IN THE CASES OF ADDL.CIT, RANGE- L, NASHIK VS. MD INDUSTRIES, NASHIK ITA NO.2454/PN/2012 (AY.2008- 09) ORDER DATED 31/01/2014 AND DHARMVEER SAMBHAJI URBAN COOPE RATIVE BANK LTD., PUNE VS. ADDL.CIT, RANGE-S, PUNE ITA NO.1287/PN/2012 (AY.2008-09) ORDER DATED 20/09/2013 . FURTHER, THE ABOVE PROPOSITION IS ALSO SUPPORTED BY THE DECISION IN THE CASE OF ACIT VS. HIND INDUSTRIES LTD. (2013) 35 CCH 415 (DELHI TRIB.). IN THIS CASE, IT HAS BEEN HELD THAT WHERE S UFFICIENT INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE, NO DISA LLOWANCE CAN BE MADE U/S 14A VIS-A-VIS INTEREST EXPENSES. IN VIEW OF THE ABO VE FACTS AND DISCUSSION AND THE ABOVE REFERRED DECISIO N, THE SECOND CONTENTION OF THE APPELLANT IS ACCEPTED. 6.3.3 THE THIRD CONTENTION RAISED BY THE APPELLANT IS THAT IN ORDER TO INVOKE PROVISIONS OF SECTION 14A R.W.RULE-8D, THE A .O. HAS TO RECORD OBJECTIVE SATISFACTION THAT THE APPELLANT HA S INCURRED EXPENDITURE FOR EARNING EXEMPT INCOME AND THE A.O. HAS TO REASONABLY PROVE THAT THE DISALLOWANCE MADE BY THE APPELLANT U/S 14A AND OFFERED TO TAX IS INCORRECT. IN THE CASE UNDER APPEAL, THE A.O. HAS NOT RECORDED OBJECTIVE S ATISFACTION THAT THE APPELLANT HAS INCURRED EXPENDITURE FOR EARNING EXEMPT INCOME AND THE A.O. HAS NOT REASONABLY PROVED THAT THE DIS ALLOWANCE MADE BY THE APPELLANT U/S 14A OF RS.60,000/- AND OF FERED TO TAX AS INCOME AS CLEARLY MENTIONED IN TAX AUDIT REPORT FILED ON THE RECORD OF THE A.O. THE ABOVE FACT CAN BE NOTED FROM THE ASSESSMENT ORDER OF THE APPELLANT WHEREIN HE HAS MADE ADDITION U/S 14A STATING AS UNDER 6. DISALLOWANCE U/S. 14A R.W. RULE 8D: 6.1 AS PER BALANCE SHEET AS ON 31/03/2008, ASSESSEE COMPANY'S TOTAL INVESTMENT IS AT RS . 2804.17 MILLION . AS PER SCHEDULE 7 TO BALANCE SHEET, AFORESAID INVESTMENTS ARE MADE TOWARDS INVESTMENT IN SHARE OF SUBSIDIARY COMPA NIES. THUS, FROM THE RECORDS, IT IS APPARENT THAT INVESTM ENT IS MADE TO DERIVE EXEMPT INCOME. THEREFORE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE COMPANY WAS ASKE D TO FURNISH COMPUTATION U/S 14A R . W.RULE 8D. HOWEVER , NO SUCH COMPUTATION IS FILED STATING THAT INVESTMENT IS MADE FROM OWN FUND OF COMPANY . 6.2 SECTION 14A HAS BEEN MADE OPERATIVE WITH RETROS PECTIVE EFFECT FROM 1-4-1962, I.E . , FROM THE DATE WHEN THE INCOME TAX ACT, 1961, CAME INTO FORCE. THIS IS DONE WITH A VIEW TO CLARIFYING THE INTENTION OF THE LEGISLATURE SINCE T HE INCEPTION OF THE INCOME TAX ACT , 1961 , THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT . FROM THE FOLLOWING COURTS DECISION ALSO IT PROVES THAT AS PE R SECTION 14A OF THE INCOME TAX ACT, ASSESSEE COMPANY'S EXPEN DITURE TOWARDS INVESTMENT IN ASSOCIATED CONCERN ARE NOT AL LOWABLE: 5 I) IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT (P) LTD., (2009) 117 ITD 169 (MUM-TRIB) : (2008) 11 9 TTJ (MUM- TRIB) 289 : (2008) 26 SOT 603 (MUM - TRIB), THE ASSESSEE CONTENDED THAT UNLESS THERE IS A DIRECT AND PROXIMATE CONNECTION BETWEEN THE EXPENDITURE AND TH E EXEMPT INCOME, THERE CANNOT BE ANY DISALLOWANCE OF THE EXPENDITURE UNDER THIS SECTION . IT WAS HELD THAT ON GOING THROUGH THE CONTENTS OF RULE 8D, IT BECOMES AMPLY C LEAR THAT NOT ONLY THE EXPENDITURE DIRECTLY RELATING TO EXEMP T INCOME [SUB-RULE 2(I) OR RULE BD] BUT ALSO THE INDIRECT EX PENDITURE LIKE INTEREST [WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT [SUB-RULE 2(II)] AND T HEN FURTHER ONE HALF PERCENT OF THE VALUE OF INVESTMENT TO COVE R UP INCIDENTAL INDIRECT EXPENSES (SUB - RULE 2(III)] HAVE BEEN CATEGORIZED AS EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THERE IS NO IOTA OF DOUBT THAT THE INTENTION BEHIND USING THE EXPRESSION IN RELATION TO IN SECTION 14A IS TO ENCOMPASS NOT ONLY THE DIRECT BUT ALSO THE INDIRECT EXPENDITURE WHICH HAS ANY RELATION TO THE EXEMPT IN COME. ALL THE DIRECT AND INDIRECT EXPENSES ARE DISALLOWAB LE UNDER SECTION 14A, WHICH HAVE ANY RELATION WITH THE INCOM E NOT CHARGEABLE TO TAX UNDER THE ACT. II) IN THE CASE OF ASST. CIT V. RATAN HOUSING DEVELOPMENT LTD. (2009) 30 (II) ITCL 245 (LUCK - TRIB), IT WAS HELD THAT EXPENDITURE INCURRED IN RELATION TO EARNING EXEMPTE D INCOME WOULD NOT BE ALLOWABLE AS DEDUCTION AGAINST OTHER I NCOME, THE EXPENDITUR E (FINANCIAL CHARGES) WOULD NOT BE ALLOWED TO BE SET-OFF AGAINST OTHER BUSINESS INCOME AS IT IS INCURRED IN RELATION TO DIVIDEND INCOME WHICH IS NOT INCLUDED IN THE TOTAL INCOME. III) THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. D Y .CIT & ANR . (2011) 37 (I ) ITCL 166 (BOMH C) : ( 2010) 328 ITR 81 (BOM), IT IS HELD THAT VIEWED FROM THE PERSPECTIVE OF SECTION 115-0 AS WELL AS SECTION 14A , IT IS EVIDENT THAT THE TAX ON DISTRIBUTED PROFITS IS A CHARGE ON THE COMPANY. THE COMPANY IS CHARGEABLE TO TA X ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY. IT DOE S NOT DO SO ON BEHALF OF THE SHAREHOLDER. THE COMPANY DOES NOT ACT AS AN AGENT OF THE SHAREHOLDER IN PAYING THE TAX UNDER SE CTION 115-0. IN THE HANDS OF THE RECIPIENT SHAREHOLDER DIVIDEND DOES NOT FORM PART OF THE TOTAL INCOME. ON THE CONT RARY, SECTION 10(33) CLEARLY EVINCES PARLIAMENTARY INTENT THAT INCOMES FROM DIVIDEND (AND . FROM MUTUAL FUNDS) ARE NOT INCLUDIBLE IN THE TOTAL INCOM E . INCOME FROM DIVIDEND ON SHARES IS, IN THE HANDS OF THE RECIPIENT SHAREHOLDER, INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HENCE , SECTION 14A WOULD APPLY AND THE EXPENDITURE INCURRED IN EARNING SUCH INCOME WOULD HAVE TO BE DISALLOWED. INCOME FROM MUTUAL FUND STANDS ON THE SAME FOOTING. 6 . 3 THEREFORE, IN THE LIGHT OF AFORESAID COURT ' S DECISION AND ON THE BASIS OF INFORMATION AVAILABLE ON RE C ORDS, DISALLOWANCE UNDER SECTION 14A IS COMPUTED AS UNDER: I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME RS. NIL II) EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS RS.2,25,64,030/- 6 [857.47 X 260.37/ 9894.4855] III) AN AMOUNT EQUAL TO ONE-HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME RS.42,87,350/- IV) TOTAL DISALLOWANCE [(I)+(II)+(III)] RS.2,68,51,385/- XXXXX THE RATIO LAID DOWN BY THE ABOVE REFERRED DECISIONS IS SQUARELY APPLICABLE TO THE CASE UNDER APPEAL AS IN THE CASE UNDER APPEAL ALSO THE APPELLANT HAS ACCEPTED THE DISALLOWANCE OF RS.60,000/- U/S 14A IN FORM 3CD; THE A.O. HAS NOT RECORDED THE OBJECTIVE SATISFACTION MANDATED IN SECTION 14A(2) OF THE ACT WITH REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVI NG REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE A.O. HAS NOT MENTIONED ANY REASON AS TO WHY HE DOES NOT AGREE WITH THE DETERMI NATION OF EXPENDITURE MADE BY THE ASSESSEE AND HAS NOT RECORD ED THE FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE OF RS.60,000/- CLAIMED TO HAVE BEEN INCURRED BY HIM TO EARN EXEMPT INCOME. IN VIEW OF THE ABOVE FACTS AND DISCU SSION, THE THIRD CONTENTION OF THE APPELLANT IS ACCEPTED. IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND RESPE CTFULLY FOLLOWING THE RATIO LAID DOWN BY THE ABOVE REFERRED DECISIONS, I AM OF THE CONSIDERED VIEW THAT THE A.O. IS NOT JUST IFIED IN MAKING DISALLOWANCE OF RS.2,68,51,385/- U/S 14A R.W .RULE-8D OF THE ACT. THE ADDITION OF RS.2,68,51,385/- IS DE LETED. THE A.O. IS DIRECTED ACCORDINGLY. GROUND NOS.2 & 3 ARE ALLOWED. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APP EAL BEFORE US. 5. BEFORE US LD.D.R. SUPPORTED THE ORDER OF AO AND FURTHER SUBMITTED THAT MERE FAILURE OF THE AO TO RECORD SATISFACTIO N WHILE MAKING DISALLOWANCE, WOULD NOT PER SE DESTROY MANDATE OF SEC.14A OF THE ACT AND FOR THIS PROPOSITION HE RELIED ON TH E DECISION OF DELHI TRIBUNAL IN THE CASE OF DELHI TOWERS LIMITED VS. DCIT REPORTED IN (2017) 78 TAXMANN.COM 56 (DELHI TRIB). H E ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. L D.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFO RE AO 7 AND LD.CIT(A) AND FURTHER POINTING TOWARDS THE GROUNDS RA ISED BY THE REVENUE SUBMITTED THAT THE ONLY GRIEVANCE OF THE REVENUE AS APPEARING FROM THE GROUNDS IS WITH RESPECT TO DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE ACT AND NO GROUND IS RA ISED BY THE REVENUE WITH RESPECT TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES UNDER RULE 8D 2(III) MEANING THEREBY THAT REVEN UE IS NOT AGGRIEVED WITH RESPECT TO DELETION OF DISALLOWANCE ON A CCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) OF THE I.T. RULES . HE THEREAFTER POINTED TO THE ORDER OF LD.CIT PASSED U/ S 263 PLACED ON PAGES 58 TO 69 OF THE PAPER BOOK AND POINTED TO PARA 4.3, WHEREIN THE DIRECTIONS OF LD.CIT WAS FOR VERIFICATION OF THE FACT THAT WHETHER THE INVESTMENTS ARE OUT OF INTEREST FREE FU NDS AND THERE WAS NO DIRECTION WITH RESPECT TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES. HE THEREFORE SUBMITTED THAT THE REVENUE CANNOT URGE FOR DISALLOWANCE OF ADMINISTRATIVE EXPENSES UND ER RULE 8D2(III) OF THE INCOME TAX RULES. LD.A.R. FURTHER SUBMITT ED THAT ASSESSEE HAD SUOMOTO DISALLOWED RS.60,000/- U/S 14A OF THE ACT. ON THE ISSUE OF DISALLOWANCE OF INTEREST EXPENSES UND ER RULE 8D2(II) HE SUBMITTED THAT SINCE THE AVAILABILITY OF INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND RESERVES ARE MORE THAN T HE INVESTMENTS, NO DISALLOWANCE OF INTEREST UNDER RULE 8D2(II) IS CALLED FOR AND FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BA NK LIMITED REPORTED IN 366 ITR 505 (BOM). HE THUS SUPPORTE D THE ORDER OF LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DISALLOWANCE U/S 14A R.W.R 8D OF THE INCOME TAX RULES . FROM 8 THE GROUNDS RAISED BY THE REVENUE, IT IS SEEN THAT IT IS AGGRIEVED ONLY WITH RESPECT TO THE DELETION OF ADDITION MADE BY LD. CIT(A) WITH RESPECT TO INTEREST UNDER RULE 8D(2)(II) OF THE ACT. ON THE ISSUE OF DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE ACT, WE FIND THAT LD.CIT(A) AFTER CONSIDERING THE BALANCE-SHEET OF TH E ASSESSEE HAS NOTED THAT AS ON 31.03.2008 THE AVAILABILITY OF INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS WERE TO THE EXTENT OF RS.2801.79 MILLIONS AS AGAINS T THE INVESTMENT OF RS.671 MILLIONS MEANING THEREBY THAT THE AVAILABILITY OF INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. WHEN INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENTS, THERE IS A PRESUMPTION THAT THE INVESTMENT S COMES OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS H ELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC (SUPRA). THE RELEVANT OBSERVATION OF HONBLE HIGH COURT IN THE CASE OF HDFC (SUPRA) IS REPRODUCED HEREUNDER :- 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CAS E OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUM PTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIES COMING OUT OF ASSESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INV ESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT TH E ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON INTERES T) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DEC ISION OF THIS COURT IN HDFC BANK LTD.(SUPRA) FOR THE FIRST TIME O N 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIANCE UTILITIES AND POW ER LTD. (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOU LD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE A CT. THE AFORESAID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE INASMUC H AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COU RT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN, VIZ., BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISS UE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. THERE FORE, THE ISSUE WHICH AROSE FOR CONSIDERATION BEFORE THE TRIBUNAL H AD NOT BEEN DECIDED BY THIS COURT IN GODREJ AND BOYCE MANUFACTU RING CO. LTD. (SUPRA). IT AROSE AND WAS SO DECIDED FOR THE FIRST TIME BY THIS COURT IN HDFC BANK LTD. (SUPRA). THUS, THERE IS NO CONFLI CT AS SOUGHT TO BE MADE OUT BY THE IMPUGNED ORDER. THUS, IMPUGNED O RDER HAS PROCEEDED ON A FUNDAMENTALLY ERRONEOUS BASIS AS THE RATIO DECINDI 9 OF THE ORDER IN GODREJ AND BOYCE MANUFACTURING CO. LTD. (SUPRA) HAD NOTHING TO DO WITH THE REST OF PRESUMPTION CANV ASSED BY THE PETITIONER BEFORE THE TRIBUNAL ON THE BASIS OF THE RATIO OF THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA). 16. AT THE HEARING MR. SURESH KUMAR, LEARNED COUNSE L FOR THE REVENUE URGED THAT ON THE FACTS OF THIS CASE NO FAU LT CAN BE FOUND WITH THE ORDER OF THE TRIBUNAL. IT IS SUBMITTED THA T, THE PETITIONER WAS NOT ABLE TO ESTABLISH BEFORE THE ASSESSING OFFI CER AND THE CIT(A) THAT THE AMOUNTS INVESTED IN THE INTEREST FR EE SECURITIES CAME OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE PETITIONER. IN THAT VIEW OF THE MATTER, IT IS SUBMITTED BY HIM THAT THE ORDER OF THIS COURT IN HDFC BANK LTD.(SUPRA) WOULD NOT APPLY TO T HE FACTS OF THE PRESENT CASE. WE ARE UNABLE TO UNDERSTAND THE ABOVE SUBMISSION. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER O N 22ND DECEMBER, 2010 UNDER SECTION 143(3) OF THE ACT. THE CIT(A) PASSED AN ORDER ON 21ST NOVEMBER, 2011 DISMISSING THE PETI TIONER'S APPEAL. ON BOTH THE DATES, WHEN THE ORDERS WERE PAS SED BY THE ASSESSING OFFICER AND CIT(A), THE AUTHORITIES DID N OT HAVE THE BENEFIT OF THE ORDER OF THIS COURT IN HDFC BANK LTD . (SUPRA) RENDERED ON 23RD JULY, 2014. ONCE THE ISSUE IS SETT LED BY THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA), T HERE IS NOW NO NEED FOR THE ASSESSEE TO ESTABLISH WITH EVIDENCE TH AT THE AMOUNTS WHICH HAS BEEN INVESTED IN THE TAX FREE SECURITIES HAVE COME OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT. THIS IS BECA USE ONCE THE ASSESSEE IS POSSESSED OF INTEREST FREE FUNDS SUFFIC IENT TO MAKE THE INVESTMENT IN TAX FREE SECURITIES, IT IS PRESUMED T HAT IT HAS BEEN PAID FOR OUT OF THE INTEREST FREE FUNDS. CONSEQUENT LY, WE DO NOT FIND ANY MERIT IN THE ABOVE SUBMISSION MADE AT THE HEARI NG ON BEHALF OF THE REVENUE.' 7. BEFORE US, REVENUE HAS RELIED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE DELHI TOWERS LIMITED (SUPRA). THE RATIO OF THE DECISION IS NOT APPLICABLE TO THE PRESENT CASE BECAUSE THE FACTS ARE DISTINGUISHABLE BECAUSE IN THE CASE RELIED UPON BY REV ENUE, ASSESSEE HAD NOT MADE ANY DISALLOWANCE IN RESPECT OF EXP ENDITURE THAT MAY BE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME WHE REAS IN THE PRESENT CASE THE ASSESSEE HAD SUOMOTO DISALLOWED RS.60,000/-. WE FURTHER FIND THAT LD.CIT(A) WHILE DECIDING TH E ISSUE IN FAVOUR OF THE ASSESSEE HAS RECORDED A FINDING THA T BEFORE INVOKING PROVISIONS OF SEC.14A, AO HAS NOT RECORDED OBJECT IVE SATISFACTION WITH REGARD TO INCORRECTNESS OF CLAIM OF THE AS SESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS MAND ATED IN SEC.14A(2) OF THE ACT. THE AFORESAID FINDING OF THE LD.CIT(A) HA S ALSO NOT BEEN DEMONSTRATED TO BE INCORRECT BY THE REV ENUE. 10 FURTHER BEFORE US, REVENUE HAS NOT PLACED ANY CONTRAR Y BINDING DECISION IN ITS SUPPORT NOR HAS PLACED ANY MATERIAL TO DEMONSTRATE THAT ASSESSEE WAS NOT HAVING INTEREST FRE E FUNDS FOR MAKING THE INVESTMENTS. IN VIEW OF THE AFORESAID FACTS, WE FIND, NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUNDS OF REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED ON 13 TH DAY OF SEPTEMBER, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 13 TH SEPTEMBER, 2017. YAMINI ' #$%& '&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A), AURANGABAD. PRL.CIT-I , AURANGABAD. '#$ %%&',) &', / DR, ITAT, A PUNE; $+,-/ GUARD FILE. / BY ORDER , // / TRUE COPY / / //T // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.