Document Fragment View
Fragment Information
Showing contexts for: section 14a in Hero Cycles Ltd., Ludhiana vs Addl. Cit, Ludhiana on 3 April, 2017Matching Fragments
4. Ground Nos. 1 to 7 raised by the assessee relate to disallowance made u/s 14A of the Income Tax Act, 1961 (in short 'the Act') amounting to Rs.2,49,50,657/-.
5. Brief facts are that the Assessing Officer noted that the assessee had earned dividend income of Rs.180,55,19,030/- and long term capital gain of Rs.6,46,83,545/- during the year. These incomes were claimed exempt under the provisions of the Act. The Assessing Officer further noted that the assessee had investments of Rs.387,34,93,407/-and Rs.420,80,25,128/- as on 31.3.2009 and 31.3.2010 respectively, the income from which was not includible in the total income. The Assessing Officer also noted that the assessee had claimed interest expenses of Rs.15,80,83,002/-. The Assessing Officer asked the assessee to explain why the provisions of section 14A r.w.r. 8D of the Income Tax Rules may not be applied in this case. The assessee submitted reply in the matter. The Assessing Officer observed that the computation of deduction u/s 14A r.w.r. 8D was not as per said section and rule. The Assessing Officer asked the assessee to explain why the computation submitted by the assessee may not be rejected and the computation may not be made for disallowance u/s 14A of the Act in accordance with rule 8D. After considering assessee's submissions on this issue the Assessing Officer computed disallowance under rule 8D(2)(i) at nil, rule 8D(2)(ii) at Rs.6,11,67,005/- and under rule 8D(2)(iii) at Rs.2,02,03,796/-, and the total disallowance was accordingly computed at Rs.8,13,70,801/-. The Assessing Officer further noted that the assessee had himself disallowed an amount of Rs.2,29,97,000/- and accordingly computed the disallowance to be made u/s 14A at Rs.5,83,73,801/-, over and above the amount disallowed by the assessee.
6. Before the Ld. CIT (Appeals), the assessee made detailed submissions reproduced at para 4.2 of the order, the gist of which was that no disallowance u/s 14A was warranted since all the brought forward investments had been made out of own funds of the assessee and no borrowings had been made for the same. That the investments had been made on account of reinvestment of income from the existing investments as well as from the internal accruals, which was enough to make the investments. The assessee also submitted that all interest bearing funds had been utilized for business purpose and not for making these investments. The assessee also submitted that it had three independent units out of which investments had been made mainly in main unit at Ludhiana and one investment had been made in unit-2 at Sahibabad while no investment had been made in the Cold Rolling Division at Ludhiana. The assessee, therefore, contended that the interest expenditure incurred in that unit should not be considered for the purpose of making disallowance u/s 14A of the Act. The assessee also contended that the figure of total asset had been wrongly taken for the purpose of computing the disallowance u/s 14A by reducing the current liabilities from the same. The Ld. CIT (Appeals) forwarded the copy of the assessee's submissions to the Assessing Officer for his report, which was in turn given to the assessee for obtaining his submissions. The Ld. CIT (Appeals) after considering rival submissions held that the following issues arose in the present ground:
9. The Ld. DR, on the other hand, relied upon the order of the Ld. CIT (Appeals).
10. We have heard both the parties. We have also gone through the order of the I.T.A.T. in the case of the assessee for assessment year 2008-09 in ITA No.192/Chd/2013 dated 29.10.2015. We find that identical issue was there before the I.T.A.T. in that case wherein disallowance u/s 14A had been made and rule 8D had been applied for working out the same since it was found that the assessee had made huge investments and had earned exempt income from the same in the form of dividend and long term capital gain. The I.T.A.T. in the said case deleted the disallowance made on account of interest u/s 14A, by holding that own funds and reserves of the assessee were more than sufficient to cover the investments made during the year and in such a scenario it could be conveniently presumed that all the investments had been made out of own funds. The I.T.A.T. relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. Vs. CIT in ITA No.624 of 2013 (O&M) dated 24.7.2015 in this regard. Further as regard the administrative expenses disallowed by applying rule 8D(2)(iii), the I.T.A.T. deleted the same by holding that there was no satisfaction recorded by the Assessing Officer as to why the calculation made by the assessee while making suo moto disallowance u/s 14A of the Act was incorrect. The relevant findings of the I.T.A.T. at paras 8 to 10 of the order are as follow:
(b) That the Ld. CIT(A) has erred in law as well as on facts in not appreciating the fact that the AO had adopted the value of total assets as appearing in the balance sheet of the assessee which is as per Accounting Standard and acceptable by the Income Tax Act, 1961 and any changes thereof would entail modification to the rule 8D of the Income-Tax Rules, 1962."
28. In the said ground, the Revenue is aggrieved by the relief given to the assessee to the tune of Rs.3,34,23,144/- on account of disallowance of interest made u/s 14A r.w.r. 8D of the Act. This issue has already been dealt with by us in ground Nos.1 to 7 of the assessee's appeal in ITA No.720/Chd/2014 wherein we have held that no disallowance on account of interest u/s 14A r.w.r. 8D (2)(ii) of the Act is warranted since the assessee has demonstrated the availability of enough own funds for the purpose of making investment for earning tax free income. On account of the same, ground of appeal No.1 raised by the Revenue is dismissed.