2019 (3) TMI 572

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....d in the business of manufacturing of Forged and Cast Machine components. Assessee electronically filed its return of income for A.Y. 2015-16 on 03.10.2015 declaring total income at Rs. 13,67,660/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dt.03.11.2017 and the total income was determined at Rs. 26,17,220/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.22.06.2018 (in appeal No.PN/CIT(A)-7/Wd-14(2)/10218/2017-18) dismissed the appeal of assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : "1. On the facts and in the circumstances of the case and in la....

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....s, AO noticed that assessee had made investments in Equity Instruments and had incurred interest expenses. AO was of the view that in view of the fact that income from equity instruments was exempt from taxes, provisions of Sec.14A r.w. Rule 8D(2)(ii) of I.T. Rules are applicable. The assessee was asked to explain as to why the disallowance u/s 14A r.w. Rule 8D(2)(ii) of I.T. Rules not be made. The submissions of the assessee were not found acceptable to the AO. AO on the basis of method prescribed under Rule 8D(2)(ii) worked out the total disallowance of interest u/s 14A of the Act at Rs. 11,31,983/- and on account of other expenses at Rs. 1,17,581/- under Rule 8D(2)(iii) of I.T. Rules and thus disallowed Rs. 12,49,564/- u/s 14A of the Act....

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.... to disallowance u/s 14A r.w. Rule 8D of the Act. Before us, assessee from the audited Balance-Sheet has pointed out that the availability of interest free funds in the form of Share capital, Reserves and Surplus aggregates to Rs. 23 crores as against the investments made at Rs. 86 lakhs which shows that the availability of interest free funds to be much more than the investments. We find that Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd (supra) has held that when own funds are more than the investments, then no disallowance of interest u/s 14A of the Act is called for. Following the aforesaid decision of Hon'ble Bombay High Court we hold that in the present case, no disallowance of interest u/s 14A r.w 8D(2)(ii) of I.T. R....