TaxTMI 
TaxTMI 
2023 (7) TMI 339
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.... of Rs. Nil after set off brought forward losses and tax paid under Section 115JB of the Act on Book Profit of Rs. 39,18,065/-. The assessment order under Section 143(3) of the Act was finalized on 14.02.2014 accepting return. However, the case was reopened under Section 143(3) r.w.s. 147 of the Act and finalized on 18.11.2016 at Book Profit of Rs. 48,73,639/- accepting the normal income of the assessee. The Ld. PCIT, Vadodara-1, considered that particular order passed under Section 143(3) r.w.s. 147 of the Act erroneous under Section 263 of the Act and on 04.09.2018 directed the Ld. AO to reframe the assessment order afresh. 5. Consequent to the above direction passed under Section 263 of the Act, while verifying the records, the Ld. AO found that Rs. 65,714/- has been disallowed under Section 14A of the Act in the return of income at 0.5% of the average value of investments. As per disallowance under Rule 8D of the IT Rules, there was a short disallowance under Section 14A of the Act to the tune of Rs. 11,09,333/-. The Ld. AO made disallowance under Section 147 r.w. Rule 8D with the following observation: "As per Section 14A of the IT Act, for the purposes of computing the tot....
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....been demonstrated by the assessee through the capital accounts furnished by the Company. It is the case of the appellant that it has not made any investment of funds on which interest is paid by the appellant and in that view of the matter, no interest can be attributed to the investing activity the income of which does not form a part of the total income. There is no utilization of funds on which interest is paid by the appellant company and thus disallowance is not called for. Deleting of such disallowance made by the Ld. CIT(A) is, therefore, justified as of the main argument advanced by the Ld. Counsel before us. It was further argued that the disallowance to the tune of Rs. 65,714/- made by the assessee suo motto under Section 14A r.w. Rule 8D has not been controverted by the Ld. AO nor found any inconsistency or inaccuracy in making such calculation made by the appellant company. As there is no expenditure incurred for the purpose of investment in the partnership firm, no disallowance on account of interest attributable to exempt income as contemplated by Clause (2) of Rule 8D be made. The Ld. AR has further drawn our attention to this fact that the assessee had sufficient ow....
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....l balance from Rs. 87.42 lakhs to Rs. 154.76 lakhs of the appellant in the partnership firm was on account of credits of share of profit, interest on Capital and other credits like transfer of reserves. Increase in the investment in shares was on account of re-investment of profit on sale of shares. These facts can be verified from the computation of income and financial statements uploaded with this communication. In view of the above submission and fact of the case I am of the opinion that AO has failed to make a case that interest bearing funds have been used for the purpose of investments. The AO has already disallowed a sum Rs. 65,714/- on account of direct nexus. Therefore further disallowance is not warranted in view of the facts of the case. Accordingly the disallowance of Rs. 11,09,333/- made u/s 14A is deleted and the Ground of Appeal is allowed." 8. It was further argued by the Ld. Counsel appearing for the assessee that the assessee in his own case for A.Y 2013-14 on identical issue obtained order from the Co-ordinate Bench whereby and where under the addition made by the Ld. AO confirmed by the Ld. CIT(A) has been quashed. The copy of the order passed by Co-ordinate....
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.... substantial interest free funds in the form of its own share capital available with it, accordingly, there is no reason for disallowance on account of interest expenditure incurred for earning exempt income. In the case of Hitachi Home and Life Solutions (I) Ltd. [2014] 41 taxmann.com 540 (Gujarat), the Gujarat High Court held that where assessee's interest free funds exceeded investment made for earning exempted dividend income, disallowance under section 14A was not justified. Again, in the case of UTI Bank Ltd [2018] 99 taxmann.com 392 (Gujarat), the Gujarat High Court held that no disallowance could be made under section 14A where assessee's interest-free funds far exceeded its interest-free investments. In the case of Gujarat Narmada Valley Fertilizers Co. Ltd[2014] 42 taxmann.com 270 (Gujarat), the Gujarat High Court held that where assessee-company received dividend on UTI and shares and investment in same was made in earlier years and interest free funds available with assessee were much larger as compared to investment, disallowance of assessee's claim for interest expenditure by applying section 14A was incorrect. In case of Gujarat Fluoro chemicals Ltd. [202....