Avon Cycles Ltd. v. Cit

Sushma Chowla, J.M:— The applicant has filed this Miscellaneous Application for recalling the order dated 17.01.2013 in ITA No. 1143.Chd/2011 & C.O No. 1.Chd/2012 relating to the Assessment Year 2008-2009.

2. The applicant is aggrieved and has filed this Miscellaneous Application alleging as under:

“3. One of the submissions made was that no disallowance u/s. 14A r.w.r 8D(ii) is called for as the assessee has not paid any interest which calls for any disallowance. The interest paid by the assessee was a sum of Rs. 2,91,79,406/- and the interest received was Rs. 3,95,64,326/-, the appellant had also relied on the judgment of the Kolkata Tribunal in the case of DCIT v. Trade Apartment Ltd. dated 30.03.2012 a copy of which had been filed before the Hon'ble Bench. Though there is a reference to this judgment in para 17 of the order but there is no finding on the same. There are host of judgments on this issue which lay down that if after netting there is no element of payment of interest no disallowance u/s. 14A r.w.r 8D is called for. Some of the other judgments which are of binding nature are as under:—

1. ACG Associated Capsules P. Ltd. v. CIT (2012) 343 ITR 89 (SC)

2. CIT (Central) v. Paliwal Overseas Ltd. ITA No. 479/2005 dated 10.10.2012 (P & H)

The respondent humbly submits that non-consideration of a judgment citied and also non consideration of binding judgments constitutes a mistake apparent from therecord and the same need rectification. Thus it is humbly prayed that the addition sustained deserves to be deleted as there was no element of interest paid after netting of interest which required any disallowance under rule 8D(ii) of the Income Tax Rules.

Another mistake is regarding the issue of disallowance of Rs. 9,34,266/- made by the AO under rule 8D(iii) of the Income Tax Rules. There was a consolidated appeal by the revenue against the disallowance of Rs. 42,68,522/- and the Ld CIT(A) had only confirmed a disallowance of Rs. 5 Lacs. There was no finding by CIT(A) regarding disallowance made by the AO under rule 8D(iii) of the Income Tax Rules. The Hon'ble Tribunal has also not dealt with issue in the order. It is thus humbly prayed that since there is a mistake apparent from record in not dealing with the issue specifically the same requires consideration and finding by the Hon'ble Tribunal.

Thus both the above issues needs reconsideration and may be dealt with denovo.”

3. Shri Subhash Aggarwal appeared for the applicant and was unable to point out any defect in the order of the Tribunal.

4. The learned D.R for the Revenue pointed out that the issue has been decided by the Tribunal on 17.1.2013 vide paras 18 to 21 of the order.

5. We have heard the rival contentions and perused the record. The issue raised by the Revenue vide ground No. 2 was against the deletion made by the CIT (Appeals) i.e disallowance of Rs. 42,68,522/- made under section 14A of the Act read with Rule 8D of the Income Tax Rules. The applicant vide Cross Objection is in appeal against the disallowance of Rs. 5 lacs under section 14A of the Act read with Rule 8 D of Income Tax Rules. Vide para 20 the factual aspects of the issue were considered by the Tribunal and it was noted that the Assessing Officer had made disallowance under Rule 8D(2)(ii) at Rs. 38,34,256/- and under Rule 8D(2)(iii) at Rs. 9,34,266/-. On consideration of the issue i.e the funds available vis-á-vis valuation of the asset taken by the Assessing Officer, net of current liabilities and provision it was observed that the average of the two would be Rs. 215.34 crores and applying the formula under Rule 8D(2)(ii) of the Income Tax Rules the disallowance works out to Rs. 10,49,851/-. The assessee had disallowed sum of Rs. 13,95,065/- paid for the portfolio management. The Tribunal further vide para 21 of the order held as under:

21. On the perusal of the provisions of Rule 8D of the Income Tax Rules we find that the expenditure relatable to the earning of exempt income is equal to aggregate of the amount of expenditure directly relatable to the income which does not form part of the total income i.e Rule 8D(2)(i) and the disallowance of interest as provided under Rule 8D(2)(ii) and further disallowance computed under Rule 8D(2)(iii) of the Income Tax Rules. The disallowance made by the assessee on account of direct expenditure relatable to the earning of exempt income i.e fee paid for portfolio management totaling Rs. 13,95,065/- is disallowable under Rule 8D(2)(i) of the Income Tax Rules. Under the provisions of Rule 8D(2)(ii) the interest relatable to the investment in tax free funds is to be computed and as per the working of the assessee itself the same comes to Rs. 10,49,851/-. Consequently, we direct the Assessing Officer to disallow Rs. 10,49,851/- being the interest so relatable to the earning of exempt income. We find no merit in the alternate plea raised by the assessee that no disallowance of interest is called for after setting off the interest paid and interest received, where there is no interest payment. Admittedly the assessee had paid total interest of Rs. 2.92 crores out of which interest paid on term loan raised for specific purpose totals to Rs. 1.70 crores and balance interest paid by the assessee is Rs. 1.21 crores. The funds utilized by the assessee being mixed funds and in view of the provisions of Rule 8D(2)(ii) of the Income Tax Rules the disallowance is confirmed at Rs. 10,49,851/-. We find no merit in the adhoc disallowance made by the CIT (Appeals) at Rs. 5,00,000/-. Consequently ground of appeal raised by the Revenue is partly allowed and ground raised by the assessee in Cross Objection is allowed”.

6. The first disallowance was made by the applicant under section 80D(2)((i) of the Income Tax Rules i.e the direct expenses relatable to the earning of exempt income. Under the provision of Rule 8D(2)(ii) of the Act the Income Tax Rules the interest relatable to the investment in tax free funds was computed at Rs. 10,49,851/- and the same was disallowed. The alternate plea raised by the applicant was of setting off of interest paid and interest received was rejected by the Tribunal. Further under Rule 8D(2)(iii) of the Income Tax Rules the CIT (Appeals) had upheld the disallowance of Rs. 5 lacs, against which the applicant was in Cross Objection which has been deleted by the Tribunal. In view of the findings of the Tribunal the Miscellaneous Application moved by the applicant is mis-conceived as the issue in detail has been addressed and in the absence of the applicant finding any error in the same, there is no merit in the present Miscellaneous Application moved by the applicant and the same is dismissed.

7. In the result, the Miscellaneous Application filed by the applicant is dismissed.