Siddhartha Nautiyal ORDER
1. These are four appeals; three by the assessee and one by the Revenue against the separate orders of the ld.Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) of even dated 29.11.2022 passed under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the captioned assessment years.
2. At the outset, the assessee through its authorized signatory has filed a letter dated 12.9.2023 requesting for permission to withdraw the above three appeals filed by the assessee. The letter is placed on record. The ld.counsel for the assessee also confirmed before the Bench the contents of the said letter, and requested accordingly.
In view of the above letter of the assessee, and the submission of the ld.counsel for the assessee, we dismiss all three appeal of the assessee as withdrawn.
3. Now we take up the Revenue's appeal in ITA No.60/Ahd/2023 for A.Y.2018-19.
4. Revenue has raised only one ground in its appeal, which is against deletion of disallowance of Rs.5,04,35,666/-made on account of interest expenses u/s.14A of the Act.
5. We have heard both the parties and gone through orders of the authorities below.
6. As the facts can be noticed from orders of the Revenue authorities, the AO noted the assessee had claimed exempt dividend income of Rs.5,298/- on investment made by the assessee and also claimed interest expenses of Rs.5,04,35,666/-. The AO construed the impugned investment made for earning exempt was made out of borrowed funds. The ld.AO, therefore, computed disallowance by invoking Rule 8D read with section 14A of the Act and worked out disallowance at Rs.5,0435,666/-. This disallowance was challenged before the ld.CIT(A).
7. Before the ld.CIT(A), the assessee contended that the assessee has earned only Rs.5,298/- as dividend which it has disallowed in the return of income, and that no expenditure was incurred by the assessee for making investment in securities, because the assessee had sufficient reserves and surplus in the form of reserves and surplus and no borrowed funds were utilized for the purpose of impugned investment. In other words, the assessee submitted that it has share capital and reserves aggregating to Rs.897.39 crores as against investment of Rs.760.87 crores, and therefore, the interest free funds available with the was assessee more than its investment, and as such there was no reason to invoke provisions section 14A r.w.r. 8D for making disallowance. The assessee further submitted in the earlier years also similar disallowance made by the assessee was allowed without any further disallowance by the ld.CIT(A) in appeal, which was accepted by the department. The assessee submitted that, at the most, disallowance can be to the extent of dividend receipt of Rs.5,293/-. The assessee had also relied on various case laws to support its case.
The ld.CIT(A) found the explanation of the assessee acceptable, as the assessee was having sufficient interest free funds in the form share capital and reserves for making investments earning exempt income. Appreciating this, the ld.CIT(A) accordingly deleted disallowance made by the AO under section 124A of the Act. Now the Revenue is in appeal before the Tribunal against this deletion.
8. After considering submissions of both the parties, we find that the ld.CIT(A) was rightly deleted the impugned disallowance made by the AO under section 14A r.w.r 8D in the light of various judicial precedents on the issue that when interest free funds are available, which is more than the investment made for earning exempted income, by the assessee, the presumption is that, investment so made is out of interest free fund. Before us, there is no material to support the case of the Revenue that the assessee had utilized borrowed funds for investment for earning exempt income. Admittedly, similar claim of the assessee was allowed by the CIT(A) for the earlier year, and was accepted by the Revenue.
Furthermore, the proposition that if interest free funds are more than that invested in shares and securities to earn exempt income, and that it was not proved that any borrowed funds were utilized for such investments, then the presumption is that the interest free funds were used for making investment and no disallowance under section 14A r.w.r. 8D is permissible, is settled by the Hon'ble Apex court in its decision in South Indian Bank Ltd. vs. CIT Civil Appeal No.9606 of 2011 dt 09-09-2021. We, therefore, find the ld.CIT(A), taking into consideration all aspects, both factual and legal counts, has rightly allowed the claim of the assessee and deleted the impugned disallowance made under section 14A. Hence, there is no need for any interference from our side.
Thus, the ground of appeal of the Revenue is rejected.
9. In the result, the appeals of the assessee are dismissed as withdrawn, and the appeal of Revenue is dismissed on merit.
Order pronounced in the Court on 15th September, 2023 at Ahmedabad.
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