IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI “SMC” BENCH : MUMBAI

BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER

AND
SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER

ITA No. 1435/Mum/2024

Assessment Year : 2016-17

Prakash Udyog Limited, Income Tax Officer,

10, Sajan Nagar, Ward–2(2)(4),
Indore vs. Aayakar Bhavan,
PAN : AABCP7261J M.K. Road,
Mumbai
(Appellant) (Respondent)

Assessee by : Shri Milind Wadhwani,

(virtually appeared)

Revenue by : Shri Umesh Chandra Sinha

Date of Hearing : 11/11/2024

Date of Pronouncement : 14/11/2024

PER B.R. BASKARAN, A.M :

The assessee has filed this appeal challenging the order

dt.14-02-2024 passed by the Ld. Commissioner of Income Tax
(Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟]
and it relates to AY. 2016-17. The following two issues are urged before
us:-

a) Error committed in the assessment order while computing

total income;
b) Addition made u/s. 14A of the Act;
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2. The assessee-company is engaged in the business of trading in agro

commodities. The assessment for the year under consideration was
completed u/s. 143(3) of the Act. Since the AO has varied the total
income, the assessee filed appeal before the Ld.CIT(A) and the same was
partly allowed. Still aggrieved, the assessee has filed this appeal.

3. The first issue relates to error in the computation of total income in

the Computation Sheet attached with the assessment order. The Ld.AR
invited our attention to pg. No. 4 of the assessment order, wherein the
total income was determined by the AO at Rs. 16,82,668/-. However, in
the computation sheet, the total income was taken by the AO at
Rs.36,69,406/-. The Ld.AR submitted that the Ld.CIT(A) did not give
relief with regard to the above said error made in the computation
sheet.

4. We heard the parties and perused the record. We notice from the
assessment order that the total income was determined by the AO at
Rs. 16,82,668/-. However, in the computation sheet, the total income
has been taken as Rs.36,69,410/-. We also find that the AO has not
given any explanation for the income so adopted in the computation
sheet. Hence, there is some merit in the submission of the Ld.AR that
there was an error in adopting the figure of total income by the AO in
the computation sheet. However, we are of the view that this plea of the
assessee requires verification at the end of AO. Accordingly, we set
aside the order passed by the Ld.CIT(A) on this issue and restore the
same to the file of AO for examining this plea of the assessee. If it is an
error as pointed out by the assessee, then the AO may correct the same.

5. The next issue relates to addition made u/s. 14A of the Act. The
assessee had earned share income from partnership firm and claimed
same as exempt. However, the assessee did not make any disallowance
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ITA No. 1435/Mum/2024

u/s. 14A of the Act. The AO noticed that the assessee has incurred
interest expenditure of Rs. 26,27,659/-. Accordingly, he disallowed a
sum of Rs. 14,42,073/- under Rule 8D(2)(ii) of the Income Tax Rules,
1962 („the Rules‟). The AO also added a sum of Rs. 2,28,219/- under
Rule 8D(2)(iii) of the Rules out of expenses, which was computed at
0.5% of the average value of the investment. Accordingly, he disallowed
a sum of Rs. 16,70,192/- in aggregate u/s. 14A of the Act.

5.1. In the appellate proceedings, the assessee submitted before the

Ld.CIT(A) that the interest free funds available with the assessee is more
than the value of the investment and hence, no disallowance out of
interest is called for. It was also submitted that the assessee has
availed bank Over Draft for meeting its day-to-day working capital
requirements and the said amount was not utilized for making
investments. It was also submitted that the loan was availed from the
bank in the year 2014; whereas investments were made by the assessee
much earlier i.e., in the year 2000-01 and accordingly no part of loan
could have been used for making investments. The Ld CIT(A) did not
accept these contentions of the assessee. With regard to the claim of
availability of interest free funds, the Ld.CIT(A) noticed that the own
funds available with the assessee was around Rs. 2.82 crores and the
assessee has included net trade payables also as interest free funds.
The Ld.CIT(A) took the view that the relief can be granted to the extent
of own funds available with the assessee. Accordingly, he directed the
AO to reduce the interest disallowance proportionate to the own funds
available with the assessee. The Ld.CIT(A) did not disturb the
disallowance made under Rule 8D(2)(iii) out of general expenses.
Accordingly, he granted partial relief to the assessee.

5.2. We heard the parties and perused the record on this issue. The
Ld.AR submitted that the investments in partnership firm and certain
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ITA No. 1435/Mum/2024

other companies have been made in the year 2000-01; whereas the
Over Draft facility has been availed from ICICI bank only in November,
2014. Thus, we notice that the assessee has availed Over Draft facility
almost after 14 years from the date of investment. The Ld.AR submitted
that the Over Draft facility has been used for day-to-day funds
requirements and the said funds could not have been utilized for
making investments in the year 2000-01. Accordingly, by placing
reliance on the decision rendered by the Hon‟ble Gujarat High Court in
the case of CIT vs. Gujarat Narmada Valley Fertilizers Company Ltd.,
[221 TAXMAN 479], the Ld.AR submitted that the disallowance out of
interest expenditure is not required to be made. Alternatively, the
Ld.AR submitted that the interest free funds available with the assessee
consisting of own funds and net trade payable is in excess of the value
of investment and hence with that count also no disallowance out of in
interest expenditure is called-for.

5.3. With regard to disallowance made under Rule 8D(2)(iii), the Ld.AR
submitted that there is mistake in the computation of average value of
investment by the AO and if the said mistake is corrected, the
disallowance would come down to Rs. 1,98,699/-.

5.4. We heard Ld.DR on this issue and perused the record. We notice
that the investment have been made by the assessee in the year 2000-
01 and Over Draft facility has been obtained from ICICI Bank in
November, 2014. Hence, there is merit in the contentions of the Ld A.R
that the assessee could not have utilized loan funds for making
investments. It is also stated that the overdraft facility availed from
ICICI Bank was used for day to day activities. Hence, as per the
decision rendered by the Hon‟ble Gujarat High Court in the case of
Gujarat Narmada Valley Fertilizers Company Ltd., (supra), no
disallowance out of interest expenditure is called-for. Accordingly, we
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set aside the order of the Ld.CIT(A) on this issue and direct the AO to
delete the disallowance made under Rule 8D(2)(ii).

5.5. With regard to the disallowance made under Rule 8D(2)(iii), the
Ld.AR submitted that there is an error in computing average value of
investment. Since this plea of the assessee requires verification, we
restore this issue to the file of the AO for examining the same afresh.
After affording adequate opportunity of being heard to the assessee, the
AO may take appropriate decision in accordance with law.

6. In the result, the appeal of the assessee is treated as allowed.

Order pronounced in the open court on 14-11-2024

Sd/- Sd/-
[RAJ KUMAR CHAUHAN] [B.R. BASKARAN]
JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai,
Dated: 14-11-2024

TNMM

Copy to :

1) The Appellant
2) The Respondent
3) The CIT concerned
4) The D.R, “SMC” Bench, Mumbai
5) Guard file

By Order

Dy./Asst. Registrar
I.T.A.T, Mumbai