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 All India Federation of Tax Practitioners vs. ITO (ITAT Mumbai)
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PNB Paribas SA, North Avenue Makemaxity, Bandra Kurla Complex, Bandra East, Mumbai -400 051 Vs. DCIT Spl. Rg. 36, 1st Floor, Scindia House, Balard Estate, Mumbai -400 038
July, 10th 2015
                                                                       PNB Paribas SA
                                                                  ITA No.1308/M/2013

               MUMBAI BENCH "B", MUMBAI
                     ..  ,

                  ITA No. : 1308/Mum/2013
                   (Assessment year: 1989-90)
PNB Paribas SA,                   Vs      DCIT Spl. Rg. ­36,
North Avenue Makemaxity,                  1st Floor, Scindia House,
Bandra Kurla Complex,                     Balard Estate,
Bandra East,                              Mumbai -400 038
Mumbai -400 051
   .:PAN: AAACB 4868 Q
 (Appellant)                                     (Respondent)
                   Appellant by       :   Shri Arvind Sonde
                  Respondent by       :   Shri Yogesh Kamat

        /Date of Hearing                        : 14-05-2015
        /Date of Pronouncement                  : 08-07-2015


          The aforesaid appeal has been filed by the assessee against
    impugned order dated 30.11.2012, passed by CIT(A)-10, Mumbai
    for the quantum of assessment passed in pursuance of ITAT order
    u/s 254, for the assessment year 1989-90.

    2.    The   only   issue   raised      in   the   grounds         of   appeal   is
    disallowance made u/s 14A with regard to interest expenses. In
    this case, the Tribunal had earlier set aside the matter to the file of
    the CIT(A) after observing and holding as under:
             "Expenses can be disallowed u/s 14A only if the said
             expenses is incurred in relation to the income, which does
             not form the part of the total income. This aspect needs
             verification. We are of the view that the matter has to be
             restored back to the file of the ld. CIT(A) to reconsider the
             matter afresh and disallow the expenses, which are
                                                          PNB Paribas SA
                                                     ITA No.1308/M/2013
         incurred in relation to such exempt income. Needless to say
         that he shall give opportunity to both the parties of being
         heard before deciding the issue. We order accordingly."

3.    In wake of the aforesaid directions, the Ld. CIT(A) required
the assessee to show the nexus between interest free funds
available with it and utilization of such interest free funds for
making the investment, which has yielded exempt income. In
response, the assessee submitted that the assessee had sufficient
interest free funds available with it from which the investment has
been made. In support, the assessee has relied upon its Balance
Sheet for the relevant date and also orders of the CIT(A) in the
assessee's own case. However, the Ld. CIT(A) held that such a
disallowance now has to be made in accordance with the Rule 8D
in wake of decision of Bombay High Court in the case of Godrej &
Boyce Mfg. Co. Ltd. reported in 328 ITR 81 (Bom) and noted that
the decision of Reliance Utilities and Power Pvt Ltd has been
considered by the Hon'ble Bombay High Court in the later decision
of Godrej & Boyce Mfg. Co. Ltd. (supra). Thus, the assessee had
not shown by way of any evidences, the extent of sufficient interest
free funds as on the date of investment. The Ld. CIT(A) noted the
position of the non-interest bearing funds and also the asset sides
of the Balance Sheet and thereafter made the disallowance of Rs.
21,31,170/- out of interest cost, which has been worked out on the
basis of Rule 8D only.

4.    Before us, the Ld. Counsel submitted that, now in the case
of the assessee itself the Hon'ble High Court has decided this issue
in favour of the assessee in Income-tax Appeal No. 1776 of 2012
vide order dated 14th February, 2013 wherein, following question of
law were raised by the Revenue:
      "b) Whether the Tribunal is correct in upholding the decision
      of CIT(A) in deleting the addition made by the AO on account
      of expenditure incurred in earning exempt income without
      appreciating the fact that assessee did not demonstrate before
                                                                 PNB Paribas SA
                                                            ITA No.1308/M/2013
      the AO that the funds used for acquiring shares of LVL were
      its own funds and also that section 10 of the Act provides for
      a deduction of net income and not gross income?"

This question has been answered in favour of the assessee.
Further, in assessee's own case, the Tribunal for the assessment
year 2000-01, 2001-02 and 2002-03, similar issue has been
decided in favour of the assessee, wherein it has been held that
assessee's investments have been made out of its own funds.
Besides this, the Ld. Counsel submitted that the total non-interest
bearing funds on the date of the Balance Sheet was Rs.
23,85,20,000/- whereas, the investments in tax free bonds was Rs.
67,00,000/-. Thus, a presumption can be drawn that assessee's
investments have been made out of its own interest free funds.

5.    On the other hand, Ld. DR strongly relied on the order of the

6.    After considering the rival submissions, we find that from
the perusal of the Balance Sheet, as noted above, the total interest
free fund available with the assessee was far in excess, then the
investments made by the assessee in the tax free bonds. Once that
is so, then the presumption is that such an investment have been
made from assessee's own surplus funds. This proposition has not
only been upheld by the Hon'ble High Court in the case of the
assessee in the assessment year 2002-03 but also by the Tribunal
in   the   various   years,   as   referred   to   above.     Accordingly,
disallowance of interest as made u/s 14A is hereby deleted.
Further, it is also an admitted position of law that Rule 8D as
applied by the Ld. CIT(A) is not applicable for the impugned
assessment year, viz. 1989-90, as held by Hon'ble jurisdictional
High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra).

7.    Accordingly, grounds raised by the assessee are allowed.
                                                                PNB Paribas SA
                                                           ITA No.1308/M/2013

     8.     In the result, appeal of the assessee stands allowed.
     Order pronounced in the open court on 8th July, 2015.

              Sd/-                                           Sd/-
       (..  )
                                                        (  )
     (G S PANNU)                                     (AMIT SHUKLA)
  ACCOUNTANT MEMBER                                JUDICIAL MEMBER

Mumbai, Date: 8th July, 2015

 /Copy to:-

     1)  /The Appellant.
     2)    /The Respondent.
     3) The CIT(A) -10, Mumbai
     4) The CIT/DIT (Int. Txn)-3, Mumbai.
     5)   "",   , /
        The D.R. "B" Bench,   Mumbai.
        Copy to Guard File.
                                              /By Order
          / / True Copy / /

                                        Dy./Asstt. Registrar
                                         I.T.A.T., Mumbai
*  ..
*Chavan, Sr.PS
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