Shri K.v.aravind Submitted That Rule 8D(2)(Ii) Does Not Make Any Difference With Regard To The Own Funds Or Borrowed Funds v. ‘The Act’ For Short‘the Act’ For Short

Digitally signedby ANUSHA VLocation: HIGHCOURT OFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13 DAY OF FEBRUARY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE RAMACHANDRA D. HUDDAR INCOME TAX APPEAL NO. 152 OF 2020 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX, CIT (A) CENTRAL CIRCLE, C.R.BUILDING QUEEN’S ROAD BENGALURU-560 001 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(2) C.R.BUILDING, QUEEN’S ROAD BENGALURU-560 001 …APPELLANTS (BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) AND: M/S. MANIPAL GLOBAL EDUCATION SERVICES PVT. LTD., NO.14, MANIPAL TOWERS 4 FLOOR, AIRPORT ROAD BENGALURU-560 008 PAN:AACCM 6313P …RESPONDENT (BY SHRI. B.R. SUDHEENDRA, ADVOCATE) THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 02.05.2019 PASSED IN IT(TP)A.NO.388/BANG/2016, FOR THE ASSESSMENT YEAR 2008-2009 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU AND ETC. THIS ITA, COMING ON FOR ADMISSION, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the Revenue, directed against the order dated May 2, 2019 passed in IT(TP)A.No.388/Bang/2016 by the ITAT[1]for the A.Y. 2008-09 has been admitted to consider following questions of law; “1. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in not following the decision of the Hon’ble Supreme Court in the case of M/s. Maxopp Investments Limited (402 ITR 640 (SC) whereby it is held that in case of mixed funds and indivisible business the provisions of Rule 8D(2)(ii) are attracted? 2. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in not appreciating the fact that the decision in the case of M/s. Maxopp Investments Limited 402 ITR 640 makes it clear that disallowance in case of holding as investment attracts provisions of section 14A and Rule 8D(2)(iii) irrespective of whether dividend is earned or not?” 2. Heard Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue and Shri B.R.Sudheendra, learned advocate for the respondent. 1 Income Tax Appellate Tribunal 3. Brief facts of the case are, the assessee has invested about Rs.90 Crores in mutual funds and earned dividend. The AO[2], while giving effect to DRP’s[3]order, has disallowed the interest under Section 14A holding that the assessee had incorporated expenses being the interest paid on borrowed money for other purpose of business. ITAT, while partly allowing the appeal, has directed the AO to compare own funds available with the assessee against the value of investments and apply provisions of Rule 8D(2)(ii) by recording thus, “11. We heard the parties on this issue and perused the record. The Hon’ble Bombay High Court has held in the case of HDFC Bank Ltd (366 ITR 505) that no disallowance out of interest expenditure u/r 8D(2)(ii) is called for when own funds available with the assessee is in excess of the value of investments. Accordingly, we direct the AO to compare the own funds available with the assessee against the value of investments and accordingly apply the provisions of Rule 8D(2)(ii) by duly following the decision rendered by Hon’ble Bombay High Court in the case of HDFC Bank Ltd(supra).” Feeling aggrieved, Revenue has preferred this appeal. 2 Assessing Officer 3Dispute Resolution Panel-2, Bengaluru 4. Shri K.V.Aravind submitted that Rule 8D(2)(ii) does not make any difference with regard to the own funds or borrowed funds. Feeling aggrieved, Revenue has preferred this appeal. 2 Assessing Officer 3Dispute Resolution Panel-2, Bengaluru 4. Shri K.V.Aravind submitted that Rule 8D(2)(ii) does not make any difference with regard to the own funds or borrowed funds. 5. Learned advocate for the assessee submitted that the funds invested by the assessee are its own funds and dividends earned thereon are exempted under Section 10(34) of the Income Tax Act, 1969[4]. Therefore, the interest paid on the borrowing made by the assessee for the purpose of business cannot be considered. This court, in The Commissioner of Income Tax and Another Vs. M/s. Brigade Enterprises Ltd.[5],has held that the assessee therein had interest free funds to make tax free investment and therefore, the AO’s view that overdraft facility was directly used for making tax exempt investments was incorrect. In the case on hand, according to learned advocate for the assessee, the assessee had own funds which are far more than Rs.90 Crores. The view taken by the Revenue in this appeal defeats logic because while 4‘the Act’ for short‘the Act’ for short 5ITA No.373/2014 (DD.22.10.2020)ITA No.373/2014 (DD.22.10.2020) investing in own funds, there will be no expense. It is only in the case of borrowed funds, which calls for payment of interest, the question of payment of interest arises. In the instant case, ITAT has directed the AO to compare the own funds available with the assessee against the value of investment. We find no error in order passed by the ITAT. Hence, the following; ORDER (i)Appeal is dismissed; and (ii)Questions of law answered in favour of the assessee and against the Revenue. the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE