INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH , iou flag Before S Sh. Rajendra,Accountant Member & Pawan Singh,Judicial Member .ITA No.2738 Mum 2014, Assessment Year-2009-10 Praham India LLP (successor of ITO-8(2)(4), Praham India Pvt. Ltd.), Patel Estate, 2nd Floor, Aayakar Bhavan, off S. V. Road, Jogeshwari (W), Vs M. K. Road, Mumbai-400020 Mumbai-400102. PAN:AAACP2054Q ( Appellant) ( Respondent) Assessee by : Shri Mayur Kisnadwala (AR) Revenue by : Ms. Radha Katyal Narang (DR) Date of Hearing : 28- 06 -2016 Date of Pronouncement : 23-09-2016 ORDER iou flag PER PAWAN SINGH, JM 1. present appeal is filed by assessee against order of CIT(A)-17, Mumbai dated 20.02.2014 for Assessment Year (AY)-2009-10. assessee has raised following Grounds of appeal: 1. On facts and circumstances of case and in law, CIT(A) erred in confirming disallowance made u s 14A amounting to Rs. 63,22,771 -. 2. On facts and circumstances of case and in law, CIT(A) erred in upholding AO s action of not allowing deduction of Rs. 16,14,616 - being reversal write off of interest accounts twice. 2. Brief facts of case are that assessee filed return of income for relevant AY on 30.09.2009. return of income was selected for scrutiny. During assessment proceeding, AO observed that assessee did not carry out any business activity of which Revenue was recognized. From balance-sheet, it is evident that assessee utilized money from Capital, Reserve & Surplus and unsecured loan for investment in shares and advancement of loan for investment in Capital work-in-progress. In Profit & Loss c, assessee claimed interest expenditure of Rs. 49,64,100 -. These facts show that interest bearing funds were utilized for investment in shares or advancing loan for investment in capital work-in-progress. assessee was asked to justify claim of interest expenditure by establishing direct nexus of utilization of interest bearing borrowed capital for business activities and to file fund flow statement. assessee contended that he has made investment in shares of Rs. 11,11,28,494 -, for investment, it ITA No.2738 Mum 2014- Praham India LLP. had utilized its own fund which could be verified from balance-sheet. During year, assessee received back sum of Rs. 17,06,98,693 - advanced earlier. This amount with available bank balances had been utilized for investment made in share and placed inter-corporate deposit. Thus all investments were made from his own funds and no borrowed money was invested. Therefore, no disallowance of interest is called for. contention of assessee was not accepted by AO for reasons that assessee did not file fund flow statement to establish utilization of interest bearing fund and, disallowed Rs. 4,96,410 - on account of interest expenses. AO further observed that assessee itself disallowed interest to extent of Rs. 25,36,157 - u s 14A of Act and concluded that assessee claimed that entire investment to share were out of company s own funds but it was self-contrary from balance-sheet, that if, such fund was not utilized for share in investment, then same was utilized for advancing loan or invested in capital work-in-progress, that total interest credited to Profit & Loss c is Rs. 18,60,554 - while assessee paid interest of Rs. 49,64,100 -. AO further observed that total investment at start and close of previous year was shown at Rs. 21,61,69,928 - and Rs. 32,72,98,422 -, that average of would Rs. 27,17,34,175 - and one half percent of average investment would be Rs. 13,58,679 -. Total disallowance u s 14A r.w.r. 8D of Act (2)(i)(iii) was worked out at Rs. 63,22,771 -. Aggrieved by order of AO, assessee filed appeal CIT(A). During appellate proceeding, CIT(A) observed that assessee suo-moto disallowed interest expenditure under section 14 of Act to extent of Rs. 25,36,157 -, that assessee had dividend income and had made investment, that it be ground for disallowing interest expenditure for purpose of assessee s business. It was further observed that AO had worked out total disallowance under section 14 by including entire amount of interest expenditure incurred by assessee at Rs. 49,64,100 -. record of investment showed that previous year investment was at Rs. 21,61,69,928 -and at end of year it stand at Rs. 32,72,98,422 -. There was hardly any increase in work in progress of assessee. assessee invested major amount in its investment, and it could be inferred that major amount from borrowed funds had gone in investment. Dividend income by assessee does not, commensurate with investment and addition disallowance was confirmed. Further aggrieved by order of CIT (A) present appeal is filed before us. 3. First Ground for our consideration is disallowance u s 14A of Act. We have heard Authorized Representative (AR) of assessee and Departmental Representative (DR) 2 ITA No.2738 Mum 2014- Praham India LLP. for Revenue and perused material available on record. Ld. AR of assessee argued that assessee has suo-moto disallowed Rs. 38,94,0174 -and section 14A read with rule 8D. AO not recorded his dissatisfaction before calculating disallowance. assessee has utilized its own fund as assessee had sufficient interest free fund available with him. assessee has made strategic investment. No further disallowance of interest was called for. learned DR for revenue supported order orders of authorities below. 4. We have considered rival contention of parties and gone through order of authorities below. AO, while framing assessment, observed that assessee claimed exempt income of Rs. 1,36,24,168 -. assessee voluntary disallowed Rs. 38,94,828 - u s 14A r.w.r. 8D of Act. submission of assessee that no disallowance can be made under section 14 purely on ad hoc basis was discarded that assessee itself made disallowance on same basis and confirmed addition. basic contention of ld AR of assessee is that assessee had made strategic investment. Neither AO nor learned CIT (A) gave any finding or recorded their observation about strategic investment of assessee. Hence we deem it appropriate to restore this issue to file of assessing officer to find out and verify if assessee made strategic investment for earning exempt income, and pass necessary order in accordance with law. First ground of appeal is allowed for statistical purposes. 5. second grounds of appeal is with regard to not allowing deduction of Rs. 16,14,616 -. Ld AR of assessee argued that AO disallowed write off of interest twice. Ld AR further argued that direction be given to AO to verify deduction. Ld DR for revenue supported orders of authorities below. 6. We have considered rival contention of parties. We deem it appropriate to restore this ground of appeal as well to file of AO to verify if there is reversal of write off of interest accounts twice and pass order in accordance with law. Second ground of appeal is also allowed for statistical purposes. As result, appeal filed by assessee is allowed for statistical purposes. Order pronounced in open court on 23rd Sept,2016. 23 flracj,2016 Sd - Sd - (RAJENDRA) (iou flag PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER 3 ITA No.2738 Mum 2014- Praham India LLP. Mumbai, Date: 23.09.2016 SK Copy of Order forwarded to : 1.Appellant 2. Respondent 3.The concerned CIT(A) , 4.The concerned CIT 5.DR C Bench, ITAT, Mumbai 6.Guard File True Copy BY ORDER, Dy. Asst. Registrar , ITAT, Mumbai. 4 Praham India LLP (successor of Praham India Pvt. Ltd.) v. ITO-8(2)(4), Mumbai