IN INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA No. 232/Bang/2013 Assessment year : 2009-10 Deputy Commissioner of Vs. M/s. GMR Infrastructure Ltd., Income Tax, No.25/1, Skip House, Central Circle 1(1), Museum Road, Bangalore. Bangalore 560 025. PAN: AABCG 8889P APPELLANT RESPONDENT CO No.65/Bang/2013 [in ITA No.232/Bang/2013] Assessment year : 2009-10 M/s. GMR Infrastructure Ltd., Vs. Deputy Commissioner of Bangalore 560 025. Income Tax, PAN: AABCG 8889P Central Circle 1(1), Bangalore. CROSS OBJECTOR RESPONDENT Revenue by : Shri A.R.V. Sreenivasan, Jt. CIT(DR) Assessee by : Shri Jagadish K. (Employee of assessee) Date of hearing : 09.08.2016 Date of Pronouncement : 30.09.2016 ORDER Per A.K. Garodia, Accountant Member This appeal is filed by revenue and CO is filed by assessee and these are directed against order of CIT (Appeals)-I, Bangalore dated 30.11.2012 for AY 2009-10. ITA No. 232/Bang/2013 & CO No.65/Bang/2013 Page 2 of 6 2. Ground raised by revenue in its appeal are as under:- 1) order of CIT (A) is opposed to law and facts of case. 2) learned CIT (A) erred in law and in fact in directing Assessing Officer to accept disallowance out of interest expenses of Rs.14, 18,38,064/ - computed by assessee as against disallowance made by Assessing Officer as per clause (ii) of sub-rule(2) of Rule 8D of Income Tax Rules r.w.s. 14A of Income Tax Act of Rs. 17,27,52,979/-. 3) For these and such other grounds that may be urged at time of hearing, Hon'ble Tribunal may allow appeal in interest of justice and equity. 3. Grounds raised by assessee in CO are as under:- 1. On facts and circumstances of case and in law, Cross objector prays that disallowance of interest determined U/s 14A of Rs.14,18,38,064/- was supported by report from independent firm of Chartered Accountant, who was engaged to examine books of account and determine amount of interest disallowance U/s 14A. disallowance of interest amount of Rs. 14,18,38,064/- is also certified by Tax auditor and same is as per books of account of cross objector determined having regard to its books of account. 2. On facts and circumstance of case and in law, Cross objector prays that no disallowance of interest over and above amount of Rs. 14,18,38,064/- determined having regard to its books of account based on ratio of average investments in share (as reduced by investments directly identifiable out of identifiable funds such as investments made out of IPO proceeds and QIP proceeds and investments in Growth Mutual Funds) to average assets (as reduced by investments made out of identifiable funds such as investments made out of IPO proceeds and QIP proceeds) can be made by applying formula in Rule- 8D as well as by disregarding books of account. ITA No. 232/Bang/2013 & CO No.65/Bang/2013 Page 3 of 6 3. On facts and circumstance of case and in law, to invoke Rule 8D, AO should, after considering accounts of Cross objector, not been satisfied with correctness of claim of Cross objector in respect of such expenditure in relation to income which does not form part of total income under this Act and such non-satisfaction must be objective. Thus, to invoke Rule 8D, AO should provide justifiable reason for not being satisfied with claim of Cross objector which in Cross objector's case is absent; Without Prejudice: 4. On facts and circumstances of case and in law, amount of disallowance of interest of Rs.14,18,38,064/- worked out having regard to its books of account on nexus basis of cross objector was higher than amount of disallowance of Rs.9,51, 11,172/- worked out in accordance with method prescribed in Rule 8D of IT Rules. CROSS OBJECTION NO. 2: 1. Cross objector craves leave to add, alter and/or amend all or any of foregoing cross objections stated above. 4. It was submitted by ld. DR of revenue that in para 3.9 of his order, relief was allowed by CIT (Appeals) on this basis that assessee has proved that source of certain investments is out of interest free funds and question of apportioning any interest expenditure for computation of disallowance u/s. 14A of Act does not arise. But his decision is without any reasoning or basis as to how assessee has proved that source of certain investments is out of interest free funds. He supported assessment order and contended that on this issue, ITA No. 232/Bang/2013 & CO No.65/Bang/2013 Page 4 of 6 order of CIT (Appeals) should be reversed and that of AO should be restored. 5. As against this, Shri Jagadish K., employee of assessee company, who appeared on behalf of assessee company, supported order of CIT (Appeals). Regarding CO of assessee, it is submitted that disallowance upheld by CIT(Appeals) is excessive and in fact CIT(A) has enhanced disallowance on account of indirect expenses to Rs.11,73,87,442 as against amount of disallowance of Rs.9,83,00,803 determined by AO in assessment order, which amounts to enhancement and since no notice u/s. 251(2) of Act was issued by CIT(A), enhancement made by him is not justified and valid. 6. We have considered rival submissions. We find that in assessment order, AO had worked out disallowance u/s. 14A by applying Rule 8D of I.T. Rules and he has calculated disallowance out of interest expenditure on basis of proportionate investment in tax exempt investments and total assets. In addition to that, he has made disallowance of 0.5% of average amount of tax exempt investment. In this manner, he has worked out total disallowance at Rs.27,10,53,782. As against this, ld. CIT(A) has upheld disallowance of Rs.26,00,40,736 as against total disallowance made by AO u/s. 14A; of Rs.27,10,53,782. Hence it is seen that there is no enhancement made by ITA No. 232/Bang/2013 & CO No.65/Bang/2013 Page 5 of 6 ld. CIT(A) in respect of disallowance u/s. 14A and therefore this ground of assessee s CO has no merit. 7. In fact, ld. CIT(A) has reduced disallowance out of interest expenditure and has increased disallowance out of administrative expenses. But while doing so, CIT(A) has not indicated reasoning and basis of giving finding that some of investments are made by assessee out of interest free funds available with assessee. Under these facts, we deem it fit and proper that this issue should go back to file of CIT(Appeals) for fresh decision and accordingly, we set aside order of CIT(Appeals) and restore entire matter back to his file for fresh decision, after providing adequate opportunity of being heard to both sides and he should pass speaking and reasoned order. 8. In result, appeal of revenue is allowed for statistical purposes, whereas CO of assessee is dismissed. Pronounced in open court on this 30th day of September, 2016. Sd/- Sd/- (SMT.ASHAVIJAYARAGHAVAN ) ( A.K. GARODIA ) Judicial Member Accountant Member Bangalore, Dated, 30th September, 2016. /D S/ ITA No. 232/Bang/2013 & CO No.65/Bang/2013 Page 6 of 6 Copy to: 1. Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Assistant Registrar, ITAT, Bangalore. Deputy Commissioner of Income-tax, Central Circle-1(1), Bangalore v. M/s. GMR Infrastructure Ltd