RAMTECH SOFTWARE SOLUTIONS PVT. LTD. Vs. ACIT

JUDGEMENT

(1.) THIS is an appeal filed by the assessee against the order of the CIT(A) -2, Ludhiana dt. 27/03/2015.

(2.) The brief facts of the case are that the assessee is running a software development unit. It had shown investments of Rs. 6,28,46,044/ - and Rs. 5,28,71,243/ - as on 31/03/2008 and 31/03/2009 respectively. The AO noted that the assessee had incurred interest expenses of Rs. 75,010/ - and portfolio management expenses amounting to Rs. 1,81,677/ - during the year. When confronted, the assessee replied that no loan has been taken during the year under consideration and all the investments were made out of owned funds. Further it was submitted that the interest expenses of Rs. 75,010/ - debited to the P&L account related to vehicle loan taken from Arabian Automobile Co. In view of this, it was submitted that no disallowance u/s 14A should be made. After considering the submission of the assessee, the AO held that provision of Section 14 A were applicable in this case. Accordingly he computed disallowance under Rule 8D(2)(ii) at Rs. 9257/ - and under Rule 8D(2)(iii) at Rs. 2,89,293/ - and a total disallowance amounting to Rs. 2,98,550/ - was thus made under section 14 A read with Rule 8D.

(3.) THE assessee went in appeal before the CIT(A). Here the assessee's submissions were threefold. Firstly, it was submitted that in view of the fact that assessee himself has disallowed an amount of 1,81,677/ - suomoto in its return of income, the AO cannot straight away resort to the provision of Rule 8D, without recording his satisfaction to the effect as to how the disallowance so made by the assessee itself was wrong. Secondly under Rule 8D(2)(ii) no disallowance is warranted as the only amount of interest claimed by the assessee in its P&L account is related to vehicle loan taken by the assessee and no apportionment of the same can be made for the purposes of being related to tax free income. Thirdly, it was contended that, while computing the disallowance under Rule 8D(2)(iii), the AO had taken the average of total investments of the assessee, which includes both tax free and taxable income bearing investments, while for the purpose of said computation, only tax free income bearing investments are to be taken. It was also prayed before the CIT(A) that the credit of suomoto disallowance made by assessee should also be given under Rule 8D(2)(iii).