M/s. Impresario Entertainment & Hospitality Pvt. Ltd. Vs CIT(A)-9

This appeal filed by the Assessee is directed against the order of the Ld.CIT(A) -9, Mumbai dated 05.06.2012 for the Assessment Year 2009-10.

2. In this appeal, the assessee has agitated the decision of the Ld.CIT(A) confirming the disallowance of interest expenditure amounting to Rs.14,55,404/- made by the AO u/s 14A of the Income-tax Act on the ground that the assessee has failed to prove that the investment in mutual funds are out of non interest bearing

funds.

3. Briefly stated, during the assessment proceeding, the AO noticed from the balance sheet that the assessee’s investment in shares and securities as on the balance sheet was Rs.179.69 lakhs, the AO further noted that the assessee had received dividend income of Rs.40,79,591/- and claimed as exempt u/s 10(33) of the Act. The assessee had further earned share of profit from partnership firm of Rs.8,06,529/- and claimed the same exempt from tax. The AO after noting that the assessee had not disallowed any amount u/s 14A read with Rule 8D, applied the said provisions and thereby disallowed a sum of Rs.14,55,404/-. On appeal, the Ld.CIT(A) confirmed the interest disallowance made by the AO as the assessee had failed to prove that the investment in the mutual funds were out of non interest bearing funds.

4. Having heard both the sides and perused the material on record, it is the contention of the Ld.AR that the assessee company has invested Rs.24,00,00,000/- in the mutual funds namely HDFC Cash Management Funds and Templeton Investment Funds on 05.03.2008 out of funds raised by the assessee company on

04.03.2008. Further the Ld. AR for the assessee has stated that the assessee company has maintained separate bank account with HDFC for the transactions and bank statement have already been placed during the assessment proceedings. According to the Ld.AR, the amount received on 04.03.2008 from issue of preference shares and securities premium on preference shares have been invested on the next day i.e. 05.03.2008 in the mutual funds. This makes it clear that there is direct nexus between own funds raised and investment which yielded the exempt income and not between borrowed funds. The perusal of the record indicates that this statement of the assessee has been submitted during the assessment proceeding vide letter dated 12.12.2011. Further, the assessee has submitted the details before the Ld.CIT(A) also as regards the nexus between sources of funds and application of funds. However, the reading of the order of the Ld.CIT(A) indicates that the Ld.CIT(A) has not deliberated on the submission of the assessee which may have direct bearing on the issue of interest disallowance. Considering the entirety of the facts, we are of considered opinion that it is just and proper that the matter is set aside to the file of the Ld.CIT(A) for re adjudication of the issue in accordance with law after providing reasonable opportunity of being heard to the assessee. We direct and order accordingly.

5. In the result, the appeal filed by the Assessee is allowed for statistical purpose.

Order pronounced in the open court on this 30th day of July, 2014.