JAMNALAL SONS PVT. LTD.,,WARDHA vs. CIT-II, NAGPUR

आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM :

2. The crux of the grievance of the assessee is with regard to the order passed u/s. 263 of the Act by the Ld. CIT stating that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. It was observed by the Ld. CIT that the assessee has shown gross income of Rs.11,33,67,921/- which includes dividend income of Rs.9,92,43,831/- as per profit and loss account which is 87.54% of the gross income. The assessee has debited total expenses of Rs.1,03,13,584/- to the profit and loss account. In view of the provisions of Section 14A of the Act, the expenditure of Rs.90,28,511/- being 87.54% of the total expenditure of Rs.1,03,13,584/- is not allowable. Therefore, the order of the Assessing Officer dated 10.05.2006 not disallowing the proportionate expenditure of Rs.90,28,511/- incurred in relation to exempt income i.e. dividend of Rs.9,92,43,831/- was erroneous and prejudicial to the interest of the revenue. The Ld. CIT in his order directed the expenditure of Rs.90,28,511/- to be disallowed by the Assessing Officer.

3. At the time of hearing through e-Court, both the parties unanimously agreed that the Assessing Officer should have disallowed certain expenditure as per Section 14A of the Act and to that extent, the order passed u/s.263 is correct. The grievance of the assessee is only to the rate of disallowance which the Ld. CIT has directed to the Assessing Officer and for this fact of the matter, the Ld. AR submitted that the disallowance upheld by the Hon’ble Bombay High Court in the case of CIT Vs. M/s. Godrej Agrovat Ltd., Income Tax Appeal No.934 of 2011 should be applied. In this case, Question-B before the Hon’ble High Court was as follows:

“b) Whether on the facts and in the circumstances of the case and in law, the ITAT was correct in restricting the disallowances to the extent of 2% of the income on the basis that in the earlier year CIT(A) restricted the expenses to 2% of total exempt income, overlooking that the CIT(A) while calculating the expenses in the relevant Assessment Year has taken into account the provisions of Section 14A of the I.T.Act while making the disallowance on proportionate basis?”

On that question, the Hon’ble High Court has held as follows:

“4. So far as question (b) is concerned, the Tribunal in its impugned order dated 17.09.2010 while applying the decision of this Court in the matter of Godrej (supra) has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the respondent-assessee on the basis its order dated 27.02.2009 for the Assessment year 2002-03 and order dated 10.09.2009 for the Assessment years 2003-04 and 2004-05 wherein disallowance was restricted to 2% of the exempt income. Further, the Tribunal has remanded the matter to the Assessing Officer to verify the disallowance claimed and restrict the disallowance only to the extent of 2% of the total exempt income. We find no fault with the order of the Tribunal.”

Order pronounced on 15th day of October, 2019.

Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 15th October, 2019. SB आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2.