ECHOLAC FINVEST PVT. LTD.,AHMEDABAD vs. THE ITO, WARD-2(1)(1), AHMEDABAD

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ITA 2398/AHD/2017Status: DisposedITAT Ahmedabad25 March 2019AY 2013-20143 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, following a Special Bench decision, held that the disallowance under Rule 8D should be calculated based on the average value of investments that actually yielded exempt income. The disallowance was restricted to half a percent of the investment that yielded exempt income.

What were the facts?

The assessee's appeal concerns a disallowance of Rs. 1,31,084/- made by the AO under Section 14A read with Rule 8D for the assessment year 2013-14. The AO disallowed expenditure based on half a percent of the average investment, as the assessee failed to provide a working for expenditure relatable to tax-free income.

What were the issues?

Whether the disallowance under Section 14A read with Rule 8D should be calculated on the total investment or only on the investment yielding exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘SMC’

Before: SHRI RAJPAL YADAV & SHRI PRADIPKUMAR KEDIA

For Appellant: Shri Parin Shah, AR
Hearing: 08/03/2019Pronounced: 25/03/2019

-आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ - अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD – BENCH ‘SMC’

BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No.2398/Ahd/2017 �नधा�रण वष�/Asstt. Year: 2013-14 Echolac Fininvest P.Ltd. Vs. ITO, Ward-2(1)(1) 44/D, Sharnam 12, Ahmedabad. Prahaladnagar Vejalpur Ahmedabad PAN : AAACE 3446 R

(Respondent) (Applicant)

Assessee by : Shri Parin Shah, AR Revenue by : Shri Aoitya Shukla, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 08/03/2019 घोषणा क� तार�ख /Date of Pronouncement: 25/03/2019 आदेश/O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER:

Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-2, Ahmedabad dated 4.10.2017 passed for the Asstt.Year 2013-14.

2.

Assessee has taken four grounds of appeal, but its grievance revolves around a single issue viz. the ld.CIT(A) has erred in confirming the disallowance of Rs.1,31,084/- which was made by the AO with aid of section 14A of the Income Tax Act r.w. Rule 8D of the Income Tax Rules, 1962.

ITA No.2398/Ahd/2017 2 3. With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee has filed its return of income electronically on 19.8.2013 declaring total income at Rs.6,02,812/-. On scrutiny of the accounts, it revealed to the AO that the disallowance under section 14A is required to be made in respect of expenditure attributable to earning of tax free income. He confronted the assessee to show working of expenditure relatable to earning of tax free income. According to the AO, assessee failed to demonstrate any such working, hence, with help of Rule 8, he proceeded to work out the expenditure required to be disallowed. The ld.AO has worked out the expenditure at Rs.1,31,084/- which is half-percent of the average investment amounting to Rs.2,62,16,717/-. Appeal to the ld.CIT(A) did not bring any relief to the assessee.

4.

Before us, the ld.counsel for the assessee at the very outset submitted that the issue in dispute is squarely covered in favour of the assessee by the order of Special Bench of the ITAT in the case of ACIT Vs. Vireet Investments P.Ltd., 165 ITD 27 (SB). He contended that the Tribunal has held that while working out disallowance under Rule 8D, the AO was required to take into consideration average value of the investment, which yielded exempt income during the year. He pointed out that before the AO a specific plea was taken by the assessee that out of the total investment, dividend on the investment worth of Rs.1,36,67,429/- has not been received. In the other words, this investment did not yield any exempt income. According to the ld.counsel for the assessee, a disallowance at half percent of the investment ought to be worked out, which is equivalent to Rs.62,365/-. He has

ITA No.2398/Ahd/2017 3 placed on record working showing total investments as on 31.3.2013 at Rs.2,62,16,717/- out of which investment earned exempt income is of Rs.1,24,73,178/-; half % of this amount would come to Rs.62,365/-. The ld.DR was unable to controvert this contentions of the ld.counsel for the assessee.

5.

On due consideration of the above facts, and respectfully following order of the Special Bench of the ITAT in the case of Vireet Investment P.Ltd. (supra), we restrict the disallowance to Rs.62,365/- which is equivalent to half-percent of the average investment which yielded exempt income during the year. In view of the above, appeal of the assessee is partly allowed.

6.

In the result, appeal of the assessee is partly allowed.

Order pronounced in the Court on 25th March, 2019.

Sd/- Sd/- (PRADIPKUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER

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