THE ACIT.,CIRCLE-2(1)(1),, AHMEDABAD vs. GUJARAT STATE FINANCIAL SERVICES LIMITED., AHMEDABAD

The assessee filed its return of income on 30.09.2013 declaring total income of Rs.1,38,84,71,620/- which was processed u/s.143(1) of the Act. Under scrutiny under CASS a notice u/s.143(2) of the Act was issued on 04.09.2014 followed by further notice dated 05.06.2015 due to change in incumbent. During the course of Assessment Proceeding upon verification of the balance sheet it was noticed that assessee company has received dividend income of Rs.43,63,860/- from mutual funds. Since the assessee was not been able to justify such investment made in shares from his own fund or from the funds on which no interest payment is made by the assessee the Ld.AO was of the opinion to apply the provision of section 14A and assessee, therefore, was asked to furnish the working as per the provision of section 14A r.w Rule 8D of the Income Tax Rules whereupon the assessee submitted as under: ‘’… It is submitted that the expenses in respect of exempt income which are disallowable under Section 14A of the Act have been computed by the assessee at Rs.2,21,205/- and have already been disallowed by the assessee company in its return of income. Without prejudice to the contention that no further disallowance in excess of that which is already made in return of income, the calculation of amount u/s.14A of the I.T. Act as per Rule 8D.

The submission made by the assessee was not found tenable and the Ld.AO ultimately disallowed Rs.65,48,901/- . In appeal the Ld.CIT (A) had given relief to the assessee. Hence the appeal before us.

At the time of hearing of instant appeal the Ld.Counsel for the assessee submitted before us that the issue is covered by assessee’s own case for Assessment Years 2001-02, 2002-03 & 2004-05 as well as in Assessment Year 2012-13 by the order passed by the Co-ordinate Bench of the Ld.Tribunal in favour of the assessee. A copy of the order passed by the Co-ordinate Bench for the A.Y. 2012-13 has also been handed over to us. A.Y.2013-2014 3

The Ld.DR, on the other hand failed to controvert the contentions made by the Ld.Counsel for the assessee.

We have heard the respective parties, perused the relevant material available on records. We find that the Ld.CIT(A) deleted the disallowance made in respect of interest expenditure to the tune of Rs.63,96.733/- and confirmed the disallowance of administrative expenditure of Rs.3,73,373/- u/s.14A made by the Ld.AO relying on the order passed by the Ld.Tribunal in assessee own case for Assessment Year 2004-05. While doing Ld.CIT(A) observed as follows:

2 Further as regards disallowance of administrative expenses are concerned applying Rule 8D, the appellant has submitted that it had suo moto disallowed Rs, 2,21,205/- under section 14A of the Act in computation of total income (being 1% of the total operating expenses), copy of which forms part of the paper book ('Page No, 1 of the paper-book). In this connection, I have considered the assessment order and the submissions of the appellant Although the appellant has suo-moto disallowed 1 % of the total operating expenses, I am o: the opinion that the appellant has made ad-hoc disallowance of 1% of the total operating expenses and no scientific basis has been applied. Therefore, A.Y.2013-2014 4 in my view, Rule 8D(iii) has to be applied for computing disallowance of administrative expenses incurred for earning tax-free income and the AO has correctly applied this formula. Accordingly, I confirm the disallowance of Rs. 3,73,373 /-in respect of administrative expenses u/s. 14A,

3 Thus, in a nutshell, I delete the disallowance made in respect of interest expenditure of Rs. 63,96,733/-, but confirm the disallowance of administrative expenditure of Rs. 3,73,373- u/s. 14A made by the AO in the assessment order. Since the appellant has already disallowed Rs. 2,21,205 in the return of income, the net disallowance of Rs. I.52,168/- is confirmed. Accordingly, this ground of the appeal is partly allowed in favour of the appellant…’’

1 We have also gone through the order passed by the Co-ordinate Bench in assessee’s own case for Assessment Year 2012-13 while deleting the disallowance of interest expenses. The Ld.Tribunal observed as follows: