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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
ORDER PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 23.05.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds:
Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance of Rs. 1,73,60,930/- made u/s 14A read with Rule 8D?
At the threshold, the learned Departmental Representative At the threshold, the learned Departmental Representative At the threshold, the learned Departmental Representative (DR) brought to our notice that the Registry has pointed out a delay (DR) brought to our notice that the Registry has pointed out a delay (DR) brought to our notice that the Registry has pointed out a delay of six days in the filing of the present appeal. In this regard, of six days in the filing of the present appeal. In this regard, of six days in the filing of the present appeal. In this regard, reference was made to the application for c reference was made to the application for condonation of delay filed ondonation of delay filed by the Assessing Officer, wherein it has been explained that the by the Assessing Officer, wherein it has been explained that the by the Assessing Officer, wherein it has been explained that the delay occurred on account of, inter alia: delay occurred on account of, inter alia: (a) substantial time (a) substantial time-barring assessment work pending with the Assessing Officer; (b) preparation assessment work pending with the Assessing Officer; (b) preparation assessment work pending with the Assessing Officer; (b) preparation and submission of statisti and submission of statistical reports to the Central Board of Direct cal reports to the Central Board of Direct Taxes (CBDT); (c) engagement in a special drive initiated by the CBDT Taxes (CBDT); (c) engagement in a special drive initiated by the CBDT Taxes (CBDT); (c) engagement in a special drive initiated by the CBDT to complete orders giving effect to the Direct Tax Vivad Se Vishwas to complete orders giving effect to the Direct Tax Vivad Se Vishwas to complete orders giving effect to the Direct Tax Vivad Se Vishwas Scheme, 2020; and (d) technical difficulties encountered on the Scheme, 2020; and (d) technical difficulties encountered on the Scheme, 2020; and (d) technical difficulties encountered on the income-tax portal, particularly the non portal, particularly the non-receipt of the one receipt of the one-time password (OTP) on the registered e password (OTP) on the registered e-mail, though the same was mail, though the same was received on the mobile device, which delayed the process of filing and received on the mobile device, which delayed the process of filing and received on the mobile device, which delayed the process of filing and verification.
2.1 Having regard to the reasons set out in the application, we are Having regard to the reasons set out in the application, we are Having regard to the reasons set out in the application, we are satisfied that the delay was occasioned due to circumstances satisfied that the delay was occasioned due to circumstances satisfied that the delay was occasioned due to circumstances beyond the control of the Assessing Officer, and that he was beyond the control of the Assessing Officer, and that he was beyond the control of the Assessing Officer, and that he was prevented by sufficient cause from filing the appeal within the prevented by sufficient cause from filing the appeal within the prevented by sufficient cause from filing the appeal within the prescribed period. In this context, it is apposite to refer to the ratio ibed period. In this context, it is apposite to refer to the ratio ibed period. In this context, it is apposite to refer to the ratio laid down by the Hon’ble Supreme Court in Collector, Land Collector, Land laid down by the Hon’ble Supreme Court in Acquisition v. Mst. Katiji Acquisition v. Mst. Katiji [(1987) 167 ITR 471 (SC)], [(1987) 167 ITR 471 (SC)], wherein it was held that a liberal approach is to be adopted in considering was held that a liberal approach is to be adopted in considering was held that a liberal approach is to be adopted in considering applications for condonation of delay, and that substantial justice applications for condonation of delay, and that substantial justice applications for condonation of delay, and that substantial justice should prevail over technical considerations. should prevail over technical considerations. Guided by this Guided by this principle, we are of the considered opinion that the explanation principle, we are of the considered opinion that the explan principle, we are of the considered opinion that the explan offered constitutes sufficient cause. offered constitutes sufficient cause.
2.3 Accordingly, in the interests of justice, the delay of six days in Accordingly, in the interests of justice, the delay of six days in Accordingly, in the interests of justice, the delay of six days in filing the appeal is condoned, and the appeal is admitted for filing the appeal is condoned, and the appeal is admitted for filing the appeal is condoned, and the appeal is admitted for adjudication on merits. adjudication on merits.
Briefly stated, the facts of the case are that the a Briefly stated, the facts of the case are that the a Briefly stated, the facts of the case are that the assessee filed its return of income on 17.10.2016 declaring a total income of its return of income on 17.10.2016 declaring a total income of its return of income on 17.10.2016 declaring a total income of ₹70,29,82,290/–. The said return was processed under Section . The said return was processed under Section . The said return was processed under Section 143(1) of the Income 143(1) of the Income-tax Act, 1961 (in short, tax Act, 1961 (in short, “the Act”). Subsequently, the case was selected for scrutiny assessment and Subsequently, the case was selected for scrutiny assessment Subsequently, the case was selected for scrutiny assessment statutory notices under the Act were duly issued and complied with. statutory notices under the Act were duly issued and complied with. statutory notices under the Act were duly issued and complied with.
3.1 During the course of assessment proceedings, the Assessing During the course of assessment proceedings, the Assessing During the course of assessment proceedings, the Assessing Officer noticed that the assessee had earned exempt dividend Officer noticed that the assessee had earned exempt dividend Officer noticed that the assessee had earned exempt dividend income of ₹92,84,000/ 92,84,000/– from investments in shares and mutua from investments in shares and mutual funds. It was further observed that the assessee had made a suo- funds. It was further observed that the assessee had made a funds. It was further observed that the assessee had made a disallowance of ₹11,78,751/– under Section 14A of the Act. motu disallowance of under Section 14A of the Act. When called upon to justify the said disallowance, the assessee’s When called upon to justify the said disallowance, the assessee’s When called upon to justify the said disallowance, the assessee’s explanation did not find favour with the Assessing Officer. The explanation did not find favour with the Assessing Officer. explanation did not find favour with the Assessing Officer. Assessing Officer accordingly invoked Rule 8D of the Income-tax Assessing Officer accordingly invoked Rule 8D of the Income Assessing Officer accordingly invoked Rule 8D of the Income Rules, 1962 (in short, Rules, 1962 (in short, “the Rules”) and computed a disallowance of ) and computed a disallowance of ₹1,85,39,631/–. After adjusting the . After adjusting the suo-motu disallowance already disallowance already offered by the assessee, a net addition of ₹1,73,60,930/ offered by the assessee, a net addition of 1,73,60,930/– was made.
3.2 On appeal, the learned On appeal, the learned CIT(A) observed that the assessee was observed that the assessee was possessed of sufficient own funds and that no borrowed funds had possessed of sufficient own funds and that no borrowed funds had possessed of sufficient own funds and that no borrowed funds had been utilised for the purpose of making the impugned investments. been utilised for the purpose of making the impugned investments. been utilised for the purpose of making the impugned investments. Accordingly, the CIT(A) deleted the Accordingly, the CIT(A) deleted the disallowance made under Rule disallowance made under Rule 8D(2)(ii) relating to interest expenditure. However, in the final 8D(2)(ii) relating to interest expenditure. However, in the final 8D(2)(ii) relating to interest expenditure. However, in the final conclusion, conclusion, conclusion, the the the CIT(A) CIT(A) CIT(A) deleted deleted deleted the the the entire entire entire disallowance disallowance disallowance of of of ₹1,73,60,930/– made by the Assessing Officer. made by the Assessing Officer.
Before us, the learned Departmental Representative (DR Before us, the learned Departmental Representative (DR Before us, the learned Departmental Representative (DR) supported the action of the Assessing Officer. Without prejudice, he supported the action of the Assessing Officer. Without prejudice, he supported the action of the Assessing Officer. Without prejudice, he submitted that the learned CIT(A) has not adjudicated upon the submitted that the learned CIT(A) has not adjudicated upon the submitted that the learned CIT(A) has not adjudicated upon the applicability of Rule 8D(2)(iii) of the Rules relating to administrative applicability of Rule 8D(2)(iii) of the Rules relating to administrative applicability of Rule 8D(2)(iii) of the Rules relating to administrative expenditure incurred in relation to earning exemp expenditure incurred in relation to earning exempt income. He thus t income. He thus urged that the disallowance, at the minimum, ought to have been urged that the disallowance, at the minimum, ought to have been urged that the disallowance, at the minimum, ought to have been restricted to the amount computed in accordance with Rule restricted to the amount computed in accordance with Rule restricted to the amount computed in accordance with Rule 8D(2)(iii).
Per contra, the learned counsel for the assessee drew our Per contra, the learned counsel for the assessee drew our Per contra, the learned counsel for the assessee drew our attention to pages 78 and 79 of the Paper B attention to pages 78 and 79 of the Paper Book, pointing out that ook, pointing out that the assessee had already made a assessee had already made a suo-motu disallowance under Rule disallowance under Rule 8D(2)(iii) in respect of administrative expenditure by restricting the 8D(2)(iii) in respect of administrative expenditure by restricting the 8D(2)(iii) in respect of administrative expenditure by restricting the computation to investments which had actually yielded exempt computation to investments which had actually yielded exempt computation to investments which had actually yielded exempt income during the year. He further r income during the year. He further referred to the balance sheet as eferred to the balance sheet as on 31.03.2016 (Paper Book page 5) to submit that the assessee had on 31.03.2016 (Paper Book page 5) to submit that the assessee had on 31.03.2016 (Paper Book page 5) to submit that the assessee had reserves and surplus of ₹38,860.51 lakhs as against total reserves and surplus of 38,860.51 lakhs as against total investments of ₹9,523 lakhs. Thus, the availability of own funds far 9,523 lakhs. Thus, the availability of own funds far 9,523 lakhs. Thus, the availability of own funds far in excess of the investments cl in excess of the investments clearly demonstrated that no borrowed early demonstrated that no borrowed funds were utilised, and consequently, no disallowance of interest funds were utilised, and consequently, no disallowance of interest funds were utilised, and consequently, no disallowance of interest under Rule 8D(2)(ii) was warranted. under Rule 8D(2)(ii) was warranted.
5.1 The Ld. counsel further submitted that as far as disallowance The Ld. counsel further submitted that as far as disallowance The Ld. counsel further submitted that as far as disallowance under Rule 8D(2)(iii) is concerned, the assessee ha under Rule 8D(2)(iii) is concerned, the assessee has considered the s considered the investment for for for computing computing computing average average average investment investment investment liable liable liable for for for disallowance under rule 8D(2)(iii) as the amount which yielded disallowance under rule 8D(2)(iii) as the amount disallowance under rule 8D(2)(iii) as the amount exempted dividend income exempted dividend income, following the decision of the Special following the decision of the Special Bench in the case of Vireet Investment Pvt. Ltd. Vireet Investment Pvt. Ltd. (2017) 82 Bench in the case of taxmann.com 415 (Delhi Trib taxmann.com 415 (Delhi Trib) wherein it was held that only those wherein it was held that only those investments which had actually yielded exempt income during the investments which had actually yielded exempt income during the investments which had actually yielded exempt income during the relevant year were to be considered for computing the average value relevant year were to be considered for computing the average value relevant year were to be considered for computing the average value of investments for the purpose of Rule 8D(2)(iii). He al of investments for the purpose of Rule 8D(2)(iii). He also drew our attention to the order of the Co attention to the order of the Co-ordinate Bench in the assessee’s ordinate Bench in the assessee’s own case for Assessment Year 2011 own case for Assessment Year 2011-12, wherein the Tribunal had 12, wherein the Tribunal had applied the said Special Bench decision applied the said Special Bench decision in the case of Vireet in the case of Vireet Investment Pvt. Ltd. (supra) Investment Pvt. Ltd. (supra) and directed the Assessi and directed the Assessing Officer to restrict the disallowance accordingly restrict the disallowance accordingly
We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record. the relevant materials on record. The issue for adjudication is The issue for adjudication is confined to the quantum of disallowance to be made under Section confined to the quantum of disallowance to be made under Section confined to the quantum of disallowance to be made under Section 14A of the Act read with Rule 8D of the Rules. Since the assessee ct read with Rule 8D of the Rules. Since the assessee ct read with Rule 8D of the Rules. Since the assessee itself had invoked Rule 8D while computing ked Rule 8D while computing suo-motu motu disallowance, the question of the Assessing Officer recording dissatisfaction with the question of the Assessing Officer recording dissatisfaction with the question of the Assessing Officer recording dissatisfaction with such computation loses significance. The dispute is, therefore, such computation loses significance. The dispute is, therefore, such computation loses significance. The dispute is, therefore, restricted to the quantum of quantum of disallowance under Rule 8D(2)(ii) and disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii).
6.1 In so far as disallowance under Rule 8D(2)(ii) towards In so far as disallowance under Rule 8D(2)(ii) towards In so far as disallowance under Rule 8D(2)(ii) towards proportionate interest expenditure is concerned, the CIT(A), upon proportionate interest expenditure is concerned, the CIT(A), upon proportionate interest expenditure is concerned, the CIT(A), upon examination of the balance sheet, has categorically recorded a examination of the balance sheet, has categorically recorded a examination of the balance sheet, has categorically recorded a finding that the assessee’s own funds were more than sufficient to finding that the assessee’s own funds were more than sufficient to finding that the assessee’s own funds were more than sufficient to cover the investments. This factual assertion is supported by the the investments. This factual assertion is supported by the the investments. This factual assertion is supported by the Paper Book and has not been controverted by the Revenue. The Paper Book and has not been controverted by the Revenue. The Paper Book and has not been controverted by the Revenue. The Hon’ble Bombay High Court in Hon’ble Bombay High Court in CIT v. Reliance Utilities and Power CIT v. Reliance Utilities and Power Ltd. [(2009) 313 ITR 340 (Bom)] has held that where interest [(2009) 313 ITR 340 (Bom)] has held that where interest-free [(2009) 313 ITR 340 (Bom)] has held that where interest funds available with an assessee are sufficient to cover investments, ds available with an assessee are sufficient to cover investments, ds available with an assessee are sufficient to cover investments, a presumption arises that such investments were made out of a presumption arises that such investments were made out of a presumption arises that such investments were made out of interest-free funds. Following this binding precedent, we find no free funds. Following this binding precedent, we find no free funds. Following this binding precedent, we find no infirmity in the order of the CIT(A) in deleting the disallowance infirmity in the order of the CIT(A) in deleting the disallowan infirmity in the order of the CIT(A) in deleting the disallowan made under Rule 8D(2)(ii). made under Rule 8D(2)(ii).
6.2 Coming to disallowance under Rule 8D(2)(iii), we find merit in Coming to disallowance under Rule 8D(2)(iii), we find merit in Coming to disallowance under Rule 8D(2)(iii), we find merit in the contention of the assessee that only those investments which the contention of the assessee that only those investments which the contention of the assessee that only those investments which actually yielded exempt income during the relevant year are to be actually yielded exempt income during the relevant year are to be actually yielded exempt income during the relevant year are to be considered. We find that as We find that assessee itself has made disallowance sessee itself has made disallowance following the same Rule. The only difference is that the Assessing following the same Rule. The only difference is that the Assessing following the same Rule. The only difference is that the Assessing Officer considered the entire investment in the assets earning Officer considered the entire investment in the assets earning Officer considered the entire investment in the assets earning exempted income whereas the assessee has taken value of the exempted income whereas the assessee has taken value of the exempted income whereas the assessee has taken value of the investment which has yielded e investment which has yielded exempted income during the year xempted income during the year under consideration. under consideration. The Special Bench of the Tribunal in The Special Bench of the Tribunal in Vireet Investment Pvt. Ltd. (supra) has categorically held to this effect. The (supra) has categorically held to this effect. The (supra) has categorically held to this effect. The Co-ordinate Bench in the assessee’s own case for AY 2011 ordinate Bench in the assessee’s own case for AY 2011-12 in ITA ordinate Bench in the assessee’s own case for AY 2011 No. 1945/Mum/2016 No. 1945/Mum/2016 has also applied the said ratio. as also applied the said ratio. The relevant finding of the Tribunal is reproduced as under: of the Tribunal is reproduced as under:
“7. On appraisal of the above mentioned finding, we noticed that 7. On appraisal of the above mentioned finding, we noticed that 7. On appraisal of the above mentioned finding, we noticed that the CIT(A) has restricted the AO to re compute the administrative the CIT(A) has restricted the AO to re compute the administrative the CIT(A) has restricted the AO to re compute the administrative expenses to the extent of Rs.118 expenses to the extent of Rs.118.17 lacs which was the .17 lacs which was the investment to earn the dividend income. In this regard, the matter investment to earn the dividend income. In this regard, the matter investment to earn the dividend income. In this regard, the matter of controversy has been adjudicated by the Hon'ble ITAT in the of controversy has been adjudicated by the Hon'ble ITAT in the of controversy has been adjudicated by the Hon'ble ITAT in the case of ACIT, Circle 17(1) New Delhi Vs. Vireet Investment P. Ltd. case of ACIT, Circle 17(1) New Delhi Vs. Vireet Investment P. Ltd. case of ACIT, Circle 17(1) New Delhi Vs. Vireet Investment P. Ltd. (2017) 82 taxmann.com 415 (Delhi Tri (2017) 82 taxmann.com 415 (Delhi Trib.) in which it specifically b.) in which it specifically held that only those investment are liable to be considered for held that only those investment are liable to be considered for held that only those investment are liable to be considered for computing average value of investment which yielded exempt computing average value of investment which yielded exempt computing average value of investment which yielded exempt income during the year. In view of the said circumstances, we are income during the year. In view of the said circumstances, we are income during the year. In view of the said circumstances, we are of the view that the CIT(A) has decide of the view that the CIT(A) has decided the matter of controversy d the matter of controversy judiciously and incorrectly which is not liable to be interfere with judiciously and incorrectly which is not liable to be interfere with judiciously and incorrectly which is not liable to be interfere with at this stage. Accordingly, this issue is being decided in favour of at this stage. Accordingly, this issue is being decided in favour of at this stage. Accordingly, this issue is being decided in favour of the assessee against the assessee against the revenue.” 6.3 Thus, while the hus, while the suo-motu disallowance made by the assessee disallowance made by the assessee under Rule 8D(2)(iii) appears prima facie in accordance with law, under Rule 8D(2)(iii) appears prima facie in accordance with law, under Rule 8D(2)(iii) appears prima facie in accordance with law, the matter requires factual verification by the Assessing Officer to the matter requires factual verification by the Assessing Officer to the matter requires factual verification by the Assessing Officer to ascertain whether the assessee has indeed considered only those ascertain whether the assessee has indeed considered only those ascertain whether the assessee has indeed considered only those investments which yiel investments which yielded exempt income..
6.4 In view of the foregoing discussion, we uphold the deletion of In view of the foregoing discussion, we uphold the deletion of In view of the foregoing discussion, we uphold the deletion of disallowance under Rule 8D(2)(ii) as directed by the CIT(A). disallowance under Rule 8D(2)(ii) as directed by the CIT(A). disallowance under Rule 8D(2)(ii) as directed by the CIT(A). However, in respect of disallowance under Rule 8D(2)(iii), we restore However, in respect of disallowance under Rule 8D(2)(iii), we restore However, in respect of disallowance under Rule 8D(2)(iii), we restore the matter to the file of the Assess the matter to the file of the Assessing Officer for the limited purpose ing Officer for the limited purpose of verification of the computation made by the assessee. The of verification of the computation made by the assessee. The of verification of the computation made by the assessee. The Assessing Officer shall confine the disallowance, if any, to the Assessing Officer shall confine the disallowance, if any, to the Assessing Officer shall confine the disallowance, if any, to the extent of investments which yielded exempt income during the year, extent of investments which yielded exempt income during the year, extent of investments which yielded exempt income during the year, in line with the ratio laid in line with the ratio laid down in Vireet Investment Pvt. Ltd. Vireet Investment Pvt. Ltd. (supra).
6.5 The ground of appeal of the Revenue is accordingly allowed for The ground of appeal of the Revenue is accordingly allowed for The ground of appeal of the Revenue is accordingly allowed for statistical purposes.
In the result, the appeal of the Revenue is allowed In the result, the appeal of the Revenue is allowed In the result, the appeal of the Revenue is allowed partly for statistical purposes. statistical purposes.