AJ TOLLS PRIVATE LIMITED,MUMBAI vs. CC 5(3), MUMBAI, MUMBAI

On the facts and the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs 45,00,000/- made by the Assessing Officer u/s 14A read with Rule 8D despite the fact that no additions were made in the preceding and succeeding years where exempt dividend income was earned but no disallowance was made u/s 14A r.w.r. 8D of the Act, thereby, disregarding the Rule of Consistency. 3. On the facts and the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs 45,00,000/- made by the Assessing Officer u/s 14A read with Rule 8D despite the fact that no direct or indirect expenditure was incurred during the year towards earning the said exempt income as it was an old brought forward investment. 4. The appellant craves leave to add to, alter, amend, modify and/or delete all or any of the foregoing grounds of appeal. The appellant prays before the Hon'ble Tribunal to delete the impugned disallowance made by the Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeals) and/or any other relief as the Hon'ble Tribunal may deem fit.” 2. Brief facts of the case are that assessee filed its return of income for A.Y. 2018-19 on 27.10.2018 declaring loss. The return was selected for scrutiny. During assessment, the Assessing Officer (A) on perusal of financial statement of assessee noted that assessee made investment wherefrom the income shall not be part of total income. The assessee has received exempt income of Rs. 45.00 lacs but no suo moto disallowance under section 14A is made by assessee. The assessee was asked as to why disallowance under section 14A r.w.r. 8D should not be made. The assessee filed its reply. In the reply, the assessee stated that no disallowance under section 14A is called for. In without prejudice submission, the assessee stated that assessee has earned only Rs. 45.00 lacs as exempt income. In case disallowance to be made, the same should not be exceeded to the exempt income. The assessee has made investment in the equity share of MEP Infrastructure Development Limited (MEPDIL). The assessee has made investment from his own fund and no borrowed fund is utilised. The assessee also relied in a number of case laws, wherein it was held that when the assessee made investment from own funds no interest disallowance under Rule 8D is justified. The explanation of assessee was not accepted by AO. The AO recorded that he is not satisfied with the claim of assessee. The AO referred the CBDT Circular No. 43 of 2016 dated 02.06.2016. The AO accordingly made disallowance of 1.00% of annual average of monthly average of the opening and closing investment of Rs. 154.00 crore. The AO worked out the disallowance of Rs. 1.54 Crore under section 14A rwr 8D. 3. Aggrieved by the addition in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee made similar submission as made before AO. The assessee specifically contended that they have not incurred any expenditure for earning any exempt income; therefore, no disallowance under section 14A is required. The ld. CIT(A) on considering the submission of assessee, in para 6.1 of his order recorded that assessee has earned exempt income of Rs. 45.00 lacs. However, the assessee has made no disallowance under section 14A. The AO was not satisfied with the explanation of assessee about not offering suo moto disallowance. The AO invoked Rule 8D and disallowed Rs. 1.54 crore. The assessee has claimed that exempt income is only of Rs. 45.00 lacs. The AO has worked out the disallowance as per Rule 8D. The ld. CIT(A) also held that investment decisions are from complex in nature and required substantial market research day to day analysis of market trends and decisions with regard to acquisition, retention and sale of shares and upheld the addition by referring the decision of Bombay High Court in Nirved Traders Pvt. Ltd. in ITA No. 149 of 2017 dated 23.04.2019 wherein disallowance under section 14A was restricted to the extent of exempt income. Further, aggrieved the assessee has filed present appeal before Tribunal. 4. We have heard the submissions of ld. AR of the assessee and ld. Sr. DR for the Revenue. The ld. AR of the assessee submits that in fact the assessee has not incurred any expenses for making investment for earning exempt income. Thus, no disallowance under sectio14A should be made. The ld. CIT(A) restricted the disallowance to the extent of exempt income. Since, no expenditure incurred by assessee by earning exempt income, therefore, entire disallowance should be deleted. To support his submissions, the ld. AR of the assessee relied upon the following decision:  PCIT vs Tata Capital Ltd. (2024) 161 taxmann.com 557 (Bombay)  CIT vs Sociedade De Fomento Industrial (P) Ltd. (2021)1123 taxmann.com 38 (Bombay)  Jayshree Petrochemicals Pvt. Ltd. vs DIT ITA No. 7292/Mum/2011  Coforge Ltd. vs ACIT (2021) 128 taxmann.com, 99 (Delhi)  PCIT vs T.V. Today Network Ltd. (2022) 141 taxmann.com 99 (Delhi)  Infrastructure Logistics (P) Ltd. vs JCIT (2022) 141 taxmann.com 24 (Panaji- Trib)

On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the Revenue supported the order of ld. CIT(A). The ld. Sr. DR for the revenue submits that ld. CIT(A) have already allowed substantial relief to the assessee in restricting the disallowance to the extent of exempt income. The disallowance made by AO is as per Rule 8D. 6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. On careful perusal of record and the assessment order we find that assessee has earned exempt income of Rs. 45.00 lacs. Such fact is not disputed by assessee. Admittedly no suo moto disallowance is made by assessee. Since, no suo moto disallowance is made by assessee; therefore, the AO has no occasion to examine the correctness of claim of assessee. We also find that in the alternative plea before the AO, the assessee contended that disallowance under section 14A should not exceed the exempt income. We find that AO worked out disallowance as per formula prescribed under Rule 8D and worked out disallowance of Rs. 1.54 crore. The ld. CIT(A) restricted such disallowance to the extent of exempt income. Before us, the ld. AR of the assessee has relied on series of decision. In our considered view, the ratio of such decision is not applicable on the peculiar facts of the present case. The assessee has not offered any suo moto disallowance nor any specific justification for not offering suo moto disallowance. We find that order of ld. CIT(A) is as per the decision of Hon’ble Jurisdictional High Court in Nirved Traders Pvt. Ltd. (supra).