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Income Tax Appellate Tribunal, “C” Bench, Mumbai
The assessee has filed this appeal challenging the order dated 5.4.2022 passed by learned CIT(A)-47, Mumbai and it relates to A.Y. 2014- 15. The assessee is aggrieved by the decision of learned CIT(A) in confirming the disallowance made by the Assessing Officer under section 14A of the I.T. Act.
The facts relating to the issue are stated in brief. The assessee is engaged in the business of export of newspapers and magazines. During the year under consideration the assessee has earned long term capital gains of Rs. 97,66,014/- and claimed the same as exempt. The Assessing Officer noticed that the assessee has not disallowed any amount as required by section 14A of the Act. Accordingly he computed disallowance under section 14A of the Act read with rule 8D of the I.T. Rules at Rs. 3,33,776/-, which consisted of interest disallowance of Rs. 1,95,596/- under rule 8D(2)(ii) and expenditure disallowance of Rs. 1,38,197/- under rule 8D(2)(iii). The learned CIT(A) confirmed the disallowance and hence the assessee has filed this appeal before the Tribunal.
2 Chatwani & Shah Pvt. Ltd.
The Learned AR submitted that the assessee had made investments in the earlier years mainly in the units of mutual funds. He submitted that considering the above said facts, the Tribunal has taken the view in A.Y. 2013-14 in assessee’s own case in that the provisions of rule 8D should not be applied in the hands of the assessee. Accordingly, in A.Y. 2013-14, the Tribunal determined the disallowance u/s 14A of the Act to 10% of the dividend income earned by the assessee. The Learned AR submitted that facts are still better in the year under consideration. He submitted that the assessee has sold units of mutual fund brought forward from earlier years and earned long term capital gains. He submitted that the assessee has not incurred any specific expenditure in connection with the sale of mutual fund units. Accordingly he submitted that the tax authorities are not justified in computing disallowance as per rule 8D of the I.T. Rules.
The Learned DR, on the contrary, supported the order passed by the learned CIT(A).
We have heard the rival contention and perused the record. We noticed that the assessee has declared long term capital gains during the year under consideration. We noticed from the order passed by the learned CIT(A) that the assessee was having own funds of Rs. 15.36 crores as against investment of Rs. 54 lakhs. Since the own funds available with the assessee is more than the value of investments, no disallowance out of interest expenditure is called for as per the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (2016) (383 ITR 529). Accordingly disallowance made by the Assessing Officer out of interest expenditure under rule 8D(2)(ii) is liable to be deleted.
With regard to the disallowance made out of general expenses, we noticed that the assessee has sold investments which were brought forward
3 Chatwani & Shah Pvt. Ltd. from the earlier years and has earned long term capital gains. The learned AR contended that no specific expense was incurred in connectionwith sale of units of mutual fund. Under these set of facts, we are of the view that it will not be appropriate to apply provisions rule 8D for computing the disallowance. In our view, an adhoc disallowance of Rs. 25,000/- may be made under section 14A and the same would meet requirement of section 14A of the Act. Accordingly, we set aside the order passed by learned CIT(A) on this issue and direct the Assessing Officer to restrict the disallowance under section 14A of the Act to Rs. 25,000/- of the Act.
In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 07.09.2022.