DY CIT, CC-8(1), MUMBAI vs. M/S RAMOND LTD., MUMBAI

Fact in brief is that vide order dated 28.10.2015 the ITAT set aside the issue pertaining to determining the disallowance u/s 14A to the file of the A.O for computing the disallowance on reasonable basis as held by the Hon’ble Bombay High Court in Godrej & Boyce Manufacturing Company Ltd. The relevant extract of the order of the ITAT reproduced by the AO in the assessment order is as under:

The Assessing Officer has completed the assessment u/s 143(3) r.w.s 254 of the Act on 08.12.2017 and made disallowance u/s 14A @ 10% of the exempt income to Rs.1,95,16,072/-.

Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has restricted the disallowance to the extent of 2% of the exempt income.

Heard both the sides and perused the material on record. During the year under consideration the assessee has earned exempt income to the amount of Rs.19,51,60,718/-. During the course of assessment the A.O has made disallowance of expenses incurred towards earning exempt income @ 10% of such income. On perusal of the assessment order it is observed that A.O has not given relevant reasons for making such 3 DCIT, CC-8(1) Vs. M/s Raymond Limited disallowance @ 10% on exempt income. However, the ld. CIT(A) has considered the decision of Hon’ble High Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom) wherein held that percentage of the exempt income can constituent a reasonable estimate for making disallowance in the years earlier to assessment year 2008-09. It is undisputed fact that the year under consideration pertaining to the assessee is assessment year 2005-06 which was outside the scope of provision of Rule 8D of the Income Tax Rules. Since in the various decisions it has been held that Rule 8D can be applied only from assessment year 2008-09 and not retrospectively. The ld. CIT(A) has considered that in assessee’s own case for assessment year 2004-05 the disallowance u/s 14A was made @ 2% of the exempt income earned by the assessee. The ld. CIT(A) has taken into consideration the decision of Hon’ble Bombay High Court and restricted the disallowance to the extent of 2% of the exempt income earned by the assessee after considering the similar disallowance on identical facts made in the earlier years in the case of the assessee. In the light of the above facts and material on record we observe that assessing officer has not elaborated any basis for making disallowance @ 10% of exempt income in the case of the assessee. It is also noticed that in the case of the assessee itself i.e DCIT, CC-8(1) Vs. M/s Raymond Ltd. in dated 05.01.2022 the coordinate bench of the ITAT has also sustained the addition to the extent of 2% of the exempt income pertaining to assessment year 2006-07. Therefore, we don’t find any reason to interfere in the order of the ld. CIT(A), accordingly the grounds of appeal of the assessee 1 to 3 of the revenue are dismissed.

In the result, the appeal of the revenue stand dismissed.