ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 9, PUNE vs. KINETIC ENGINEERING LTD., PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A) – 6, Pune dated 22.03.2017 for the assessment year 2007-08.

Assessee is a company stated to be engaged in the business of manufacturing of two wheelers and Auto components. M/s. Jaihind Sciaky Limited was merged into the assessee with effect from 01.04.2005 pursuant to the approval of Hon’ble Bombay High Court.

Assessee consequent to the approval of the demerger and amalgamation

scheme filed revised return of income. Notice u/s 148 of the Act was

issued on 29.12.2010 and in response to which assessee submitted that

the return filed by it on 20.12.2010 may be considered as a return in

response to notice u/s 148 of the Act. The case was taken up for

scrutiny and thereafter the assessment was framed u/s 143(3) r.w.s.

147 of the Act vide order dt.27.12.2011 and the total income was

determined at Rs.28,90,03,680/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who vide order

dt.22.03.2017 (in appeal No.PN/CIT(A)-V/ACIT Cir-9/657/2011-12)

granted partial relief to the assessee. Aggrieved by the order of

Ld.CIT(A), Revenue is now in appeal before us and has raised the

following effective ground :

“Whether on the facts and circumstances of the case, the CIT(A) was justified in restricting the disallowance made u/s 14A to only 5% of the Dividend income, when the AO has rightly worked out the disallowance u/s 14A after clearly bringing on record that the assessee could not explain that the investment in shares was not out of the borrowed funds?”

assessee had earned dividend income of Rs.90,40,988/- which was

claimed as exempt. He also noted that assessee had paid net interest of

Rs.17,11,81,282/- and had made suo moto disallowance of

Rs.4,52,050/- u/s 14A of the Act. The assessee was therefore asked as

to why the part of interest not be disallowed u/s 14A of the Act. AO

noted that no satisfactory explanation was given by the assessee. AO

thereafter worked out the disallowance of interest at Rs.3,04,45,474/-

and after giving credit of suo moto disallowance made by the assessee,

AO worked out the disallowance at Rs.2,99,93,424/- u/s 14A of the

Act. Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A) who while deciding the issue in favour of assessee noted that

though the AO did not invoke Rule-8D specifically for disallowing

expenses u/s 14A of the Act but had made the disallowance of interest

on proportionate basis using the formula prescribed under Rule 8D of

the Act. Ld.CIT(A) also noted that Rule 8D was applicable from the

assessment year 2008-09 onwards and was not applicable to the year

under consideration. He further noted that Pune Tribunal in various

cases for the period prior to A.Y. 2008-09 had restricted disallowance

u/s 14A of the Act to 5% of the dividend income and following the same

basis he directed the AO to restrict the disallowance u/s 14A of the Act

to 5% of dividend income. Aggrieved by the order of Ld.CIT(A), Revenue

is now before us.

same time he fairly submitted that in A.Y. 2006-07 the Tribunal in

assessee’s own case has held the disallowance of 5% to be just and

reasonable. Ld. A.R. on the other hand, reiterated the submissions

made before AO and Ld.CIT(A) and supported the order of Ld.CIT(A).

record. The issue in the present ground is with respect to disallowance

u/s 14A of the Act made by following the formula prescribed under Rule

8D of Income Tax Rules. It is an undisputed fact that the year under

consideration is A.Y. 2007-08. We find that Hon’ble Bombay High Court

in the case of Godrej & Boyce Manufacturing Co. Ltd., Vs. DCIT reported

in (2017) 394 ITR 449 (SC) has held that provisions of Rule 8D are not

applicable prior to A.Y. 2008-09. In view of the aforesaid, we are of the

view that Ld.CIT(A) was fully justified in holding that no disallowance

u/s 14A of the Act can be made by following the formula prescribed

under Rule 8D of the Act. We further find that Ld.CIT(A) after relying on

the various decisions of Pune Tribunal directed the AO to restrict the disallowance u/s 14A of the Act to 5% of the dividend income. Before us, Revenue has not pointed out any fallacy in the findings of Ld.CIT(A). We therefore find no reason to interfere with the order of Ld.CIT(A). Thus, the grounds of the Revenue are dismissed.

Order pronounced on 16th day of September, 2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 16th September, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-1, Kolhapur. 4. Pr. CIT-1, Kolhapur. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.