SHREE NAMAN SECURITIES & FINANCE PVT LTD.,MUMBAI vs. DY CIT CIR. 5(4), MUMBAI

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ITA 1378/MUM/2020Status: DisposedITAT Mumbai08 September 2021AY 2016-173 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that no disallowance of interest under Rule 8D(2)(ii) was warranted as the assessee's own funds exceeded its investments yielding exempt income. For indirect expenses under Rule 8D(2)(iii), the disallowance was to be recomputed based on investments yielding exempt income, not exceeding the exempt income.

What were the facts?

The assessee, engaged in share broking and trading, received dividend income on investments held as stock-in-trade. The Assessing Officer disallowed expenses under Section 14A read with Rule 8D(2), which was upheld by the CIT(A).

What were the issues?

Whether disallowance under Section 14A read with Rule 8D is permissible when own funds are sufficient to cover investments yielding exempt income, and how to compute disallowance of indirect expenses.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, ‘E‘ BENCH

Before: SHRI M.BALAGANESH & SHRI AMARJIT SINGH

For Appellant: Shri Mahesh Rajora
For Respondent: Shri Rohit Kumar
Hearing: 07/09/2021Pronounced: 08/09/2021

आदेश / O R D E R PER M. BALAGANESH (A.M):

1.

This appeal in A.Y.2016-17 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-53, Mumbai in appeal No.CIT(A)-53/IT-560/DCCC-5(4)/2018-19 dated 16/12/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/12/2018 by the ld. Asst. Commissioner of Income Tax, Central Circle 5(4), Mumbai (hereinafter referred to as ld. AO).

Shree Naman Securities & Finance Ltd.,

2.

The only issue to be decided in this appeal is with regard to disallowance made u/s.14A of the Act r.w.r. 8D(2) of the Rules under the normal provisions of the Act.

3.

We have heard rival submissions and perused the materials available on record. We find that assessee is a member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and is engaged in the business of share broking, shares and securities trading and other incidental activities. During the year under consideration, the assessee received dividend income of Rs.20,85,460/- on investment and shares and securities held as ‘stock in trade’. No suo-moto disallowance of expenses was made u/s.14A of the Act by the assessee in its return of income. The ld. AO by applying the computation mechanism provided in Rule 8D(2) of the Rules proceeded to make the disallowance u/s.14A of the Act as under:-

(i) Under Rule 8D(2)(ii) - Rs.1,46,29,283/- (ii) Under Rule 8D(2)(iii) - Rs. 9,57,827/- 3.1. This action of the ld. AO was upheld by the ld. CIT(A). We find from the financial statements of the assessee which are enclosed in the paper book that assessee is having own funds of Rs.7.09 Crores as on 31/03/2016 and Rs.9.45 Crores as on 31/03/2015. The investments that had actually yielded exempt income were only Rs.2.67 Crores as on 31/03/2016 and Rs.4.35 Crores as on 31/03/2015. Since, the own funds are sufficiently available and are more than the investments that had actually yielded exempt income, following the ratio laid down by the Hon’ble Jurisdictional High Court in the case of HDFC Bank Limited

Shree Naman Securities & Finance Ltd., reported in 366 ITR 505, we hold that no disallowance of interest under Rule 8D(2)(ii) of the Rules could be made in the facts of the instant case.

3.2. With regard to disallowance of indirect expenses under Rule 8D(2)(iii) of the Rules, we direct the ld. AO to consider only those investments which had actually yielded exempt income to the assessee and re-compute the disallowance under Rule 8D(2)(iii) of the Rules accordingly, subject to the condition that in any case, the disallowance shall not exceed exempt income. Accordingly, the grounds raised by the assessee are disposed of in the aforesaid manner.

4.

In the result, appeal of the assessee is partly allowed.

Order pronounced on 08/09/2021 by way of proper mentioning in the notice board.

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