DCIT 12 (2)(2), MUMBAI vs. M/S HATHWAY INVESTMENTS PVT LTD., MUMBAI

O R D E R

PER SAKTIJIT DEY, JM

“On the facts and circumstances of the case and in law, the Ld. CIT (A) is justified in directing to exclude the shares which yielded exempt income during the relevant previous year from “Specified Investments” and recomputed the disallowance u/s 8D(2)(ii) though there is no such provisions for exclusion as per section 14A r.w.r. 8D for calculation of expenses related to exempt income?” Assessment Year: 2012-13 3. Briefly the facts are, the assessee a resident company is stated to be engaged in investment activity. For the assessment year under dispute, the assessee had filed its return of income on 27.09.2012 declaring total income of Rs. 1,87,26,750/-. In course of assessment proceedings, the Assessing Officer (AO) noticed that during the year under consideration, the assessee had earned exempt income by way of dividend amounting to Rs. 5,73,25,415/- and suo motu disallowance an amount of Rs. 28,96,745/- towards expenditure attributable to earning the exempt income. The AO however was of the view that the suo motu disallowance made by the assessee is not in accordance with rule 8D. Thus, he proceeded to compute the disallowance by applying rule 8D. Though, the AO agreed that the assessee has no direct expenditure disallowable under rule 8D(2)(i) and no interest expenditure disallowable under rule 8D (ii). however, he disallowed an amount of Rs. 2,26,04,842/- under rule 8D(2)(iii). The assessee itself having disallowed Rs. 28,96,745/-, the AO made a net disallowance of Rs. 1,71,68,206/-. The assessee contested the aforesaid disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee in the context of facts and material on record and relying upon that the decisions of ITAT Delhi Special Bench in the case of ACIT vs. Vireet Investments (P) Ltd. (2017) 58 ITR (T) 313 (Delhi) and that of the Mumbai Bench in the case of Piramal Enterprises Ltd. vs. Additional CIT (2018) 97 taxman.com 352, learned Commissioner (Appeals) held that only those investments which have yielded exempt income during the year has to be considered for computing disallowance under rule 8D(2)(iii). Accordingly, he directed the AO to compute the disallowance. Further, he directed, if on such computation the disallowance computed becomes less than suo motu disallowance made by the assessee, then, the disallowance made by the assessee would remain.

4. We have considered the submissions of learned Departmental Representative and perused the material on record. Facts on record clearly reveal that, both, the assessee and the Assessing Officer have agreed that only expenditure which can be disallowed under section 14A r.w.r. 8D is indirect expenses under rule 8D(2)(iii). While the assessee has computed the disallowance at Rs. 28,96,745/-, the AO has enhanced it to Rs. 2,26,04,842/-. Whereas, learned Commissioner (Appeals) has directed the AO to compute the disallowance under rule 8D(2)(iii) by considering only those investments which have yielded exempt income during the year under consideration.