MODERN HI-RISE PVT. LTD.,KOLKATA vs. DCIT, CEN.CIR.-2(1), KOLKATA

The sole issue raised in this appeal is relating to the confirmation of the disallowance made by Learned Assessing Officer [hereinafter referred to as ‘Ld. AO’] under section 14A of the Income-tax Act, 1961 [hereinafter referred to as the ‘Act’] read with rule 8D of the Income-tax Rules 1962 [hereinafter referred to as the ‘Rules’] A.Y 2012-13 Modern Hi-Rise P.Ltd. Page 2 in respect of expenditure relatable to earning of tax exempt dividend income.

At the outset, The Ld. Counsel for the assessee has submitted that the Ld. AO has not followed the prescribed procedure as envisaged in the provisions of section 14A of the Income-tax Act read with Rule 8D of the I.T Rules. That, the assessee itself computed the disallowance on account of administrative expenses. Considering the nexus between the investments and the expenditure attributable to such investments the assessee made suo motu disallowance of Rs. 61,692/-. However, the Ld.AO without following the mandate of the statute, computed the disallowance at Rs.69,32,909/- by straight way applying the formula of Rule 8D of the I.T Rules. That, as per provisions of section 14A of the Act, the Ld. AO firstly was required to go through computation made by the assessee in respect of suo motu disallowance made/disallowed by the assessee and before applying Rule 8D he should have recorded his dis-satisfaction to the method adopted by the assessee for making the suo motu disallowance.

The assessee preferred appeal before the Ld. CIT(A) and reiterated the same submissions. It was also contended before the Ld. CIT(A) that the total expenditure claimed by the assessee was at Rs. 39,10,766/-, therefore, the disallowance of expenditure in any manner cannot exceed the said amount. Considering the above submissions of assessee the Ld. CIT(A) restricted the disallowance to total expenditure claimed at Rs.38,49,074/-. Being aggrieved by the order of the Ld. CIT(A), the assessee has come in appeal before this Tribunal.

I have heard the rival contentions of both the parties and gone through the record. Ld. Counsel for the assessee has submitted that only fresh investments of Rs. 10,67,692/- were made during the year under consideration. All the investments were old investments made in assessee’ s group company. That, no extra effort or day to day monitoring was required in respect of said investments. Considering the overall scenario, the assessee has made appropriate disallowance at Rs. 61,692/- .The Ld. AO without application of mind and without considering the assessee’ s computation of suo motu disallowance, has applied Rule 8D straight way in a mechanical manner.