M/S. KIRLOSKAR INTEGRATED TECHNOLOGIES PVT.LTD,PUNE vs. INCOME-TAX OFFICER, WARD - 14(3), PUNE

आदेश / ORDER

PER S.S. VISWANETHRA RAVI, JM :

3. Heard both the parties and perused the material available on record. We note that the assessee is a company engaged in the business of providing and executing projects based on bio energy and solar technologies. The ld. AR submits that the assessee earned dividend of Rs.100/- and the AO disallowed expenses under Rule 8D(2)(iii) to an extent of Rs.3,16,488/-. He argued that the disallowance under Rule 8D for the purpose of Section 14A should not exceed the dividend income and placed on record the decision of Hon‟ble High Court of Bombay in the case of M/s. Nirved Traders Pvt. Ltd. Vs. DCIT reported in 421 ITR 142 (Bom) and submitted the disallowance made by the AO which was confirmed by the CIT(A) is not maintainable and direct the AO to restrict the disallowance to exempt income. The ld. DR relied on the order of CIT(A).

4. We find the AO discussed the issue at Para No. 5 wherein, we note that the assessee earned dividend income of Rs.100/- and claimed as exempt u/s. 10(34) of the Act. The AO asked the assessee to explain why expenses be disallowed as per Rule 8D of the Rules. In response, the assessee submits no borrowed funds were utilized in earning dividend income and investment made out of own share capital but the AO considering the same proceeded to disallow expenditure under Rule 8D(2)(iii) to an extent of Rs.3,16,488/- being 0.5% of average investment of Rs.6,32,97,660/-. The CIT(A) was of the opinion, that the management has to weigh the option of making investments in various entities of the amount available to maximize the returns and the constant monitoring of the performance of these investments is required to shift the amounts from the non-performing companies, having opined the CIT(A) confirmed the order of AO by holding the salaries of top management have to the apportioned to this activity. Coming to the decision of Hon‟ble High Court of Bombay in the case of M/s. Nirved Traders Pvt. Ltd. (supra) vide its order dated 23-04-2019 while considering its own order in the case of HSBC Invest Direct (India) Ltd. along with the decision of Hon‟ble High Court of Gujarat in the case of Corrtech Energy (P.) Ltd., Hon‟ble High Court of Delhi in the case of Cheminvest Ltd. and the Hon‟ble High Court of Karnataka in the case of Pragati Krishna Gramin Bank answered the question in favour of the assessee limiting the disallowance u/s. 14A of the Act to dividend income. In the present case, we find that the assessee earned only Rs.100/- as dividend income and the AO made disallowance of Rs.3,16,488/- which is evidentay exceeds the dividend income. Therefore, the order of CIT(A) is not justified in confirming the disallowance made by the AO exceeding the dividend income. In the light of the decision of Hon‟ble High Court of Bombay in the case of M/s. Nirved Traders Pvt. Ltd. (supra), we deem it proper to hold the disallowance as confirmed by the CIT(A) is not maintainable and it is not justified. Therefore, we direct the AO to restrict the disallowance for the purpose of Section 14A of the Act to the dividend income earned and the said disallowance shall not exceed the dividend income. Thus, the grounds raised by the assessee are allowed.

Order pronounced in the open court on 18th February, 2022.