ASPEE AGRO EQUIPMENT P.LTD,MUMBAI vs. DCIT 12(1)(1), MUMBAI

The present appeal has been filed by the assessee being aggrieved with disallowance of `7,36,043/- made under section 2 | P a g e I TA N o. 3 17 0 /M um/ 2 0 19 14A of the income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962. Briefly stated facts are, for the assessment year under 3. dispute, the assessee, a resident company, filed its return of income on 20.09.2013 declaring income of `11,89,06,310/-. During assessment proceedings the Assessing Officer noticed that in the year under consideration, the assessee had earned exempt income by way of dividend amounting to `15,26,575/-, whereas, the assessee has voluntarily disallowed an amount of `2,50,000/- under section 14A of the Act. Not being satisfied with the disallowance made by the assessee, the Assessing Officer asked the assessee to explain as to why disallowance should not be computed in terms of Rule 8D. In reply, though, the assessee submitted that there is no inadmissible expenditure under section 14A of the Act, therefore, the disallowance made voluntarily at `2,50,000/- should be accepted, however, the Assessing Officer did not accept the submissions of the assessee and proceeded to compute disallowance under Rule 8D of the Rules at `1,12,62,427/- comprising of interest disallowance under Rule 8D(2)(ii) amounting to ` 1,02,06,384/- and administrative expenditure under Rule 8D(2)(iii) amounting to `10,56,043/-. The assessee learned contested the above said disallowance before Commissioner (Appeals). After considering the submissions of the assessee in the context of the facts and materials on record, learned Commissioner (Appeals) deleted the disallowance of interest expenditure made under Rule 8D(2)(ii) amounting to 3 | P a g e I TA N o. 3 17 0 /M um/ 2 0 19 `1,02,06,384/- considering the fact that the assessee had sufficient interest free funds available to make the investment. However, rejecting the submissions of the assessee learned Commissioner (Appeals) sustained the disallowance made under Rule 8D(2)(iii) amounting to `10,56,043/-. Since the assessee had already disallowed an amount of `3,20,000/-, learned Commissioner (Appeals) sustained net disallowance of `7,36,043/-.

The learned Departmental Representative opposing the contention of the assessee submitted, the Assessing Officer has recorded his satisfaction in terms of section 14A(2) of the Act as to why the disallowance computed by the assessee is not acceptable. Further, he submitted, as regards assessee’s claim that preference shares should be excluded from the average 4 | P a g e I TA N o. 3 17 0 /M um/ 2 0 19 value of investment, learned Commissioner (Appeals) has dealt with such contention in an appropriate manner. Therefore, the addition should be sustained.

We have considered rival submissions and perused the material available on record. The first issue which needs to be adjudged is whether the Assessing Officer while rejecting the disallowance made by the assessee under section 14A of the Act has recorded satisfaction in terms of section 14A(2) of the Act. On perusal of the assessment order it is noticed that the Assessing Officer has clearly mentioned that the assessee has estimated the disallowance under section 14A of the Act. Before us also nothing has been furnished by the assessee to show that the disallowance made under section 14A of the Act by the assessee is on apportionment of specific expenditure towards earning of exempt income. Prima facie, it appears that the assessee has disallowed purely on adhoc basis. Therefore, we are unable to accept assessee’s contention that the Assessing Officer has not recorded any satisfaction under section 14A(2) of the Act. Having held so, now it is necessary to examine whether the disallowance made at `7,36,043/- is reasonable considering the quantum of exempt income earned by the assessee. As discussed earlier, the assessee on his own has disallowed an amount of `3,20,000/-. Whereas, the total exempt income earned by the assessee is `15,26,575/-. Therefore, in our considered view, it would be reasonable to restrict the disallowance to `5 lacs. The ground is partly allowed.