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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI DINESH MOHAN SINHA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 29.02.2024 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 27.12.2017 passed by learned ITO-1(2), Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal on following grounds mentioned in Form No. 36:
Decent Industries Priavte Ltd, AY 2015-16 “1. Whether on the fact and circumstances of the case, the learned CIT (Appeals) was justified confirming the action of AO for disallowing the expenses under section 14A, worked out @0.5% of average value of investment of the appellant to the tune of Rs. 1,40,28,010/-, irrespective of the fact that the total expenses which has been claimed was only Rs.4,47,278/ of which assessee has already disallowed Rs. 4,01,500/- while filing its return of Income and claimed just only Rs. 41,293/-.
Whether on the fact and circumstances of the case, the learned CIT (Appeals) was justified by confirming the action of AO by not allowing the expenditure of Rs. 41,293/- to the company, which nothing to do with the exempt income but had to incurred by the company for its legal compliances.
The assessee craves to amend, add, alter or delete any of the ground of appeal
on or before the date appeal is finally heard for disposal”.
2. The background facts leading to present appeal are such that the assessee-company filed its return of income of AY 2015-16 declaring a total income of Rs. Nil. The case was then selected under scrutiny and the AO completed assessment u/s 143(3) after making a disallowance of Rs.
1,40,28,010/- u/s 14A on account of expenses incurred for earning exempted income of dividend. Aggrieved, the assessee carried matter in first- appeal and contested the said disallowance before CIT(A) but did not get any success. Now, the assessee has come in next appeal before us assailing the orders of lower-authorities.
3. We have heard learned Representatives of both sides and carefully perused the orders of lower-authorities as also the documents filed in Paper- Book of assessee. We have also examined the audited P&L A/c (Page No. 57 of Paper-Book) and the Computation of Total Income (Page No. 34 of Paper- Book) to which our attention has been drawn by Ld. AR for assessee in the presence of Ld. DR for revenue. In the P&L A/c, the assessee has credited exempted dividend income of Rs. 99,65,424/- and debited total expenses of Page 2 of 4 has already made suo moto disallowance of Rs. 4,01,500/- while calculating taxable income. From these documents, it is very clear that the assessee incurred total expenses of Rs. 4,47,278/- during the previous year out of which made a suo moto disallowance of Rs. 4,01,500/-. While passing assessment-order, the AO has, however, made standard working in terms of Rule 8D at Rs. 1,40,28,010/- and made hefty disallowance of Rs. 1,40,28,010/- u/s 14A which has even exceeded the total amount of expenditure of assessee at Rs. 4,47,278/-. After a careful consideration, we find that the Rule 8D has been substituted by the IT (Fourteenth Amendment) Rule, 2016 w.e.f. 02.06.2016 wherein following proviso is prescribed:
Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.
The above proviso, in our considered view, has a logic that when the total expenditure of assessee for the whole year is “X” amount, the disallowance, even if worked out as per standard formulae in Rule 8D, cannot be more than “X”. Needless to mention that the standard formulae prescribed in Rule 8D is basically a notional calculation and hence the proviso has been inserted for capping the notional calculation. Therefore, the aforesaid proviso, even if brought in Rule 8D from 02.06.2016, is curative in nature and must apply retrospectively to AY 2015-16 involved in present appeal. Being so, we are of the view that the disallowance made by Page 3 of 4 aforesaid proviso. The disallowance of Rs. 4,47,278/- shall be inclusive of suo moto disallowance of Rs. 4,01,500/- made by assessee in return of income. We direct the AO to modify assessment-order accordingly and delete excess disallowance.
Resultantly, this appeal is partly allowed.
Order pronounced by putting on notice board as per Rule 34 of ITAT Rules, 1963 on 21/02/2025