DCIT CEN CIR 3(3) CRANGE 3, MUMBAI vs. MENTOR CAPITAL LTD, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 14.08.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2015-16.

The only issue raised by the Revenue is against the deletion of addition of Rs.2,93,38,160/- by ld. CIT(A) as made by the AO u/s 14A r.w.r 8D(2)(ii) without appreciating the fact that the assessee’s case is not covered by the ratio of Bombay High Court in the case of HDFC Bank and Reliance Utilities”.

The facts in brief are that the assessee has earned exempt income during the year and made suo motto disallowance u/s 14A of the Act r.w.r. 8D of Income Tax Rules at Rs.187,14,283/-. Accordingly the AO called upon the assessee to file the working of suo motto disallowance and also show cause as to why the provisions of section 14A r.w.r 8D should not be applied. The AO came to the conclusion on the perusal of the reply of the assessee no books of accounts were maintained in respect of investments and therefore there is no one to one nexus between expenses and exempt income yielding investments and accordingly held that the working of the disallowance of the assessee in respect of the exempt income is not correct. Accordingly, the disallowance was calculated at Rs.4,80,52,443/- comprising 293,38,160/- under Rule 8D(2)(ii) and Rs.187,14,283/- under Rule 8D(2)(iii). The AO made addition of Rs.2,93,38,160/- after allowing credit of suo motto disallowance by framing assessment u/s 143(3) dated 22.06.2017.

In the appellate proceedings, the ld. CIT(A) partly allowed the appeal of the assessee by following the decision of jurisdictional High Court in the case of HDFC Bank of 2012 and came to the conclusion that no disallowance under Rule 8D(2)(ii) is required to be made as assessee has more own funds than the investments which yielded exempt income during the year whereas disallowance u/s 14A r.w.r 8D(2)(iii) is confirmed.

After hearing both the parties and perusing the material on record, we observe that in this case the ld. CIT(A) has recorded a finding of fact that assessee’s own funds are far more than the investments in the securities and therefore no disallowance is called for in pursuant to the decision in the case of HDFC Bank (supra). Accordingly, we are inclined to uphold the order of CIT(A) on this issue by sustaining the appeal of the Revenue.

In the result, the appeal of the Revenue is dismissed.