ACIT - CIRCLE- 6 (2)(1), MUMBAI vs. ESJAY INTERNATIONAL PVT. LTD., MUMBAI

The only issue raised by the revenue in this appeal is with regard to deletion of disallowance made by the ld. CIT(A) u/s.14A of the Act.

We have heard rival submissions. We find that assessee had earned dividend income of Rs.64,34,281/- and claimed the same as exempt in the return of income. We find that the assessee had made suomoto disallowance of Rs.13,38,207/- u/s.14A of the Act r.w.rule 8D or the Rules in the return of income by considering only those investments which had yielded dividend income in terms of Rule 8D(2)(iii) of the Rules. The ld. AO however proceeded to disallow u/s.14A of the Act by applying the second and third limbs of Rule 8D(2) of the rules in the sums of Rs.1,40,49,002/- and Rs.28,47,647/- respectively. We find that the ld. CIT(A) had categorically observed that assessee is having sufficient own funds for making investments which had yielded exempt income and by placing reliance on the decisions of the Hon’ble High Courts in the case of Reliance Utilities and Power Ltd., reported in 313 ITR 340 and HDFC Bank Ltd. reported in 366 ITR 505, had directed the ld. AO to delete the disallowance of interest under second limb of Rule 8D(2) of the Rules. This factual finding of the ld. CIT(A) of availability of own funds with the assessee for making investments had not been controverted by the revenue before us. Hence, we do not deem it fit to interfere in the order of the ld. CIT(A) in this regard.

3.1. With regard to disallowance of indirect expenses under third limb of Rule 8D(2) of the rules, we find that the ld. CIT(A) had considered the decision of Special Bench of Delhi Tribunal in the case of Vireet Investment (P) Ltd reported in 165 ITD 27 wherein it was held that only those investments which had yielded dividend income should be considered for the purpose of disallowance under Rule 8D. The ld. CIT(A)

In the result, appeal of the revenue is dismissed.