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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
The revenue has filed the present appeal against the order dated 30.03.2018 passed by the Commissioner of Income Tax (Appeals)-18 (for short ‘the CIT(A), Mumbai, for the assessment year 2013-14, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the ‘Act’).
2. Brief facts of the case are that the assessee company engaged in the business of investment in security and shares, filed its return of income for the assessment year under consideration declaring total income at Rs. 21,48,990/. The AO passed assessment order u/s 143 (3) of the Act and determined the total income of the assessee at Rs. 1,61,41,710/- after making inter alia disallowance u/s 14A read with rule 8D of the Income Tax Rules (Rules) amounting to Rs. 1,38,52,391/-. In the first appeal, the Ld. CIT (A) restricted the addition u/s 14A read with rule 8D of the Rules to the exempt income Assessment Year: 2013-14 amounting to Rs. 40,32,300/- received by the assessee during the previous year. The revenue is in appeal against the said findings of the Ld. CIT (A). 3. . The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1 “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate the fact that disallowance u/s 14A has to be computed in accordance with the method prescribed in Rule 8D of the I.T. Rules. When assessee himself has disallowed expenditure in relation to Section 14A disallowance, which implies that there is exempt income expenditure and the calculation of expenditure is guided by sec. 14A r.w.r. 8D as per the decision of Hon’ble Bombay High Court in a judgment delivered on 12.08.2010 in ITXA No. 626/2010 & Writ Petition No. 758/2010 in the case of Godrej & Boyce Manufacturing Co Ltd., Mumbai vs. DCIT 10(2), Mumbai ruled in favour of the Revenue.
Whether on the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred in giving relief to the assessee by restricting the disallowance to the extent of exempt income earned during the year by ignoring the CBDT Circular No. 5/2014 which states that even if there is no exempt income, disallowance u/s 14A is to be triggered.”
This case was fixed for final hearing on 16.12.2019. However, on the said date when the case was called out for hearing, none appeared on behalf of the assessee. We notice that earlier the case was fixed for 24.09.2019 and 09.07.2019 but on both the dates, no one was present on behalf of the assessee. Accordingly, we decided to dispose of the present appeal on the basis of material available on record after hearing the departmental representative (DR). Hence, we allowed the Ld. DR to argue the case on behalf of the department.
The Ld. Departmental Representative (DR) supporting the assessment order passed by the AO submitted that since the AO had computed the disallowance u/s 14 A read with Rule 8D of the Income Tax Rules (the Rules), in accordance with the ratio laid down by the Hon’ble Bombay High Court in Assessment Year: 2013-14 the case of Godrej and Boyce, the Ld. CIT(A) ought to have confirmed the addition made by the AO. 6. We have carefully gone through the material on record including the cases relied upon by the authorities below. The Ld. CIT(A) has restricted the addition u/s 14A read with Rule 8D by following the decision of Hon’ble Delhi High Court, Punjab and Haryana High Court and the decisions of the coordinate Benches. The operative part of the order of the Ld. CIT(A) reads as under :- “5.3.3. Conclusion: The appellant has earned exempt income of Rs. 40,32,300/-. The own funds were less than the investments. Therefore, disallowance has to be made both under Rule 8D(2) (ii) & 8D(2) (iii). As discussed above, Rule 8D is mandatory in application. 5.3.4 However, it has been held by various courts that the disallowance u/s 14A read with rule 8D should be restricted to the exempt income earned during the year. The decision are as under:-
(i) Joint Investment Pvt. Ltd. (Hon’ble Delhi High Court) (372 ITR 694)
(ii) Nimbus Communications Ltd. (Hon’ble ITAT, Mumbai ) 47 ITR
(T) 496 (iii) Daga Global Chemicals Pvt. Ltd. (Hon’ble ITAT, Mumbai) (ITA NO. 5592/Mum/2012). (iv) Pest Control India Pvt. Ltd. vs. DCIT (Mum ITAT) (ITA No. 5048/Mum/2016 & ITA No. 5608/Mum/2016)
(v) Pr. CIT vs. M/s Empire Package Pvt. Ltd. (Punjab & Haryana HC) (ITA No. 415 of 2015) (vi) Sanghavi Exports International P Ltd. vs. ACIT (ITA NO. 3405/Mum/2015) 5.3.5 Therefore, respectfully following the aforesaid decisions the disallowance u/s 14A r.w. Rule 8D is restricted to Assessment Year: 2013-14 Rs. 40,32,300/-. Thus, disallowance of Rs. 40,32,300/- is hereby sustained.”
In the present case, the assessee earned exempt income during the year relevant to the assessment year under consideration amounting to Rs. 40,32,300/-. The AO computed the disallowance at Rs. 1,38,52,391/-. In the first appeal the Ld. CIT(A) restricted the same to the exempt income earned by the assessee. The findings of the Ld. CIT(A) are based on the ratio laid down by the Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd.(supra), Hon’ble High Punjab and Haryana High Court in the case of Pr. CIT vs. M/s Empire Package Pvt. Ltd (supra) and the decisions of the coordinate Benches of the Tribunal. Recently, in the case of Pr. Commissioner of Income Tax -2 vs. Caraf Builders and Constructions Pvt. Ltd. 414 ITR 122 (Delhi), the Hon’ble Delhi High Court has held that upper disallowance u/s 14A read with Rule 8D cannot exceed exempt income of the relevant year. Since, the findings of the Ld. CIT (A) are based on the ratio laid down by the Hon’ble Delhi High Court and the Punjab & Haryana High Court, and the decisions of the Mumbai Tribunal referred above, we do not find any infirmity therein to interfere with. Accordingly, we uphold the decision of the Ld. CIT (A) and dismiss the appeal of the revenue. In the result, appeal filed by the revenue for assessment year 2013- 2014 is dismissed. Order pronounced in the open court on 30th December, 2019. (SHAMIM YAHYA) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 30/12/2019