M/S NADATHUR ESTATES PVT LTD ,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-5(1)(1), BANGALORE

PER BEENA PILLAI, JUDICIAL MEMBER : Present appeals has been filed by assessee against order dated 13/08/18, passed by Ld.CIT (A)-5, Bangaluru, for assessment years 2009-10 and 2010-11 on following grounds of appeal:

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ITA no.3248/Bang/2018 1. The order passed by the CIT(A) to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2.2 Grounds relating to disallowance u/s14A Tax effect 85,02,752*,33.99%)=Rs.28,90,085/-. 2.1 The ld. CIT(A) has erred in confirming the disallowance under section 14A read with Rule 8D(2)(iii) at Rs.85,02,752.(1,44,61,138-59,58,286) 2.2. The ld. CIT(A) has erred in concluding that satisfaction of the assessing officer regarding incorrectness of the disallowance made u/s 14A by the appellant is discernible from the assessment order. 2.3 The ld. CIT(A) has erred in not appreciating that in the absence of any satisfaction recorded in the assessment order regarding the incorrectness of the claim of the appellant., disallowance computed and made by the ld. AO u/s 14A read with Rule 8D is bad in law and liable to be quashed. 2.4 Without prejudice, the ld.CIT(A) has erred in not appreciating that if only dividend yielded investments are considered for computing disallowance u/s14A read with Rule 8D(2)(iii), the same would be at Rs.56,79,945/- which is less than the voluntary disallowance u/s 14A by the appellant amounting to Rs.59,58,285/-. Consequently, no disallowance is warranted u/s 14A read with Rule 8D. 3. Both parties submitted that, only issue for consideration is in respect of disallowance computed under Section 14 A, read with Rule 8D 2(iii) of Income Tax Rules. It has been submitted that, this Tribunal, earlier vide order dated 30/12/15 set aside the issue to Ld.AO, for re-computing disallowance, u/s 14A afresh.

ITA No.3247 & 3248/Bang/2018 4 Ld.Counsel submitted that assessee during years under consideration earned tax free income from mutual funds, and certain equity shares. However, Ld.AO without appreciating various judicial precedents again computed average investments under Rule 8 D 2 (iii) on total investments, which included such investments, which did not yield any exempt income during the year under consideration. It has been submitted that, for both years under consideration facts are identical and this Tribunal vide consolidated order dated 30/12/15 set aside both years back to Ld.AO. Based upon above submissions, we refer to facts for assessment year 2009-10 and would decide upon issue for assessment year 2009-10, which shall apply mutatis mutatandis to assessment year 2010- 11.

ITA No.3247 & 3248/Bang/2018 5 companies where assessee has invested in share application. Similar is the position for assessment year 2010-11, wherein details of dividend yielding investments are placed at page 115 of paper book and page 116 consists of entire list of investment including company where assessee invested in share application. 5. Ld.Counsel, at the outset, submitted that for purposes of computing disallowance under section 14 A, investment that yielded dividend should only be considered for computing average investment under Rule 8 D 2 (iii). In support of his submission he placed reliance upon decision of this Tribunal in assessee’s own case for assessment years 2011-12 and 2013-14 in assessee’s own case wherein this Tribunal vide order dated 03/05/2019, held as under: “Therefore, we support our view relying on the decision of special bench in restoring this disputed issue to the file of AO to recalculate disallowance under section 14 A read with Rule 8 D(2) (iii) by including those investment which yielded exempted income. Learned AR further submitted that the disallowance cannot exceed the dividend income and relied on the decision of Cheminvest Ltd vs CIT (61 taxman.com 118 (Del). Accordingly, we restore the entire disputed issue to the file of the AO to recalculate the disallowance under section 14 A read with Rule 8D (2) (iii) and allow grounds of appeal of assessee for statistical purposes.”

ITA No.3247 & 3248/Bang/2018 6 by this Tribunal in assessee’s own case for succeeding assessment years. He also submitted that disallowance cannot be morethan exempt income by placing reliance upon decision of Hon'ble Delhi High Court in the case of Joint investments Pvr.Ltd. Vs CIT (2015) 59 Taxmann.com 295. 7. Ld.Sr.DR though supported order is passed by authorities below but could not controvert therefore stated views taken by this Tribunal which has been relied upon by Ld.AR. 8. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that the only issue that needs to be considered is in respect of investments that should be considered while computing disallowance under section 14 A read with Rule 8D of income tax rules. It is a settled preposition by various High Courts and decision of Special Bench of this Tribunal relied upon by assessee that investments that yielded exempt income should only be considered for purposes of computing average investment under the 3rd limb of Rule 8D (2) of income tax rules 1963. Further we agree with written submissions of ld.Counsel that disallowance cannot exceed exempt income as laid down by Hon'ble Delhi High Court in case of Joint Investments Pvt.Ltd. Vs CIT (Supra) Respectfully following the view, we are of considered opinion that while computing average investments under the 3rd limb of Rule 8D (2) only those investments that yielded exempt income should be considered. We also

ITA No.3247 & 3248/Bang/2018 7 direct ld. AO to restrict disallowance to the exempt income, in the event it exceeds exempt income. We, therefore, direct Ld.AO to compute the disallowance under section 14 A, as directed hereinabove. 9. Accordingly, ground raised by assessee stands allowed. 10. In the result, appeals filed by assessee stands allowed.

Order pronounced in the open court on 28th June, 2019.

(A.K.GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: the 28th June, 2019. *am Copy of the Order forwarded to: 1.Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.Guard File By Order

Asst. Registrar

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member

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