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Income Tax Appellate Tribunal, “H”, BENCH
Before: SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-52, Mumbai in appeal No.CI(A)-52/IT/DC/AC-CC-4(2)/109/2010-11 dated 16/12/2014 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26/03/2013 by the ld. Asst. Commissioner of Income Tax, Central Circle-29, Mumbai (hereinafter referred to as ld. AO).
M/s. K. Raheja Corporation Pvt. Ltd
The only issue to be decided in this appeal is with regard to the disallowance made u/s.14A of the Act read with rule 8D of the rules in the sum of Rs.11,82,55,983/- under normal provisions of the Act as well as in computation of book profits u/s.115JB of the Act.
We have heard the rival submissions. We find that the assessee has received dividend of Rs.5,75,03,434/- and claimed the same as exempt u/s.10(34) of the Act in the return of income. The assessee did not make any disallowance of expenses incurred for the purposes of earning such exempt income in the return of income. The ld. AO applied the computation mechanism provided in rule 8D(2) of the rules and arrived at the disallowance under second limb of Rs.11,17,58,894/- and under third limb to the tune of Rs.64,97,089/-. The total disallowance made u/s.14A read with rule 8D of the rules worked out to Rs.11,82,55,983/-. The ld. CIT(A) upheld the action of the ld. AO.
The assessee had filed altered grounds of appeal and had also filed the additional ground and appeal challenging the disallowance u/s.14A of the Act under the normal provisions of the Act as under:-
“1. The CIT(A) erred in upholding the disallowance of finance expenses and other expenses of Rs.l1,82,55,983/- made by AO on investment in shares out of business income without appreciating the fact that the appellant had surplus interest free funds available for investment in shares and hence no finance expenses and other expenses is attributable towards investment in shares.”
4.1. The assessee has also filed an additional ground challenging the disallowance made u/s. 14A of the Act while computing book profits u/s.115JB of the Act as under:-
M/s. K. Raheja Corporation Pvt. Ltd
“1. On the facts and in the circumstances of the case and in law , the learned AO & learned CIT(A) erred in making disallowance under section 14A of Rs. 11,82,55,983/- while computing book profit under section 115JB of the Income Tax Act, 1961”
At the outset, we find the additional ground raised by the assessee is purely a legal issue and does not require any verification of facts and it goes to the root of the matter. Hence, we are inclined to admit the additional ground and take up for adjudication. The ld. AR placed on record, the copy of the order of this Tribunal in its own case passed for A.Y.2008-09 in dated 04/04/2016 wherein it had been categorically held that the assessee is having sufficient own funds in its kitty and hence, the presumption that own funds have been used for making investments in various companies goes in favour of the assessee in the light of the decision of the Hon’ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd., reported in 313 ITR 340. This Tribunal in A.Y.2008-09 in assessee’s own case had deleted the disallowance of interest made under second limb of rule 8D(2) of the Rules. We find from perusal of the balance sheet as on 31/03/2010, total own funds available with the assessee is Rs.295,23,58,270/-, whereas the investments made were only Rs.131,21,08,283/-. Hence, the presumption that own funds is available with the assessee for making investments would apply even for the year under consideration. Respectfully following the decision of Hon’ble Jurisdictional High Court supra and the decision of this Tribunal in A.Y.2008-09 in assessee’s own case, we direct the ld. AO to delete the disallowance of interest made under second limb and rule 8D(2) of the rules.
5.1. With regard to disallowance of administrative expenses made in the sum of Rs.64,97,089/- under third limb of rule 8D(2) of the rules is concerned, we direct the ld. AO to make disallowance by considering only
M/s. K. Raheja Corporation Pvt. Ltd those investments that had yielded exempt income to the assessee. This direction is given in the light of decision of Special Bench of Delhi Tribunal in the case of Vireet Investment (P) Ltd. 165 ITD 27. Accordingly, the altered ground raised by the assessee with regard to disallowance u/s.14A of the Act r.w.r. 8D(2) of the rules under normal provisions of the Act is partly allowed.
5.2. With regard to disallowance made u/s. 14A of the Act, while computing book profits u/s.115JB of the Act, we find that the computation mechanism provided in rule 8D(2) of the rules cannot be imputed into Clause (f) to Explanation 1 to Section 115JB (2) of the Act as held by the Special Bench of Delhi Tribunal in the case of Vireet Investment (P) Ltd. reported in 165 ITD 27. However, the ld. AO is directed to consider the disallowance of expenses incurred for the purpose of earning exempt income based on actual amounts debited to profit and loss account. This direction is also given in the light of the decision of Special Bench of Delhi Tribunal supra. Accordingly, the additional ground raised by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on this 16/08/2019