M/S. WINE NOOK DEALERS PVT. LTD,MUMBAI vs. ACIT CEN CIR 8(2), MUMBAI

The dispute in the present appeal is confined to the disallowance made under section 14A r/w rule 8D.

Brief facts are, the assessee company is engaged in liquor business. For the assessment year under dispute, the assessee filed its return of income on 24th September 2012,declaring total income at ` 1,59,92,510. In the course of assessment proceedings, the Assessing Officer noticed that during the year under consideration, the assessee had earned exempt income of ` 1,05,000, whereas, the assessee was having investments worth ` 3,25,60,000. Noticing the aforesaid fact, the Assessing Officer called upon the assessee to explain why disallowance of expenditure incurred for earning exempt income should not be made under section 14A r/w rule 8D. In response, it was submitted by the assessee that since the investments were made long back and there was no fresh investment made during the year, no disallowance under section 14A of the Act can be made as the assessee has not incurred any expenditure for earning exempt income. The Assessing Officer, however, did not find merit in the aforesaid submissions of the assessee. Accordingly, he proceeded to disallow an amount of ` 9,96,643, comprising of interest expenditure under rule 8D(2)(ii) amounting to ` 8,33,843, and administrative expenditure under rule 8D(2)(iii) amounting to ` 1,62,800. The assessee challenged the aforesaid disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee, learned

Before us, learned Authorised Representative submitted, out of the amount of ` 1,05,000, considered as the exempt income earned by the assessee, an amount of ` 30,000, actually represents exempt income by way of dividend. Thus, he submitted, the balance amount of ` 75,000, was not in the nature of exempt income and the assessee has offered it to tax. Without prejudice, the learned Authorised Representative submitted, the disallowance of expenditure under section 14A r/w rule 8D cannot exceed the exempt income earned by the assessee during the year. Thus, he submitted, the disallowance under section 14A r/w rule 8D should be restricted to the exempt income earned during the year.

The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals).

Having considered rival submissions and on perusal of the material available on record, we find merit in the submission of learned Authorised Representative that the disallowance of expenditure under section 14A r/w rule 8D cannot exceed the quantum of exempt income earned during the year. Even, this is the view expressed in various judicial precedents. Accordingly, we direct the 4 M/s. Wine Nook Dealers Pvt. Ltd.

In the result, assessee’s appeal is allowed for statistical purposes. Order pronounced in the open Court on 16.08.2019