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Income Tax Appellate Tribunal, “H”, BENCH
Before: SHRI M.BALAGANESH, AM & SHRI. AMARJIT SINGH, JM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-6, Mumbai in appeal No.CIT(A)-6/IT-26/35/2016-17 dated 18/09/2017 (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 20/03/2015 by the ld. Income Tax Officer, 1(1)(4), Mumbai (hereinafter referred to as ld. AO).
M/s. HDFC Trustee Company Ltd.,
The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in upholding the disallowance made u/s.14A of the Act r.w.r. 8D(2) of the rules in the facts and circumstances of the case.
The brief facts of this issue are that the assessee received a sum of Rs.38,175/- towards dividend income and claimed the same as exempt in the return of income. It did not disallow any expenditure for the purpose of earning such exempt income in the return of income. The assessee pleaded that the applicability of provisions of rule 8D of the rules are not applicable in as much as the second limb of rule 8D(2) would not be applicable in the instant case as there are no borrowings made by the assessee and there is no payment of interest on such borrowings. The assessee also pleaded that there is neither opening balance of investment nor closing balance of investment at the end of the year. Hence, the average value of investments could not be computed and accordingly the computation mechanism provided in rule 8D(2) of the rules becomes unworkable. 3.1. The ld. AO however disregarded this contention of the assessee and resorted to make disallowance under rule 8D(2) of the rules as under:- a. Direct expenditure under rule 8D(2)(i) - Rs.Nil b. Interest expenditure under rule 8D(2): For this purpose, the Ld. AO took the following three expenses and classified the same as interest:- Directors sitting fees - Rs.9,00,000/- Rates and taxes - Rs. 2,000/- Miscellaneous expenses - Rs. 17/- --------------------- Total - Rs.9,02,017/- ==========
M/s. HDFC Trustee Company Ltd., 3.2. The ld. AO thereafter, worked out the peak of the investment balance at Rs.23,75,000/- and also observed that the assessee had earned dividend from investment made in the sum of Rs.23,75,000/- on 01/02/2012 un “HDFC Cash Management Fund – Treasury Advantage Plan-Retail-Weekly Dividend Reinvest Purchase / Sale Scheme” which was also squared up on 28/03/2012. The ld. AO also arrived at the average of the total assets figured at Rs.16,94,914/-. Accordingly, the ld. AO worked out the disallowance contemplated under rule 8D(2)(ii) as under:- (9,02,017 x 23,75,000/-) ÷ 16,94,914 = 12,64,000 3.3. The ld. AO by applying the peak investment figure of Rs.23,75,000/- worked out the disallowance under third limb of Rule 8D(2) at 0.5% at Rs.11,875/-. In total, the ld. AO made disallowance u/s.14A of the Act r.w.r.8D(2) of the rules in the sum of Rs.12,75,875/- in the assessment. This action of the ld. AO was upheld by the ld. CIT(A).
Aggrieved, assessee is in appeal before us.
We have heard rival submissions. At the outset, we find that there is no dispute that there is no interest cost of borrowings paid by the assessee during the year. There is no dispute that the there is neither opening balance of investment nor closing balance of investment. Hence, the entire computation mechanism provided in rule 8D(2) of the rules becomes unworkable and hence, cannot be applied thereon. We also find that the ld. AR relied on the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of M/s. TD Toll Road Pvt. Ltd. vs. Dy. Commissioner of Income Tax-15(3)(1) in dated 31/01/2019 wherein under similar circumstances, the disallowance made under rule 8D(2) has been deleted by this Tribunal. We find that the ld. CIT(A) in assessee’s own case for the A.Y.2013-14 in appeal No.CIT(A)-3/IT- 10413/2017-18 dated 05/04/2019 had deleted the disallowance made u/s.14A of the Act in the sum of Rs.15,000/- thereon. We find even
M/s. HDFC Trustee Company Ltd., though the computation mechanism under rule 8D(2) of the rules fails, the disallowance is to be made as per the provisions of Section14A(2) and 14A(3) of the Act in the instant case based on the accounts of the assessee. We find that the disallowance of administrative expenses (indirect expenses) for the purpose of earning exempt income certainly need to be made and the assessee’s stand is that no expenditure was incurred for the purpose of earning exempt income cannot be accepted. We hold that if the argument of the assessee is accepted, then the very purpose of intent behind introduction of provisions of Section 14A of the Act gets defeated. In view of the aforesaid observations, we direct the ld. AO to restrict the disallowance u/s.14A of the Act to the extent of exempt income in the sum of Rs.38,715/- which would meet the needs of justice in the facts of the instant case. Accordingly, the grounds raised by the assessee are partly allowed.
6. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on this 26/06/2019