M/S. SRINIVASA FOUNDATION,CHENNAI vs. DCIT, CHENNAI

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ITA 106/CHNY/2019Status: DisposedITAT Chennai26 August 2019AY 2014-154 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the disallowance under the third limb of Rule 8D(2)(iii) is a mandatory requirement under the law. Since the assessee received dividend income, some administrative expenses are expected, and the disallowance of Rs. 4,16,367/- was confirmed.

What were the facts?

The assessee, a partnership firm engaged in real estate, had its assessment completed by disallowing Rs. 4,16,367/- under Section 14A read with Rule 8D. The assessee argued that investments were made from its own funds, but the Assessing Officer and CIT(A) confirmed the disallowance.

What were the issues?

Whether the disallowance under Section 14A read with Rule 8D(2)(iii) is mandatory when dividend income is earned, irrespective of the source of investment funds.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI DUVVURU R.L. REDDY & SHRI S. JAYARAMAN

Hearing: 26.08.2019

आदेश / O R D E R PER SHRI DUVVURU R.L. REDDY, JUDICIAL MEMBER:

1.

The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-2, Chennai, in dated 13.11.2018 for the AY 2014-15.

2. The only grievance of the assessee is that the Ld.CIT(A) erred in confirming the addition of Rs.4,16,367/- made u/s.14A r.w.r.8D. Brief facts of the case of the assessee are that the assessee is a partnership firm engaged in real estate business. The assessee filed the return of income for the AY 2014-15 on 16.09.2014 admitting a total income of Rs.11,35,41,780/-. The assessment came to be completed u/s.143(3) determining the total income at Rs.11,39,58,147/- by disallowing Rs.4,16,367/- u/s.14A r.w.r.8D.

3.

Aggrieved, the assessee preferred an appeal before the Ld.CIT(A).

After considering the submissions of the assessee, the Ld.CIT(A) dismissed the appeal filed by the assessee.

4.

On being aggrieved, the assessee preferred an appeal before the Tribunal and raised the following grounds:

1.

The Ld.CIT(A) was not justified in making the addition.

2.

The Ld.CIT(A) ought to have appreciated that the assessee has made these investments out of its own funds.

5.

It was the submission of the assessee that there is no need of any disallowance since the assessee had invested out of its own funds. He further submitted that the Hon’ble ITAT in the assessee’s own case for the AY 2009-10 remitted this issue back to the file of the AO to examine whether the assessee is having its own funds or the assessee had invested these investments out of borrowed funds and pleaded to remit the issue back to the file of the AO.

6.

On the other hand, the Ld.DR submitted that the assessee had received dividend income of Rs.21,70,771/-. Therefore, the disallowance u/s.14A r.w.r.8D(2)(iii) will attract to the present case. Thus, the disallowance made u/s.14A r.w.r.8D(2)(iii) at the rate of 0.5% on the average value of investments is mandatory under the law. Therefore, the orders passed by the Ld.CIT(A) be confirmed.

7.

We have heard both the parties, perused the materials available on record and gone through the orders of authorities below.

8.

There is no dispute that the assessee had received a sum of Rs.21,70,771/- as dividend income for the impugned assessment year.

Therefore, it cannot be denied that the assessee would be required to expend some administrative expenses in order to earn the exempt income/maintain the portfolio of such investments. Apart from this, the disallowance under the third limb of Rule 8D(2)(iii) is a mandatory requirement under the law and it comes to Rs.4,16,367/- (0.5% of Rs.8,32,73,324/-). The AO disallowed the said amount of Rs.4,16,367/- and the Ld.CIT(A) also confirmed the same. Since, it is mandatory under the law, the Ld.AR relied on the decision of the Hon’ble ITAT in the assessee’s own case for the AY 2009-10 but it is not applicable to the facts of the present case since the issue involved in the earlier AY 2009-10 is relating to interest expenditure but in the present case on hand, the AO himself admitted that there is no investments from borrowed funds.

Hence, there is no need to remit the issue back to the file of the AO. However, the disallowance is made u/s.14A r.w.r.8D(2)(iii). Therefore, considering the facts and circumstances of the present case, we are of the firm view that the disallowance made u/s.14A r.w.r.8D(2)(iii) is a mandatory requirement. Therefore, the orders passed by the Ld.CIT(A) needs no interference. Consequently, the grounds raised by the assessee are dismissed.

9.

In the result, the appeal filed by the assessee is dismissed.

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