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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: HON’BLE SHRI MAHAVIR SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2012-13 contest the order of Ld. Commissioner of Income-Tax (Appeals)-17, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-17/IT-90/15-16 dated 19/06/2017 on following grounds of appeal: -
Purvag Commodities & Derivatives Pvt. Ltd. Assessment Year :2012-13
“The Commissioner of Income-tax (Appeals) - 17. Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assistant Commissioner of Income-tax -10(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs 8,52,133 being expenses incurred for earning dividend income by invoking the provisions of section 14A read with rule 8D(2)(iii). The appellants contend that on the facts and in the circumstances of the case and in law the CIT(A) ought not to have confirmed the action of the Assessing Officer in making the impugned disallowance of Rs 8,52,133 in as much as the same is not in accordance with the prescription of section 14A read with rule 8D(2)(iii). The appellants further, contend that even the suo moto disallowance of Rs.3,00,000 under section 14A considered by them in the computation of total income ought not to have been considered by the Assessing Officer/ CIT(A) per law and facts of the case.” 2.1 The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax-10(3)(2), Mumbai [AO] u/s. 143(3) on 03/03/2015 wherein the income of the assessee was determined at Rs.351.84 Lacs after disallowance u/s 14A for Rs.14.82 Lacs as against returned income of Rs.337.01 Lacs e-filed by the assessee on 29/09/2012. The assessee being resident corporate entity is stated to be engaged in financial service sector. The disallowance made by Ld. AO u/r 8D is the sole subject matter of present appeal before us.
2.2 During assessment proceedings, it transpired that the assessee earned exempt dividend income of Rs.30 Lacs and offered suo-moto disallowance of Rs.3 Lacs against the same. The Ld. AO, applying Rule 8D(2) worked out aggregate disallowance of Rs.17.82 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.9.30 Lacs and expense disallowance u/r 8D(2)(iii) for Rs.8.52 Lacs. After adjusting the suo-moto disallowance offered by the assessee, the net disallowance was worked out to Rs.14.82 Lacs, which was added to the income of the Purvag Commodities & Derivatives Pvt. Ltd. Assessment Year :2012-13 assessee. The Ld. first appellate authority deleted the interest disallowance of Rs.9.30 Lacs by observing that own funds in the shape of Share Capital & Reserves far exceeded the investments made by the assessee. However, the expense disallowance of Rs.8.52 Lacs was confirmed, against which the assessee is in further appeal before us.
The Ld. Authorized Representative for Assessee, agitated the additions on the ground that Ld. AO, without rejecting assessee’s computations, applied Rule 8D mechanically which was not in accordance with law. On merits, it was submitted that the disallowance by considering the exempt income yielding investments works out to Rs.3.75 Lacs. The Ld. DR submitted that the computations were in accordance with Rule 8D.
Upon careful consideration, the undisputed position that emerges is that the assessee had offered suo-moto disallowance of Rs.3 Lacs against the exempt income. The Ld. AO, without recording proper satisfaction as envisaged by Section 14A read with Rule 8D, proceeded to apply Rule 8D, which was not in accordance with law. The onus was on Ld. AO to reject the assessee’s computations and record a finding, having regard to accounts of the assessee, as to how those computations were not satisfactory. The failure to do so oust the jurisdiction of Ld. AO to apply Rule 8D. Another factor to be noted is that the said disallowance, considering exempt income yielding investments works out to Rs.3.75 Lacs, against which the assessee has already offered suo-moto disallowance of Rs.3 Lacs. Therefore, the net
Purvag Commodities & Derivatives Pvt. Ltd. Assessment Year :2012-13 additional disallowance of Rs.5.52 Lacs could not be sustained. We order so.
The appeal stands allowed. Order pronounced in the open court on 18th March, 2019. Sd/- Sd/- (Mahavir Singh) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 18/03/2019 Sr.PS, Jaisy Varghese आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.