REHAB HOUSING P. LTD,MUMBAI vs. DCIT CEN CIR 2(3), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A)- 52, Mumbai dated 20/12/2016 for A.Y.2012-13 in the matter of order passed u/s.143(3) of the IT Act.

In this appeal, assessee is aggrieved for disallowance u/s.14A r.w.R.8D(2)(iii).

Rival contentions have been heard and record perused.

Facts in brief are that assessee is engaged in the business of real estate development and developing housing projects. During the M/s. Rehab Housing Pvt. Ltd., assessment proceedings, it was noticed that assessee company had offered Rs.3,73,296/- as disallowance u/s. 14A on the basis of value of selective investments. However, it is noticed that in Note No-6 of the Balance sheet, the total investment of the assessee company were shown at Rs.42,27,38,024/- as on 31st March, 2012 and accordingly, the authorised representative of the assessee company was asked to explain as to why not the entire investments being eligible for exempt incomes should not be considered for making disallowances u/s. 14A. Accordingly, AO computed disallowance under Rule 8D at Rs.15,44,244/-.

By the impugned order CIT(A) confirmed the action of the AO after observing as under:- “Considering the over all facts of the case and legal position, I hold that disallowance u/r 8D(2)(iii) has to be worked out on total investments of Rs 42,27,38,024/- and not on Rs 7,88,22,156/- as worked out by the assessee. In the circumstances, the decision of the AO in working out the disallowance u/s 14A at Rs 19,17,540/- and consequently making an addition of Rs 15,44,244/- is confirmed.”

It was argued by learned AR that only investment yielding the exempt income should be taken into account while computing disallowance under Rule 8D(2)(iii). Learned AR has also relied on the decision of the Tribunal in assessee’s own case for the A.Y.2010-11 & 2011-012, wherein the Tribunal has directed to exclude the investment not yielding exempt income. Precise observation of the Tribunal in its order dated 22/06/2017 was as under:- “4. At the outset, learned AR placed on record the order of the Tribunal in assessee’s own case in the immediately preceding year M/s. Rehab Housing Pvt. Ltd., 2010-11 wherein similar disallowance so made by AO was restricted by establishing the proportion to the dividend income qua dividend yielding investment. Precise observation of Tribunal was as under:- “Regarding the disallowance made under clause (iii) of the Rule 8D(2), Ld Counsel for the assessee relied on various legal propositions. In this regard, he brought our attention to each and every account of the Profit & Loss Account and submitted that none of these expenses are directly relatable to the earning of the dividend income. Notwithstanding the said arguments, Ld Counsel for the assessee brought our attention to the order of the AO for the earlier AY 2009-2010 and demonstrated that the officers accepted the assessee's submission of restricting the disallowance to the amount of Rs. 4,89,834/- u/s 14A of the Act. In this regard, he mentioned that the same amount was arrived at after establishing the proportion to the dividend income qua dividend yielding investment. In this regard, he brought our attention to page 44 of the paper book to demonstrate that no expenditure was incurred towards advisors and agents. Further, he brought our attention to page 30 of the PB, which the computation of disallowance u/s 14A of the Act applying the similar formula of proportion between the exempt income versus dividend yielding investment.