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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
This appeal filed by assessee is arising out of the order of Commissioner of Income Tax (Appeals)-18, Mumbai [in short CIT(A)], in appeal No. CIT(A)-18/IT-370/AC-11(3)(1)/2015-16, vide order dated 01.02.2017. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-11(3), Mumbai (in short ‘ACIT/ AO’) for the A.Y. 2013- 14 vide order dated 31.12.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D(2)(iii) of the IT Rules, 1962 (hereinafter the ‘Rules’). For this assessee has raised the following two grounds: - “1. On the facts and circumstances of the case, and in Law, Hon’ble CIT(A)-18, erred in confirming the disallowance of ₹ 7,89,927/- under Rule 8D(2)(iii) read with section 14A of the Act.
On the facts and circumstances of the case and in law the Hon’ble CIT(A) and ld. AO failed to appreciate that a) The investments are made out of the own surplus funds of the assessee
b) The assessee had sufficient capital and balance in free reserves and surplus for making investment."
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has earned dividend income at Rs. 1,01,01,402/- and claim the same as exempt under section 10(34) of the Act. The AO during the course of assessment proceedings noticed that the assessee has not made any disallowance of expenses relatable to exempt income. Therefore, he determined the disallowance in respect of administrative expenses at 0.5% of the average value of investment under Rule 8D(2)(iii) at Rs. 1,07,89,927/-. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO.
Before us, the learned Counsel for the assessee first of all drew our attention to the financials of the AY 2012-13 enclosed in the assessee’s paper book from pages 1 to 7. The learned Counsel for the assessee stated that he has prepare a separate balance sheet for the investment purposes as well as for the assessee’s regular business i.e. production at Silvasa. The learned Counsel for the assessee drew our attention to the other income mentioned in note 10 of the balance sheet which are as under: - “Note 10 Other Income-Mumbai unit Interest 180423 Dividend 10101401 Profit on Sale of Assets/ Investments 509500 Total 10797057"
The learned Counsel for the assessee also drew our attention to the administrative expenses incurred at Mumbai Unit i.e. in note 11 of the balance sheet and the same reads as under: - “Note 11 Other Administrative Cost-Mumbai Unit Rent 16876.92 Society Charges 129877.00 Electricity charges 20070.00 Rates & Taxes 71732.00 General Expenses 44523.00
283078.92. "
The learned Counsel for the assessee stated that the total administrative expenses incurred are at Rs. 2,83,078/-. Out of these, the general expenses are to the tune of Rs. 44,523/-. According to him, at the most this can be disallowed. The learned Sr. DR on the other hand supported the order of lower authorities for application of Rule 8D(2)(iii) of the Rules.
We find from the above facts that the assessee’s administrative expenses are only to the tune of Rs. 2,83,078/- and out of which the component of rent is at Rs. 16,876/- and general expenses are to the tune of Rs. 44,823/-. Further, the society charges, the interest charges, rates and tax are included in the total expenditure of Rs. 2,83,078/-. For this amount, the disallowance made by AO of Rs. 7,89,927/- is excessive over the administrative expenses. Hence, in our view out of the administrative expenses of Rs. 2,83,078/- same disallowance can be made. Hence, we restrict the reasonable disallowance at Rs. 1 lacs which in any case will compensate the expenditure. Hence, we partly allowed the claim of the assessee. The appeal of the assessee is partly allowed.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 24-09-2018.