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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Aforesaid appeal has been filed by the Revenue challenging the order dated 27th December 2016, passed by the learned Commissioner (Appeals)–58, Mumbai, for assessment year 2011–12.
The only issue involved in the present appeal is relating to deletion of disallowance made by the Assessing Officer under section 14A r/w rule 8D.
2 M/s. Varun Shipping Co. Ltd.
Brief facts are, the assessee company is engaged in shipping business. For the assessment year under dispute, the assessee had filed its return of income on 30th November 2011, declaring loss of `210,00,20,202, under the normal provisions of the Act and book profit of `18,81,02,683, under section 115JB of the Act. During the assessment proceedings, the Assessing Officer noticed that the assessee had earned exempt income by way of dividend amounting to `21,82,154. Therefore, he called upon the assessee to furnish the details of expenditure incurred which can be attributed towards earning of exempt income. In response, it was submitted by the assessee that out of the dividend income earned of `21,82,154, the amount claimed as exempt by the assessee under section 10(34) of the Act is `3,30,691. It was submitted, the assessee itself has disallowed `87,815 under section 14A of the Act towards expenses relating to exempt income. Thus, it was submitted, no further disallowance should be made. However, the Assessing Officer did not find merit in the submissions of the assessee and proceeded to disallow expenditure attributable to earning of exempt income by applying the methodology of rule 8D. Accordingly, in addition to the suo motu disallowance of `87,815, made by the assessee, he disallowed an amount of `91,44,910 under rule 8D(2)(ii) towards interest expenditure and `7,95,125 under rule 8D(2)(iii) towards
3 M/s. Varun Shipping Co. Ltd. administrative expenditure. Thus, the Assessing Officer made total disallowance of ` 99,40,035 under section 14A r/w rule 8D over and above the disallowance made by the assessee itself. Being aggrieved of such disallowance, assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record having found that the assessee had sufficient interest free fund available with it to take care of the investment, deleted the disallowance of interest expenditure made under rule 8D(2)(ii). However, as regards the disallowance of administrative expenditure under rule 8D(2)(iii), the learned Commissioner (Appeals) directed the Assessing Officer to verify the Profit & Loss account and restrict such disallowance to the quantum of exempt income earned by the assessee during the relevant previous year, which according to the assessee was ` 3,30,691.
When the appeal was called for hearing, no one was present on behalf of the assessee to represent the case. Even there is no letter filed by the assessee seeking adjournment. In view of the aforesaid, we proceed to dispose of the appeal ex parte qua the assessee after hearing the learned Departmental Representative.
4 M/s. Varun Shipping Co. Ltd.
The learned Departmental Representative relied upon the observations of the Assessing Officer.
We have heard the learned Departmental Representative and perused materials on record. The Assessing Officer while making disallowance under section 14A r/w rule 8D, has proceeded on the presumption that the assessee has earned exempt income by way of dividend amounting to `21,82,154. However, it appears from the submissions of the assessee made before the Assessing Officer, which is extracted in Para–6.2 of the assessment order, out of the dividend income earned during the year amounting to `21,82,154, the amount claimed as exempt under section 10(34) of the Act is `3,30,691. As against the aforesaid exempt income earned by the assessee, suo motu the assessee has disallowed an amount of `87,815 under section 14A of the Act. Prima facie, it appears, the Assessing Officer has not properly appreciated the submissions made by the assessee. It is evident from the discussions made by the first appellate authority in the impugned order, as against surplus interest free fund of ` 677,75,87,045 available with the assessee, the investment in exempt income yielding asset amounted to ` 8.40 crore. Thus, the surplus fund available with the assessee is far in excess of the investments made. That being the case, applying the ratio of the Hon'ble
5 M/s. Varun Shipping Co. Ltd.
Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. 313 ITR 340 and CIT v/s HDFC Bank Ltd., 366 ITR 505, disallowance of interest expenses under rule 8D(2)(ii) cannot be made. As regards disallowance of administrative expenditure under rule 8D(2)(iii) is concerned, the learned Commissioner (Appeals) has directed the Assessing Officer to restrict such disallowance to the exempt income earned by the assessee in the relevant previous year. We find the aforesaid direction of the learned Commissioner (Appeals) fair and reasonable. Therefore, the Assessing Officer is directed to ascertain the actual exempt income earned by the assessee during the relevant previous year and thereafter restrict the disallowance to the quantum of exempt income earned by the assessee after taking into consideration the suo motu disallowance made by the assessee under section 14A of the Act. Accordingly, grounds raised are dismissed.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 08.08.2018