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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P BOAZ
Per Sunil Kumar Yadav, Judicial Member
These cross appeals are preferred by the assessee as well as the revenue against the order of the CIT(A), pertaining to the assessment year 2006-07 on common issues. For the sake of reference, we extract the grounds raised in both the appeals.
Grounds of appeal
1. The assessing officer erred in disallowing an amount of Rs.44,89,342 by invoking the provisions of section 14A of the Income Tax act.
2. The assessing officer has erred in assuming that the entire expenditure of the appellant is incurred in the same ratio of tax free income bears to the total income.
3. The assessing officer should have appreciated the fact that the total income includes expenditure which has no nexus to earing tax free income.
4. The assessing officer should have appreciated the fact that finance charges have been incurred for lCD availed and has no link or proximate connection or nexus with earning tax free income.
7. The assessing officer erred in not appreciating the fact that provisions of rule 8D would not be applicable for the assessment year 2006 -07.
6. For these other grounds that may be urged at the time of hearing, the appellant prays that the honorable bench may kindly set aside the addition of Rs. 44,89,342 made by invoking section 14A.
Grounds of appeal
1. The order of the CIT (A) is opposed to law and facts and circumstances of the case. The CIT(A) erred in not appreciating the reasonable basis of the 2. Assessing Officer for making the disallowance as the method was consistent with the facts and circumstances of the case.
The CIT(A) erred in adopting his own formula by relying on the 3. decision of the Mumbai ITAT in the case of DCIT Vs Tata
Page 3 of 5 Investment Corporation [2008]114 lTD 584 without giving any finding as to why the method adopted by the Assessing Officer in calculating disallowance was not reasonable.
4. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. The appellate craves leave to add, to alter, to amend or delete any 5. of the grounds that maybe urged at the time of hearing of the appeal.
The controversy involves on a issue of disallowance of expenditure to be made incurred in earning exempted income. The facts in brief borne out from the record are that assessee has earned exempted income by way of dividends and during the course of assessment proceedings, the AO has invoked the provisions of section 14A and made the disallowance. The disallowance was questioned by the CIT(A) and thereafter the Tribunal vide its order dated 04.05.2012 restored the matter to the AO with the direction to reconsider the issue in accordance with the guidelines laid down by the Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Consequently, the AO has passed an order and made a disallowance under section 14A at Rs.80,63,179/-. This disallowance was challenged before the CIT(A) and the CIT(A) restricted the disallowance to Rs.44,89,342/-.
Aggrieved with the order of the CIT(A), the assessee as well as the Revenue preferred an appeal before the Tribunal. During the course of Page 4 of 5 hearing, the learned counsel for the assessee invited our attention to the balance sheet with the submission that most of the expenditures were incurred on portfolio management. Since the assessee has made the investment of surplus funds in shares on which dividend was earned, no disallowance is called for under section 14A of the Act. In support of his contention, he placed the reliance upon the judgment of the jurisdictional High Court in the case of Canara Bank Vs. ACIT 52 Taxmann.com 162.
The learned DR, on the other hand, contended that since the assessee has incurred certain expenditure to earn the dividend income, certain disallowance is required to be made. He however admitted during the course of hearing that since the assessment year involved is 2006-07, the provisions of Rule 8D would not be applied. But in any case, reasonable disallowance is required to be made.
Having carefully examined the orders of authorities below in the light of rival submissions, we find that assessee has claimed the expenditures on portfolio management at Rs.42,93,566/-. It is not clear from the details available that how much expenditure is directly or indirectly related to the investment on which exempted income was earned. During the course of hearing, both the parties have agreed that let the matter be sent back to the AO to re-examine the issue and to find out the direct or indirect expenditure
Page 5 of 5 incurred towards the exempted income. Accordingly, the order of the CIT(A) is set aside and matter is restored to the AO to readjudicate the issues as per law and also to find out as to how much expenditure is incurred in earning the exempted income.
In the result, appeals of the assessee and Revenue are allowed for statistical purposes.
Pronounced in the open court on 05th January, 2018.