DCIT, CC-4(2), KOLKATA, KOLKATA vs. M/S/ ARYAN MINNING & TRADING CORPORATION LTD, KOLAKTA

The grievances raised by the Revenue are as follows:

“i. That on the fact and in restricting the disallowance u/s 14A to Rs.5,10,242/- by observing that such disallowance u/s 14A should be in respect only of that part ofinvestment which gives rise to exempt income during the year, whereas circular No. 5/2014 dated 11.02.2014 has amply clarified that for invoking disallowance u/s 14A , it is notmaterial that assessee should have earned such income during the financial year underconsideration.

The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noted that assessee company earned dividend income of Rs.24,935,645/-. The assessee companyasked to explain why disallowance of expenses will not be made u/s 14A read with Rule 8D on the exemptincome. The assessee has failed to furnish satisfactory submissions as to why disallowance u/s 14A shall notbe made in accordance with Rule 8D of the lT Rules. The AO noted that the assessee has not considered in its accountexpenditure relatable to the earning of the exempt income. Therefore, expenditure relatable to the earningof exempt income should disallowed u/s.14A of the Act in accordance with Rule 8D of the IT Rules and AO therefore, computed the disallowance as follows:

Aggrieved by the stand so taken by the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. The ld Counsel for the assessee relied on the stand taken by the ld CIT(A). On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Page | 2

We have given a careful consideration to the rival submissions and perused the material available on record, we note that main grievance of the Revenue is against deletion of disallowance of Rs.95,77,250/-, which was made by the AO under rule 8D(2)(iii) read with section 14A of the I.T. Act, 1961.The AO has made calculation under rule 8D read with section 14A of the I TAct, 1961 and made disallowance of Rs. 95,77,250/-. We note that Coordinate Bench of ITAT Kolkata, in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib), has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(ii) & (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). Therefore, we note that the only investment which has given rise to the exempted income would be taken into consideration. The assessee has filed a calculation before ld CIT(A), as per rule 8D read with section 14A, keeping in view the ratio decided in the case of REI Agro Ltd (Supra) which is as under: Sl. Particulars Opening balance closing balance Dividend received 1 Standard chartered bank 42,47,234/- 2,42,311/- 48,39,392/- money plus 2 Standard chartered bank 4,65,754/- 5,18,117/- 42,93,163/- 3 Reliance Money Manager - 198,623,445/- 80,05,458/- Fund 4 Reliance Medium Term Fund - - 77,97,632/- Total 47,12,988/- 199,383,873/- 249,35,645/- Average investments = (47,12,988 + 199,383,873)/2= Rs.102,048,430/- Disallowance under Rule 8D(iii) = (0.5% of Avg. Investment) – (0.5% of Rs.102,048,430) = Rs.5,10,242/- We note that the calculation u/r 8D(2)(iii) r.w.s. 14A, for the investments made by the assessee come to Rs.5,10,242/- which has been verified by the ld CIT(A), who has co-terminus power as that of assessing officer. Accordingly, addition on this Page | 3

We note that ground no.2 raised by the Revenue is directed against adding a sum of Rs.95,77,250/-, being the amount of disallowance made u/s 14A of the Act, to the book profit of the assessee determined u/s 115JB of the Act. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present appeal is no longer res integra.The important and relevant thing to note here is that for the purpose of applicability of section 14A r.w.r. 8D the computation of total income has to be under some heads in chapter-IV of the Act. Section 14A clearly says “for the purpose of computing total income under the chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form the part of the total income under this Act”. The computation of total income u/s 115JB falls under chapter- XIIB of the Act. Therefore, it is very clear that any disallowance/computation for section 14A r.w.r. 8D will not be applicable for the purpose of calculation of income u/s 115JB of the Act. Accordingly, we dismiss the Revenue`s appeal on ground no.2.

In the result, the appeal filed by the Revenue is dismissed.