THE SCOTTISH ASSAM (INDIA) LIMITED,KOLKATA vs. DCIT, CIRCLE-4(2), KOLKATA, KOLKATA

The main grievance of the assessee is against the action of Ld. CIT(A) in confirming the disallowance u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) of Rs.7,62,213/- read with Rule 8D(iii) of the I. T. Rules, 1962 (hereinafter referred as the “Rules”).

Briefly stated facts as observed by the AO are that the assessee earned dividend income of Rs.75,72,045/- and claimed it as exempt income. The assessee, on its own, disallowed an amount of Rs.1,66,614/- as expenses attributable to earning dividend income. According to AO, such a disallowance was not computed as per sec. 14A of the Act read with rule 8D of the Rules. He, therefore, disallowed expenditure under Rule 8D(2)(iii) of the Rules @ .5% of average value of investments of Rs.16,60,02,657/- i.e. Rs.8,30,013/-

We have heard rival submissions and gone through the facts and circumstances of the case. We note that assessee had earned dividend income of Rs.75,72,045/- and claimed it as exempt income. And the assessee, on its own, disallowed an amount of Rs.1,66,614/- as expenses attributable to earning dividend income. However, the AO resorted to computation envisaged under Rule 8D and disallowed expenditure under Rule 8D(2)(iii) of the Rules @ .5% of average value of investments of Rs.16,60,02,657/- i.e. Rs.8,30,013/- and also the direct expense related to exempt income at Rs.98,814/-. Accordingly, the AO made the total disallowance at Rs.9,28,827/- and deducted the amount added back by assessee at Rs.1,66,614/-, therefore, total disallowance comes to Rs.7,62,213/-. On appeal, the Ld. CIT(A) confirmed the action of AO. Before us, the Ld AR restricted his contention to computation made by AO under Rule 8D(2)(iii) and drew our attention to this Tribunal’s order in REI Agro Ltd. 144 ITD 141 in which the Tribunal held that while computing disallowance under Rule 8D(ii) and (iii) only investments which gave rise to the exempted income should be taken into consideration. We note that this order of the Tribunal has been upheld by the Hon’ble High Court by order dated 23.12.2013. We note that the AO has not resorted to Rule 8D(2)(ii) and has only computed disallowance under Rule 8D(2)(iii) and 8D(2)(i). Therefore, following our decision in REI Agro Ltd. (supra), we direct the AO to recompute the disallowance and while doing so i.e. under Rule 8D(2)(ii), he has to consider only the investment which yielded exempt income during the year. With the aforesaid direction, we set aside the order of Ld. CIT(A) on this issue as directed above. We order accordingly. Therefore, this ground of appeal of assessee is allowed for statistical purpose.