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PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee under section 253 of the Income-Tax Act (“The Act”) is directed against the order ld. CIT(A)-16, Mumbai dated 17.08.2015 for Assessment Year (AY) 2011-12. The assessee has raised the following grounds of appeal:
On the facts and circumstances of the case and in law:
1. 1. The learned CIT(A) erred in confirming the disallowance made by ld. DCIT of a sum of Rs. 1,56,93,509/- u/s 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.
2. The learned CIT(A) failed to take into consideration fourth ground of appeal made vide our letter dated 08.08.2015 about a mistake apparent from the records for a sum of Rs. 43,38,797/- which has been included twice by the Ld. DCIT once under the “INCOME FROM OTHER SOURCES” and again under the head “BUSINESS INCOME”
- M/s Acuity Holdings Pvt. Ltd.
Brief facts of the case are that the assessee is a Pvt Ltd Company engaged in the business of Investment in Shares, Securities and Derivatives, filed its return of income for relevant assessment year on 27.09.2011. The assessment was completed on 12.03.2014 under section 143(3) of the Act. The Assessing Officer (AO) while framing the assessment order disallowed a sum of Rs. 1,56,93,509/- under section 14A and addition of Rs. 43,38,797/- on account of mismatch of AIR data. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. Thus, further aggrieved, the assessee has filed the present appeal before us.
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. Ground No.1 relates to disallowance under section 14A r.w.Rule 8D of the Act. The ld. AR of the assessee argued that during the relevant financial year the assessee has earned dividend income of Rs. 3,05,125/- on Shares and Mutual funds. The Assessing Officer invoked the provision of Rule 8D for making disallowance under section 14A. The AO disallowed Rs. 66,904/- under Rule 8D2(i), Rs. 1,48,30,277/- under Rule 8D2(ii) and Rs. 7,96,328/- under Rule 8D2(iii). Thus, the Assessing Officer made total disallowance of Rs. 1,56,93,509/-. The ld. AR of the assessee submits that the disallowance made by Assessing Officer under section 14A should not exceed the dividend income. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble 2 M/s Acuity Holdings Pvt. Ltd. Delhi High Court in Joint Investment Pvt. Ltd. vs. CIT (372 ITR 694) and the decision co-ordinate bench in Daga Global Chemicals Pvt Ltd. ITA No. 5658/Mum/13 dated 09.12.2016. On the other hand, the ld. DR for the Revenue submitted the order of authorities below. 4. We have considered the submission of the parties and perused the material available on record. We have noted that during the year under consideration, the assessee had earned dividend income of Rs. 3,05,124/- only. No voluntary disallowance under section 14A was offered by assessee. The assessing officer disallowed Rs. 66,904/- under Rule 8D2(i), Rs. 1,48,30,277/- under Rule 8D2(ii) and Rs. 7,96,328/- under Rule 8D2(iii).
Thus, the Assessing Officer made total disallowance of Rs. 1,56,93,509/-.
The ld CIT (A) confirmed the action of assessing officer holding that the assessing officer has to follow the formula provided under Rule 8D. The Hon’ble Delhi High Court in case of Joint Investment Pvt. Ltd. (supra) hold that by no stretch of imagination held that by no stretch of imagination section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. The proportionate or portion of the tax exempt income surely cannot swallow the entire amount.