MIRC ELECTRONICS LTD,MUMBAI vs. DCIT CEN CIR 5(3), MUMBAI

DCIT Cen Cir-5 (3), MIRC Electronics Ltd. Mumbai G-1, MIDC Onida House, बिधम/ Mahakali Caves Rd, Vs. Andheri(E), Mumbai- 400093 स्थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACM8055A (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri Rakesh Mahant प्रत्यथीकीओरसे/Respondentby : Shri M. V. Rajguru सुनवाईकीतारीख/ : 30/10/2017 Date of Hearing घोषणाकीतारीख / : 04/01/2018 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

MIRC Electronics Ltd. 1. On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeal)-, Mumbai, erred in confirming the disallowance made by the assessing officer amounting to Rs. 12,87,315/- under section 14A of the I.T. Act 1961 (the Act) r.w.r. 8D of the I.T. Rules 1962. The appellant prays that the disallowance of Rs. 12,87,315/- u/s 14A of the Act may kindly be deleted.

`The appellant craves the liberty to add, alter or deleted all or any of the grounds of appeal before or during the course of hearing.

2. The brief facts of the case are that the assessee is a manufacturer, trader and exporter of televisions, air conditioners, washing machines and certain other FMCGs. The assessee filed its return of income for AY 2012-13 by way of e-filing on 29.09.12 declaring total loss of Rs. 39,19,75,331/-. Subsequently, the case of assessee was selected for scrutiny and after serving statutory notices and seeking reply of assessee; the AO passed assessment order of assessment u/s 143(3) on 26.03.15 thereby making additions /disallowances.

MIRC Electronics Ltd. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. Now before us, the assessee has preferred the present appeal by raising the above grounds.

Ground No. 1 3. The sole ground ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the disallowance made by the assessing officer amounting to Rs. 12,87,315/- under section 14A of the I.T. Act 1961 (the Act) r.w.r. 8D of the I.T. Rules 1962.

6. We have considered rival contentions and we have perused the material on record including cited case laws and orders of the authorities below. We have observed that the assessee is engaged in the business of manufacturing of TV sets. It is also trading in certain FMCG . The assessee I is also manufacturing washing machine and air conditioners. The assessee has earned dividend income of Rs.44,69,167/- which has been claimed as exempt from tax u/s 10(34). The assessee has voluntarily offered disallowance of Rs. 34,692/- u/s. 14A of the Act computed on the basis of 0.5% of salary of GM(Finance) and it is claimed by the assessee that this is the only expenses incurred by the assessee. The A.O invoked Rule 8D r.w.s.14A and made disallowance of Rs.16,67,098/- . We have observed that learned CIT(A) considered various heads of expenses incurred by the assessee which are in the nature of personnel expenses to the tune of Rs.92.25 crores, other/administrative expenses by the way of rent of Rs. 7.8 crores , rates and taxes to the tune of Rs. 4.44 crores and miscellaneous/administrative expenses to the tune of Rs. 30.85 crore which included professional fee of Rs. 3.20 crores, Printing and stationary expenses of Rs. 1.21 crore, tax-audit fee of Rs. 4 lacs , auditors remuneration of Rs. 4.68 lacs, MIRC Electronics Ltd. internal audit fee of Rs. 22.2 lakhs, sitting fee of Rs.1.25 lakh etc to uphold the disallowance based on Rule 8D(2)(iii) r.w.s. 14A after arriving at the conclusion that the claim of the assessee of applying 05% to salary of GM(Finance) to arrive at disallowance u/s 14A is not correct. We have observed that during the year under consideration, investments held by the assessee at the beginning of the year was Rs.40.14 crore which has come down to Rs.26.54 crores as at the end of the year. The assessee has sold the investments during the year which comprised mutual fund which mainly led to fall in investments held by the assessee as at year end vis-a-vis held at the beginning of the year. The assessee has offered disallowance computed @0.5% of the salary of GM ( Finance) u/s. 14A . The tribunal in the preceding year i.e. AY 2010-11 has held further disallowance of Rs. 50,000/- towards administrative expenses will meet the end of the justice. The authorities below have not gone deeply into the accounts and affairs of the assessee to find out who all were responsible for handling investments and to identify the expenditure/cost incurred towards the earning of the exempt income . The authorities below did not call for minute books of directors/shareholders , copies of resolutions, investment records , books of accounts and no MIRC Electronics Ltd. information were called from the investee company/entity who holds investment in demat mode, even it was not considered appropriate to record statements of the Company Secretary/Directors and/or other persons incharge of investments by the authorities below as also to delve deeply into accounts to arrive at the conclusion that the claim of the assessee in making disallowance u/s 14A is incorrect and resort has to be made to Rule 8D in the midst of incorrect claim of the assessee. Rather, a superficial examination of the expenses of the company was made by the learned CIT(A) to justify that formula prescribed in Rule 8D(2)(iii) is to be applied and claim of the assessee is not correct. The assessee is mainly dealing in the electronics products and has turnover of more than Rs.2000 crores during the impugned assessment year and exempt dividend income is merely Rs. 44.69 lacs as against the investment of Rs. 26.54 crores held at the end of the year. The assessee has undertaken activity/transactions of sale of mutual funds during the previous year relevant to the impugned assessment year which led to decline in investment as at year and necessarily expenses must have been incurred towards undertaking these transaction / activity of sale of mutual fund. Under these circumstances and keeping in view tribunal decisions in the preceding years in MIRC Electronics Ltd. assessee’s own case , thus , in order to maintain consistency and judicial discipline , end of justice will be met in the instant case if further disallowance of expenditure u/s 14A is kept at an additional amount of Rs.1,00,000/- towards administrative/misc. expenses to be added to the income of the assessee . This is in view of the non recording of proper satisfaction by the authorities below as to the incorrectness of the claim of the assessee’s claim and also this disallowance u/s 14A so upheld by us is in consonance with the decision of Hon’ble Supreme Court in the case of Godrej and Boyce Manufacturing Company Ltd. v. DCIT (2017) 394 ITR 449(SC). We order accordingly.