A.C.I.T.-CIRCLE-34, KOLKATA, KOLKATA vs. M/S BISWANATH PASSARI, KOLKATA

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ITA 2863/KOL/2013Status: DisposedITAT Kolkata06 July 2018AY 2007-20084 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that the CIT(A) erred in not considering the disallowance made by the AO for other expenses besides interest. Therefore, the Tribunal modified the CIT(A)'s order to sustain the disallowance at Rs. 10,09,001/-.

What were the facts?

The Assessing Officer (AO) disallowed Rs. 39,17,925/- under Section 14A for expenses related to exempt dividend income. The CIT(A) restricted this disallowance to Rs. 7,20,267/-, holding Rule 8D was not applicable for the assessment year. The Revenue appealed this restriction.

What were the issues?

Applicability of Rule 8D for the assessment year and the correct computation of disallowance under Section 14A for expenses related to exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA BENCH (A

Before: Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM]

order

: July 06, 2018 ORDER

PER P.M. JAGTAP, AM

1.

This appeal preferred by the revenue is directed against the order of Ld. CIT(A) - XX, dated 05.09.2013 and the solitary issue involved therein relates to the disallowance of Rs. 39,17,925/- made by the A.O. under section 14A of the Act which is restricted by the Ld. CIT(A) to Rs. 7,20,267/-.

2.

The assessee in the present case is an individual who filed his return of income for the year under consideration on 31.10.2007 declaring a total income of Rs. 24,30,912/-. In the said return, dividend income received by the assessee during the year under consideration was claimed to be exempt. No disallowance on account of expenses incurred in relation to the said exempt income however was offered by the assessee as required by section 14A of the Income Tax Act, 1961. The A.O. computed such expenses incurred by the 2 Assessment Year: 2007-08 Mr. Biswanath Passari assessee in relation to the earning of exempt dividend income by applying Rule 8D as under: “Interest x Average Investment + ½ % of Average Investment Total Average Assets Rs. 1,75,15,402/- x Rs. 5,77,46,888/- + ½ % of Rs. 5,77,46,888/- Rs. 27,86,17,795/- Rs. 36,29,191/- + Rs. 2,88,734/- = Rs. 39,17,925/-“ Accordingly, in the assessment completed under section 143(3) vide an order dated 29.12.2009, a disallowance of Rs. 39,17,925/- was made by the A.O. under section 14A of the Act.

3.

The disallowance made by the A.O. under section 14A of the Act was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submission made by the assessee as well as the material available on record, the Ld. CIT(A) restricted the same to Rs. 7,20,267/- for the following reasons given in paragraph no 5.2 of his impugned order: “I have perused the assessment order and considered the submission of the appellant. The fact of the case is that the A.O. invoked Rule 8D for making disallowance under 14A of the I.T. Act, however, the appellant argued that for this year the rule 8D was not on the statute. They further submitted that there was interest received amounting to Rs. 1,64,41,832/- on unsecured loan and paid of Rs. 1,71,62,099/- during the year. After careful consideration of the facts and circumstances of the case, I find merit in the argument of the appellant that the rule 8D is not applicable for this year. Further, in view of the judgment of the 1277/Kolkata/2011, can be said to be attributable to the exempt income. Thereby, the A.O. is directed to take the figures of disallowance u/s 14A at Rs. 7,20,267/- instead of Rs. 39,17,925/-. Thereby, the appeal is partly allowed”

Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal.

3 Assessment Year: 2007-08 Mr. Biswanath Passari 4. At the time of hearing fixed before the Tribunal on 21.06.2018, none has appeared on behalf of the assessee. It is noted that there was a similar non-compliance on the part of the assessee when his appeal was fixed for hearing earlier from time to time. This appeal of the revenue, therefore, is being disposed of ex-parte qua the respondent assessee after hearing the arguments of the learned DR and perusing the relevant material available on record. It is observed that the net interest debited by the assessee in the profit and loss account was only to the extent of Rs. 7,20,267/- and after taking note of the same, the disallowance of Rs. 36,29,191/- made by the A.O. on account of interest under section 14A was rightly restricted by the Ld. CIT(A) to Rs. 7,20,267/-. As pointed out by the learned DR, the Ld. CIT(A) however failed to note that a disallowance of Rs. 2,88,734/- was made by the A.O. on account of other expenses in addition to the disallowance on account of interest and accordingly he wrongly restricted the total disallowance of Rs. 39,17,925/- made by the A.O. under section 14A to Rs. 7,20,267/- instead of Rs. 10,09,001/- (Rs. 7,20,267/- + Rs. 2,88,734/-). We accordingly modify the impugned order of the Ld. CIT(A) on this issue and sustain the disallowance made by the A.O. under section 14A to the extent of Rs. 10,09,001/-.

5.

In the result, the appeal of revenue is partly allowed. Order Pronounced in the Open Court on 6th July, 2018.

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