M/S.VISION EL TECH AND SERVICES PVT. LTD.,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME-TAX, BANGALORE

PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :

This appeal by the assessee is directed against the order of Commissioner of Income-tax (Appeals) -7, Bangalore dated 30/6/2016 for asst. year 2012-13. ITA No.1519/B/16 2

filed its return for asst. year 2012-13 on 29/9/2012 declaring total

income of Rs.77,19,260/-. The case was taken up for scrutiny and the assessment was completed u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) vide order dated 25/2/2015, wherein the income of the assessee was determined at Rs.82,83,090/-, in view of disallowance of Rs.5,63,830/- u/s 14A r.w Rule 8D. The assessee’s appeal was dismissed by the ld CIT(A) – 7, Bangalore vide the impugned order

dated 30/6/2016. 3.1 Aggrieved by the order of the CIT(A)-7, Bangalore dated

30/6/2016 for asst. year 2012-13, the assessee has preferred this appeal, raising the following grounds challenging the action of the authorities below in making and sustaining the aforesaid disallowance

u/s 14A r.w Rule 8D.:-

“1.That the order of the Assessing Officer / CIT(Appeals) in so far as it is against the appellate is against the law, facts, circumstances, natural justice, equity and all other known principles of law.

ITA No.1519/B/16 3

expenditure was incurred to earn this exempt income. The AO, on examination of the assessee’s claim with respect to the expenditure

incurred for earning such exempt income, was of the view that the assessee had utilized the common kitty of funds for investment and since there was no proof of direct nexus between the funds and investments disallowance u/s 14A r.w Rule 8D(2) of IT Rules, 1962

was called for and disallowance amounting to Rs.5,63,830/- was made; Rs.5,896/- u/R 8D(2)(ii) and Rs.5,57,934/- u/R 8D(2)(iii) of the Rules. On appeal, the said disallowance was sustained by the ld

CIT(A).

submitted that the grounds raised in respect of the disallowance u/s 14A r.w Rule 8D, in as much as, is in respect of the disallowance to the extent of Rs.5,896/- u/R 8D(2)(ii) is not pressed due to smallness

of the amount involved. We, therefore, uphold the disallowance of Rs.5,896/-, made by the AO u/s 14A r.w Rule 8D(2)(iii) of the Rules.

amounting to Rs.5,57,936/-, the ld AR for the assessee submitted that ITA No.1519/B/16 5

the assessee has not incurred any administrative expenditure for earning the exempt dividend income. It was further submitted that the AO has not pointed out or identified which expenditure incurred was having nexus with the earning of exempt income. In this regard, the ld AR submitted that, as per schedule 11 of the financial statements of the assessee (placed at pages 39 to 44 of paper book) at page 44

thereof reflecting other expenditure of Rs.2,11,411/-, the break up at page 21 of paper book would go to show that out of the sum of Rs.1,54,777/- on account of securities transaction tax was disallowed

suo moto by the assessee and reflected in its computation of income

(placed at page 37 to 44 of paper book). It was contended that if at all the disallowance u/R 8D(2)(iii) was called for, it ought to be restricted

to expenditure incurred on Bank charges of Rs.308/- and miscellaneous expenses of Rs.2,615/-. Relying on the decision of a co-ordinate bench in the case of M/s M.N Dastur Co. Pvt. Ltd., in ITA

No.94/Bang/2014 dated 7/10/2015 it was submitted that when the AO

has neither recorded his satisfaction nor identified the expenditure

which can be apportioned for earning exempt income, then the disallowance made by the AO is not sustainable.

ITA No.1519/B/16 6

for an activity, which resulted in earning of exempt as well as taxable income. Since there is frequent movement in the investment portfolio of the assessee, therefore, question which requires to be ascertained is those particular items of expenditure debited by the assessee in its ITA No.1519/B/16 7

profit and loss account which can be apportioned and computed u/s 8D(2)(iii) of the Rules. In this factual matrix of the case, we are of the considered opinion that the issue of disallowance u/s 14A r.w

Rule 8D(2)(iii) requires proper examination of the fact on the aspect

of identifying the expenditure attributable thereunder and, therefore,

set aside this issue to the file of the AO for examination and computation of the administrative expenditure incurred for earning

the exempt income for making the disallowance u/s 8D(2)(iii). We

make it clear that the disallowance made u/s 14 r.w Rule 8D(2)(iii)

cannot exceed the actual expenditure debited by the assessee to the profit and loss account which has a nexus for earning of the exempt

income. The AO is directed to examine and adjudicate the issue of disallowance u/s 14A r.w Rule 8D(2)(iii) after affording the assessee

adequate opportunity of being heard. We hold and direct accordingly.

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Order pronounced in the open court on 31st May, 2017. (VIJAYPAL RAO) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated : 31/5/2017 Vms

Copy to :1. The Assessee 2. The Revenue 3.The CIT concerned. 4.The CIT(A) concerned. 5.DR 6.GF By order

Asst.