ACIT, CIRCLE-8(2), KOLKATA, KOLKATA vs. M/S. RUSSELL CREDIT LIMITED, KOLKATA

in agreement with ACIT, Cir-8(2), Kol Vs. M/s Russel Credit Ltd. Page 2 the finding of the Ld. AO that the disallowance under Sec. 14A read with Rule 8D could not have been along the lines of the observation of the hon'ble ITAT in the case of the appellant for the AYs 2005-06 to 2008-09, as very clearly Rule 8D was not applicable for the years decided by the hon'ble ITAT. The Hon'ble ITAT had decided that the disallowance be made in accordance with the formula determined by the hon'ble ITAT, i.e, lumpsum amount for proportionate management expenses and another 40% of the custodial and depository charges. In view of the introduction of Rule 8D applicable from AY 2009-10 and onwards, the said formula may no longer be applicable in the case of the assessee-appellant 2. That said, it is abundantly clear that Rule 8D would be applicable in the case of the appellant for the subject assessment year 2011-12, and therefore the main submission of the assessee as made out before the Ld. AO as well as in appeal cannot be acceptable.

However, after perusing the facts of the case, and the alternative submissions, I find reasonable merit in the submissions of the appellant that the strategic investments are excludible for the purpose of considering investments under Rule 8D(2)(ii) of the IT Rules. Taking into consideration all the material facts of the case, and the various issues at hand, I find that the second alternative submissions of the appellant that while computing the disallowance under Rule 8D, investments not yielding exempt income require to be excluded, to be more reasonable and worthy of serious consideration. The said principle has the approval of the Hon'ble jurisdictional High Court in the case of RIE Agro Ltd. Vs. DCIT in GA No.3581 of 2013. It is also true that the said principle of exclusion of investments not earning exempt income while calculating the disallowance u/s. 14A read with Rule 8D has been reiterated in respect to the case of Integrated Coal Mining Ltd Vs. DCIT in dated 30th November, 2015.

In the matter discussed above, the appellant has re-worked out the eligible disallowance us/s 14A on the application of Rule 8D in line with the decisions (supra) with the method of exclusions of Investments not earning Dividend Income, as under: Computation of disallowance based on average value of investments Amount (Rs) Investments yielding exempt income as on 31,18,17,657 31.03.2010 Investments yielding exempt income as on 1,14,59,15,817 31.03.2011 Average of above: 72,88,66,737