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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: HON’BLE S/SHRI JOGINDER SINGH (JM), & RAJESH KUMAR,(AM)
O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee which is directed against the order of the ld.CIT(A)-4, Mumbai, dated 2.12.2015 for the assessment year 2011-12.
The sole issue raised by the assessee is against the confirmation of addition of Rs.46,16,406/- under section 14A of the Income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962 by the ld.CIT(A) as made by by the AO despite the fact that the investments which yield or capable of yielding taxable income are to be excluded while calculating disallowance u/s 14A of the Act.
2 /M um /20 1 6 3. At the outset, the ld. AR submitted before the Bench that similar issue had come up before the bench in assessee’s own case in ITA No.6460/Mum/2014 (AY-2010-2011) vide order dated 3.10.2016 wherein on identical facts and circumstances of the case, the issue decided by the Bench in favour of the assessee by holding that the investments on which the income is liable for tax has to be excluded while calculating the disallowance u/s 14A r.s.r 8D of the Rules.
The ld. DR fairly agreed with the submissions of the ld.AR.
We have carefully considered the submissions of the rival parties and perused the material placed before us including the orders of authorities below and case law relied upon by the assessee. We find that the issue involved in the current year is whether the investments on which the income is not exempt from tax is to be included or excluded while calculating the disallowance u/s 14A r.w.r.8D. We find that the identical issue (supra) has been decided by the co-ordinate bench of the Tribunal, wherein vide para four of the order, it has been held by the Tribunal as under : “4. After considering the rival submissions and on perusal of the impugned orders, we find that the only dispute qua the disallowance under section 14A which has been raised by the Ld. Counsel before us is that, there are certain investments which are generating taxable income and therefore, these investments should be removed from the working of the average investment under formula prescribed under Rule 8D(2)(iii). The details of the investment considered for disallowance and also the investment which are generating taxable income were given in the following manner:-
3 /M um /20 1 6 Particulars As on 31.03.2010 As on 31.03.2009 Total Investments Rs.2,22,51,04,146 Rs. 1,21,57,53,656 Less: Investments generating taxable Rs. 40,60,85,329 Rs. 25,65,26,626 Income Schedule(1) Investment considered for Rs. 1,81,90,18,817 Rs. 95,92,27,030 Sec 14A Disallowance Sch. 1: Investment generating taxable income Particulars 31.03.2010 31.03.2009 In Rs. In Rs. Investment in Taxable Bonds 11.35% IDBI Omni Bonds 2008 Sr. XV 10,00,00,000 10,00,00,000 NCD Tata Capital Limited (12%) 5,00,00,000 5,00,00,000 9.62% L & T Finance 2,81,06,000 - 7.70% REC 4,94,01,550 - 7.90% REC 10,04,62,550 - Total Investment in Taxable Bonds(A) 32,79,70,100 15,00,00,000 Investment in Mutual Fund (Growth Plans) Fortis Flexi Debt Fund –Regular Growth Plan 1,02,38,889 1,02,38,889 Birla Fixed Term Plan-Institutional Series 3,25,00,000 3,25,00,000 BK- Growth HDFC FMP 13M March 2008 (VII)(2)- - 3,10,21,498 Wholesale Plan Growth HDFC Fixed Term Series 63- Institutional - 3,23,90,000 Growth ICICI Prudential Institutional Short Term 3,76,340 3,76,240 Plan – Cumulative Option ICICI Prudential Fixed Maturity Plan – 3,50,00,000 - Series 51 – 1 year Plan A – Cumulative Total Investment in Mutual Fund 7,81,15,229 10,65,26,627 (Growth Plans) –(B) Total Investments generating Taxable 40,60,85,329 25,65,26,627 Income – (A) + (B)
We agree with the contention of Ld. Counsel that, if the investment which are generating taxable income or are capable of earning taxable income, then same should be removed from the working of the average investment under the formula given under Rule 8D(2)(iii), because the said clause itself refers to the working of the average value of the investment, the income from which does not or shall not form part of the total income. This inter alia means that, if the investment which is generating income or is capable of earning taxable income, then same should not be the part of the working of average value of the investment. Thus, we direct the Assessing Officer to remove the investments, which are either generating taxable income or capable of earning taxable income. The 4 /M um /20 1 6 disallowance under Rule 8D(2)(iii) thus, should be worked out after removing such investments. The grounds raised by the assessee are accordingly treated as allowed”
6. We, therefore, maintaining the consistency with the earlier year order of the Tribunal in assessee’s own case, hold that the disallowance made under rule 8D(2)(iii) has to be worked out after excluding the investments which are capable of earning of taxable income. Accordingly, the appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.