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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
Date of Hearing – 06.11.2017 Date of Order – 22.11.2017
O R D E R PER SAKTIJIT DEY, J.M.
Aforesaid appeal filed by the Revenue is directed against the order dated 20th Jul 2016, passed by the learned Commissioner (Appeals)–5, Mumbai, for the assessment year 2012–13.
The only effective ground raised by the Department reads as under:–
“Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) is right in deleting the disallowance made by the Assessing Officer strictly as per section 2 M/s. Panatone Finvest Ltd. 14A r/w section 8D on the basis of the facts and consideration not available in law/rule, whose validity has been affirmed by the Bombay High Court in Godrej & Boyce on the constitutionality of subsections (2) and (3) of section 14A and rule 8D.
Brief facts are, the assessee a registered Non–Banking Financial Company (NBFC) is engaged in the business of investment and financing activity. For the assessment year under dispute, the assessee filed its return of income on 27th September 2012, declaring total income of ` 53,21,243. During the assessment proceedings, the Assessing Officer noticed that in the relevant previous year, the assessee had earned exempt income by way of dividend amounting to ` 18,52,792, whereas, it has disallowed an amount of ` 9,92,76,146 under section 14A of the Act. The Assessing Officer referring to the decision of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010], 328 ITR 081 (Bom.) and couple of other decisions held that disallowance under section 14A has to be made by applying the method prescribed under rule 8D and accordingly, proceeded to work out the disallowance under rule 8D at ` 18,75,71,370. The assessee having made a disallowance of ` 9,92,76,146, the balance amount of ` 8,82,95,224, was added back to the income of the assessee. Being aggrieved of the disallowance / addition made by the Assessing Officer assessee preferred appeal before the first appellate authority.
3 M/s. Panatone Finvest Ltd. 4. The learned Commissioner (Appeals) after considering the submissions of the assessee deleted the addition by observing as under:–
“3.4 I have considered the appellant’s submissions and the facts of the issue are discussed above. In this case A.O. had applied section 14A r.w.r. 8D in computing disallowance u/s 14A for ` 18,75,71,370. After giving credit to appellant’s disallowance of ` 9,92,76,146, A.O. had disallowed ` 8,82,95,224. In the appellant’s submission appellant states that total expenditure debited in P & L A/c is ` 9,92,87,258 and this amount appellant themselves had disallowed u/s 14A while filing return of income, hence, no further disallowance is required. When P & L A/c of the appellant is examined there is merit in the appellant’s contention. In this case, appellant disallowed total amount which was incurred by the appellant during the year and this total amount which is debited in P&L A/c is disallowed u/s 14A of the I.T. Act. Under section 14A only expenditure incurred to the earning of total income can be disallowed. In this case total expenditure incurred by appellant is ` 9,92,87,258, hence A.O. cannot disallow more than the amount debited in P & L A/c. Following the decision in the case of Gillette Group India P. Ltd. v/s ACIT [22 Taxmann.com 61] where it is held that “the disallowance cannot exceed the expenditure actually claimed by the assessee. We, therefore, accept the assessee’s contention that the disallowance made by eth A.O. and sustained by the Ld. CIT(A) in excess of total expenditure debited to P&L A/c as unjustified”, A.O’s disallowance of ` 8,82,95,224 is deleted. This ground of appeal is allowed.”
We have heard rival contentions and perused the material available on record. As could be seen from the impugned order of the learned Commissioner (Appeals) as well as facts on record, the total expenditure debited to the Profit & Loss account has been disallowed by the assessee under section 14A. Therefore, we fully agree with the learned Commissioner (Appeals) that when the assessee has disallowed the total expenditure incurred and debited to the Profit &
4 M/s. Panatone Finvest Ltd. Loss account, the Assessing Officer cannot disallow more than the amount debited to Profit & Loss account. There being no rationale or logic behind the addition made by the Assessing Officer, we uphold the order passed by the learned Commissioner (Appeals) by dismissing the ground raised.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 22.11.2017