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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI D.T.GARASIA, JM & SHRI RAJESH KUMAR, AM
2 and 5158/M/2012 आदेश / O R D E R PER RAJESH KUMAR, A. M: These cross-appeals are directed against the order 1.5.2012 passed by the ld.CIT(A)-21 for the assessment year 2009-10. I.T.A. No.4334/Mum/2012
The first issue raised by the assessee in grounds of appeal no.1 is against the part confirmation of disallowance to the tune of Rs.34,59,782/- under section 14A read with r.w.r.8D of the Act and Rules respectively ignoring the proposition laid down by Hon’ble Bombay High Court in the case of Godrej and Boyce Mft co.Ltd (328 ITR 81-Bom). The assessee also raised additional ground which is as under : “On the facts and in the circumstances of the case and in law the ld.AO erred in adding the disallowance made under section 14A to the computation of book profits under section 115JB of the Act on the alleged ground that the expenditure pertains to earning exempt income. The appellant therefore prays that the addition of Rs.34,59,782/- made to book profits computed under section 115JB be deleted:”
After hearing both the parties on the admission and maintainability of additional ground , we find merits in the additional ground taken by the assessee and following the precedents laid down in the cases of (a) National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 ; (b) Jute Corporation of 3 and 5158/M/2012 India v. CIT [1991] 187 ITR 688 (SC) and Pruthvi Brokers & Shareholders (P.) Ltd. reported in [2012] 349 ITR 336, we admit the additional ground taken by the assessee and decide it on merits.
At the outset, the ld.AR submitted that an identical issue has came up before this Tribunal in assessee’s own case in ITA No.8575/Mum/2011(AY- 2008-09) order dated 31.8.2017, wherein an identical question has been decided by the Tribunal in assessee’s favour. Therefore, the ld.AR prayed that the similar direction be given in these case also.
The ld. DR did not place any material contrary to the submissions of the ld.AR but relied on the orders of authorities below.
We have carefully considered the rival contentions and perused the materials placed before us including the decision of the Tribunal as cited before us. We find that in assessee’s own case in I.T.A.No.8575/Mum/2011(supra) an identical issue has been decided in assessee’s favour. The operative part of the Tribunal decision is extracted below: “We have heard the rival submissions, perused the orders of the authorities below. The Assessing Officer disallowed ₹.4,61,42,677/- u/s 14A of the Act being the 0.5% of average value of investments applying Rule 8D (2)(iii) as expenses attributable for earning exempt income, apart from the suo motu disallowance of ₹.22.83 Crores made by the assessee being interest on loans. Assessee contended that there was no employee cost for earning exempt income. The Ld.CIT(A) however estimated the expenses attributable for earning exempt income at 5% of the employee cost of EPC division. This 4 I.T.A. No. 4334/M/2012 and 5158/M/2012 estimation of the Ld.CIT(A) appears to be not justified for the reason that EPC division is not the decision making authority for making investments. The decision making authority for making investments is done at higher level i.e. in the Corporate Office by the Directors and the Higher Officials. Therefore, the employee cost in EPC division certainly has no relation to the investment made by the assessee. Therefore, the estimation made by the Ld.CIT(A) taking the employees cost of EPC division is not proper and justifiable. The Ld.CIT(A) also observed that 99.98% of the investments were in shares and mutual funds units of group companies in such circumstances it cannot be said that there is much involvement of employees at large and on a daily basis to monitoring the investments. It is the decision taken at higher level in the Corporate Office by the Directors and at best it can be said that the salary cost of the Directors and the Employees who are directly involved in the investment division in the Corporate Office has direct link for earning the exempt income from these investments. In any case the assessee received exempt income of ₹.7.91 crores and it had already disallowed expenses attributable for earning dividend income at ₹.22.83 Crores which is much more than the exempt income earned. Therefore, in our considered view there should not be any further disallowance u/s 14Aunder Rule 8D of the I.T. Rules, since the disallowance cannot exceed exempt income. This view of our is fortified by the decision of the Madras High Court in the case of Redington India limited v. ACIT [77 taxman.com 257]. Thus, we hold that the estimation of disallowance made by the Ld.CIT(A) in respect of the exempt income u/s 14Ar.w. Rule 8D of I.T. Rules is not justifiable and hence the same is deleted”.
Respectfully following the decision taken therein, we set aside the order of the ld.CIT(A) and direct AO to delete the disallowance. 6. Since, we have deleted the addition completely in the grounds of appeal no.1, therefore, additional ground raised by the assessee becomes infructuous and therefore dismissed as infructuous.