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Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: & &
This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-12, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-12/IT 191/DCIT 6(2)(2)/2015-16 dated 08-03-2016. The Assessment was framed by the Additional Commissioner of Income Tax, Range 6(2), Mumbai (in short ACIT) for the assessment year 2011-12 vide order dated 11.03.2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expense relatable to exempt
Elegant Marbles & Grani Industries Ltd. (A.Y. 2012-13) income by invoking the provisions of section 14A of the Act read with Rule 8D(2) of the Income Tax Rules, 1962 (hereinafter ‘the Rules’). For this assessee has raised following ground: -
“Disallowance under section 14A
2.0 The learned Commissioner of Income- tax (Appeals) erred in law as well as in facts in partly confirming the disallowance made by the assessing officer under section 14A of the Income-tax Act, 1961 read with Rule 8D(2) of the Income-tax Rules, 1962.”
Briefly stated facts are that the AO during the course of assessment proceedings noticed that the assessee has claimed dividend income as exempt at ₹ 1.50 crores under section 10(33) of the Act and the capital gains of ₹ 74.57 lakhs, part of which is claimed to be exempt under section 10(38) of the Act. According to assessee, it has made suo moto disallowance under section 14A of the Act amounting to ₹ 2,61,727/- after identifying the specific item of expenditure. The assessee before AO filed complete details of expenditure relatable to business and relatable to exempt income but the AO computed disallowance under section 14A of the Act by working out expenditure as per Rule 8D at ₹ 30,23,996/-. The AO worked out expenditure directly relating to exempt income under Rule 8D(2) at ₹30,23,996/-. The AO worked out expenditure directly relating to income under Rule 8D(2)(i) at ₹ 9,93,204/- , under Rule 8D(2)(ii) at ₹ 6,50,021/- and under Rule 8D(2)(iii) being 0.5% of average value of investment at ₹ 13,80,771/-. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance under Rule 8D(2)(iii) amounting from ₹ 9,93,204/- to ₹ 6,50,021/-. Revenue is in no in appeal against deleting. As regards to the disallowance under Rule 8D(2)(iii), the CIT(A) after considering the submissions of the assessee, restricted the disallowance to ₹ 9,25,639/- by observing as under: -
Elegant Marbles & Grani Industries Ltd. (A.Y. 2012-13) “The above submission was perused carefully. It is seen that the AO has not accepted the contention of the appellant that the investment in mutual fund i.e growth fund is not to be considered as exempt investment. Hence, I find force in the submission of the appellant that as on 31.03.2011, the investment must have to be identified as investment for yielding exempt income. Therefore, I direct the AO to consider the appellant's plea, i.e in the formula under rule 8D(2)(iii), the average investment value must be only the investment which yields exempt income as on 31.03.2011. The appellant has submitted that the correct average value of investment would be Rs.18,51,27j20/- instead of Rs.27,61,54,212/- and accordingly, disallowance under sub clause (iii) clause (2) of Rule SD to would be reduced to Rs.9,25,639/-. The AO is directed to verify the same from records and restrict the disallowance to only ½% of the same after reducing the suo moto disallowance of appellant. Hence, Ground of Appeal No 2 is partly allowed relating to the addition of Rs.13,80,771/- under 8D(2)(iii)..”
Aggrieved, now assessee is in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the Elegant Marbles & Grani Industries Ltd. (A.Y. 2012-13) assessee explained from the details of working of disallowance under section 14A of the act by taking the turnover from manufacturing and trading activity as well as sales for earning long term capital gains and other incomes like dividend, rent, etc. The learned Counsel for the assessee specifically drew our attention to the administrative expenses the nature of the same are given in schedule J of the balance sheet and also misc. expense for the purpose of Mumbai Bench office and Abu Unit, where manufacturing activities were carried out. The learned Counsel for the assessee stated that they have attributed the directors remuneration of ₹ 36,00,000/- towards business expenses and out of which they have presumed some part of the salary might have been gone into exempt income. Further, the learned Counsel explained that some part of the miscellaneous expenses of ₹ 12,81,356/- can be attributed to the exempt income. Accordingly, the learned Counsel stated that he has fairly disclose the expenses at ₹ 2,61,727/- to the expenses. We find from the above facts that the Revenue could not establish any nexus with the expenses incurred by assessee and before us also the assessee has properly explained the relation of exempt income and expense incurred. We find that the assessee has rightly disallowed to the extent of ₹ 2,61,727/- relatable to exempt income and we restrict to that extent only. We delete the disallowance confirmed by CIT(A) and allow the appeal of the assessee.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 16-11-2017.