DCIT CEN CIR 5(2), MUMBAI vs. PRIME PROPERTY DEVELOPMENT CORPORATION P. LTD, MUMBAI

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ITA 7402/MUM/2016Status: DisposedITAT Mumbai16 November 2017AY 2013-144 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A)'s order was in line with the Delhi High Court's decision in Cheminvest Ltd. Therefore, the Revenue's appeal was dismissed.

What were the facts?

The Revenue appealed against the CIT(A)'s order which restricted the disallowance under Section 14A read with Rule 8D. The CIT(A) considered only investments yielding exempt income for calculating the disallowance.

What were the issues?

Whether investments not yielding exempt income should be included for calculating disallowance under Section 14A, and if earning of exempt income is the sole touchstone for such disallowance.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI

For Respondent: DR Assessee by :

O R D E R PER MAHAVIR SINGH, JM:

This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-53, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-53/DCCC-5(2)/IT-132/15-16 dated 29.08.2016. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle 5(2), Mumbai (in short DCIT) for the assessment year 2013-14 vide order dated 15-01-2016 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).

2.

The only issue in this appeal of Revenue is against the order of CIT(A) excluding value of investment not yielding exempt income relatable to exempt income under section 14A of the act read with Rule 8D of the Rules (hereinafter the Income Tax Rules). For this Revenue has raised following 2 grounds: -

“1. On the facts and in the circumstances of the case and in law, Id 01(A) has erred in excluding the Prime Property Development Corporation Pvt. Ltd (A.Y. 2013-14) value of investments not yielding exempt income in the year under consideration for computing the average value of investments as required for working of disallowance u/s 14A rwr 8D.

2. On the facts and in the circumstances of the case and in law, Id CIT(A) has erred in holding that earning of exempt income from investment in touchstone for making disallowance u/s 14A in-spite of fact that section 14A deals with disallowance of expenditure incurred in relation to income not includible in total income."

3.

We have heard the rival contentions and gone through the facts and circumstances of the case. At the outset, the learned Counsel for the assessee drew our attention to the fact that the assessee has earned dividend income of Rs. 55,073/- as recorded by the AO. According to the learned Counsel, the AO has made disallowance under section 14A read with Rule 8D of the Rules i.e. interest expenditure under Rule 8D(2)(ii) at Rs. 68,46,106/- and under Rule 8D(2)(iii) i.e. o.5% of average value of investment at Rs. 15,75,158/-, thereby the total disallowance made by AO at Rs. 84,21,264/-. Aggrieved, assessee preferred the appeal before CIT(A), who after going through the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Delhi) restricted the disallowance at Rs. 3,75,730/- by observing in Para 4.3.5 as under: -

"4.3.5 I am, however, inclined to accept the plea of the appellant for considering only those investments from which exempt income was received by the appellant as per the ratio of judgment of Hon'ble Delhi High Court ii the case of Cheminvest Ltd. cited above. Accordingly, while calculating the disallowance as per Rule 8D(2)(ii) and 8D(2)(iii), the Prime Property Development Corporation Pvt. Ltd (A.Y. 2013-14) average value of investment is worked out by taking into account the investments in those shares only which have yielded tax free income to the appellant by way of dividend during the relevant period. In this manner, the disallowance of expenses incurred by the appellant in relation to the earning of exempt income is worked out as under:-

Description Amount (₹.) Disallowance under Rule 8D(2)(ii): (AXB/C) 3,04,925/- Average value of investment (B):₹. 1,40,31,476)/2] Average of total asets (C): ₹. 1,26,68,84,479/- Disallowance under Rule 8D(2)(iii): 70,157 0.5% of ₹. 1,40,31,476/- Total 3,75,082 Thus, the total disallowance under Rule 8D works out to ₹. 3,75,082/- as against ₹. 84,21,264/- computed by the Assessing Officer. The appellant thus gets relief of ₹. 80,46,182/- (₹.84,21,264 minus ₹. 3,75,082/-) on this ground. The AO is directed to consider the quantum of disallowance under section 14A r.w. Rule 8D at ₹. 3,75,730/- as computed above while giving effect to this order. Grounds bearing Nos. 1 to 5 of the present appeal are allowed to the extent indicated above."

4.

As the issue is squarely covered by the Hon’ble Delhi High Court in the case of Chem Investment (supra), we find no infirmity in the order of CIT(A), the appeal of the Revenue is dismissed.

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