MAYUR RAMNIKLAL SHAH,MUMBAI vs. ASST CIT CEN CIR 38, MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2010-11 assails the order of the Ld. Commissioner of Income-Tax (Appeals)-41 [CIT(A)], Mumbai, Appeal No. CIT(A)-41/ACCC-38/IT- 01/13-14 dated 28/03/2014 qua confirmation of certain disallowance u/s 14A for Rs.44,90,440/-. The assessment was framed by Ld. Assistant Commissioner of Income Tax, Central Circle-38, Mumbai [AO] on 27/02/2013 u/s 143(3) of the Income Tax, 1961.

The registry has noted that the appeal has been filed with a delay of 12 days and the assessee, vide letter dated 27/07/2014 duly supported by an affidavit, has requested for the condonation of the same. The delay is attributed to the poor health being suffered by the consulting Chartered Accountant of the assessee. No serious objections are raised against the same by the Ld. Departmental Representative. Therefore, keeping in view the quantum of delay and in the interest of justice, we condone the same and proceed further on the merits of the case. 3.1 Facts qua the issue are that the assessee being resident individual engaged as builder & developer was assessed for impugned AY on 27/02/2013 u/s. 143(3) at Rs. 1,16,35,780/- as against returned income of Rs.69,43,542/- e-filed by the assessee on 30/07/2010. The assessee, inter-alia, has suffered disallowance of Rs.44,90,440/- u/s 14A and the same is the sole subject matter of this appeal. Mayur Ramniklal Shah Assessment Year 2010-11 3.2 During assessment proceedings, it was noted that the assessee earned exempt dividend income of Rs.30,55,576/- but did not make any disallowance u/s 14A. The assessee submitted that all interest bearing funds procured by the assessee barring a sum of Rs.156.50 Lacs were utilized in giving interest bearing loans. Further, the assessee submitted disallowance working in terms of Rule 8D for Rs.12,38,406/- which comprised of interest disallowance for Rs.9,51,560/- & expenses disallowance for Rs.2,86,846/-. However, Ld. AO opined that the assessee could not establish the nexus of interest bearing loans obtained by the assessee vis-à-vis loans granted by the assessee. Finally, applying Rule 8D, Ld. AO worked out the said disallowance as Rs.44,90,440/- which comprised of interest disallowance u/r 8D(2)(ii) for Rs.41,14,920/- and expense disallowance u/s 8D(2)(iii) for Rs.3,75,520/-. 4. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 28/03/2014 where the assessee placing reliance on the judgment of Hon’ble Bombay High Court in Reliance Utilities & Power Limited [178 Taxman 135] contended that own capital was sufficient to cover the investments and therefore, a presumption has to be drawn that investments were made out of own funds. The assessee also contended that Rule 8D could not be applied by the Ld. AO without verifying the claim of the assessee and pointing out defect in the same. The assessee also pointed out that some interest bearing loans obtained by the assessee were used to grant interest bearing loans and therefore, interest portion, at least to that extent could not considered while computing interest disallowance. However, not ITA No.4936/M/2014 Mayur Ramniklal Shah Assessment Year 2010-11 convinced, Ld. CIT(A) rejected the various contentions of the assessee and upheld the disallowance with certain directions to Ld. AO to make corrections in the figures picked by him for the purpose of calculating the said disallowance. Aggrieved, the assessee is in further appeal before us.

The Ld. Counsel for Assessee [AR] drew our attention to the fact that the identical matter in the case of brother of the assessee namely Chetan R.Shah in was heard by another bench of the Tribunal where the matter has been restored back to the file of Ld. AO for reconsideration of the matter in terms of various pleas of the assessee. The Ld. AR pleaded for similar directions whereas Ld. DR contended that the matter was elaborately discussed by Ld. CIT(A) and therefore, no further relief could be granted to the assessee.

We have appreciated the rival contentions. We find that the matter to be factual one. The contention of the assessee is that investment were made mostly out of own funds and only small portion of interest bearing loans have been used to make the investment which could earn exempt income. We also note that the assessee has suffered disallowance of Rs.44,90,440/- against exempt income of Rs.30,55,576/- which was not justified since it is now settled legal position that the disallowance cannot swallow the entire exempt income earned by the assessee. The Ld. CIT(A) has also pointed out errors in the figures picked up by Ld. AO to arrive at the said disallowance. Therefore, on the totality of facts, we are of the considered opinion that the matter requires fresh adjudication at the level of Ld. AO after considering various ITA No.4936/M/2014 Mayur Ramniklal Shah Assessment Year 2010-11 contentions of the assessee as well as appreciating the nexus of own capital and interest bearing loans vis-à-vis investment made by the assessee. Hence, the matter is restored back to the file of assessee for re-adjudication after providing adequate opportunity of being heard to the assessee, who, in turn, is directed to demonstrate the appropriate disallowance to be made against exempt income with cogent material. We direct so.

Resultantly, the assessee’s appeal stands allowed for statistical purposes. Order pronounced in the open court on 08th November, 2017.