DCIT CENT. CIR. 7(1), MUMBAI vs. RARE ENTERPRISES, MUMBAI

This appeal has been filed by the assessee against the order of the CIT(A)-49, Mumbai dated 17.05.2018 for A.Y. 2010-11.

On the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting the disallowance under section 14A of the Act at Rs.3,35,94,487/- which was worked out as per the provisions of rule 8D by the AO without appreciating that the assessee has incurred interest expenditure as well as administrative expenditure for earning exempt income. On the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting the disallowance under section 14A of the Act at Rs.3,35,94,487/- without appreciating the fact that the disallowance offered by the assessee was not computed as per provision to rule 8D in accordance with the direction of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.

3. At the outset, the learned Counsel for the assessee Ms Rutuja N. Pawar drew our attention to the finding of the AO that the assessee is engaged in trading of shares and holding the shares as stock in trade and paid interest expenses of Rs. 45,84,77,832/-. The learned Counsel for the assessee referred to Para 5 of the AO’s assessment order which reads as under: - “The contention of the assessee on the issues considered but the same cannot be accepted. The assessee is trading in shares and held the shares as stock in trade. The assessee has paid net interest expenses of Rs.458477832/- to the parties from whom secured and unsecured loans are taken. The entire funds of the assessee except small amount pertaining to the partner capital balance are interest bearing funds. Even a lay man on perusal of the financial statement of the assessee firm can decide the issue in the favour of revenue that interest bearing funds were utilized for purchase in shares. Therefore, that the contention of the assessee that interest bearing fund were not used for purchase in shares is not correct

4. In view of the above the learned Counsel for the assessee stated that this fact was mentioned by the assessee before CIT(A) but he still confirmed the action of the AO. Now, before us the learned Counsel for the assessee argued that this issue is squarely covered in favour of assessee and against the Revenue by the decision of Hon’ble Bombay High Court in the case of CIT vs. India Advantage Securities Ltd. in of 2013 dated 13-04-2015. The learned Counsel for the assessee stated that exactly on identical facts, wherein same source of funds were under dispute and Tribunal in ITA No. 55& 56/Mum/2016 for the AY 2004-05 and 2009-10 respectively has allowed the claim of the assessee vide Para 2.5 as under: - “2.5 If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the M/s. Rare Enterprises impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before us the stand of the assessee is that so far as assessment year 2004-05 is concerned it is squarely covered by the decision from Hon’ble Bombay High Court in CIT vs. India Advantage Securities Ltd. (1131 of 2013) order dated 13.04.2015. Since, the assessee received dividend of Rs.1,68,00,931/- on shares and mutual fund units acquired and held as stock in trade and since the assessee itself disallowed a sum of Rs.41,,95,510/- as expenditure attributable to the earning income. The issue is squarely covered by the decision from Hon'ble jurisdictional High Court in CIT vs India Advantage Securities Ltd. (ITA No.1131 of 2013) order dated 13/04/2015, therefore, the disallowance u/s 14A r.w.r 8D is not required to be made and therefore, cannot be sustained in view of the foregoing decision. Accordingly, the order of the Ld. Commissioner of Income Tax (Appeal) is set-aside and Ld. Assessing Officer is directed to delete the addition made u/s 14A r.w.r 8D of the rules”

5. On query from the Bench the learned Sr. DR agreed that the issue is covered in favour of assessee and against the Revenue but he relied on the orders of lower authorities.

6. After hearing both the sides and going through the facts of the case. We find that the issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in the case of India Advantage Securities Ltd. (supra) and in assessee’s own case by the order of Tribunal in earlier years. Respectively following the same, we delete the disallowance and allowed the claim of the assessee.”