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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 18.02.2013, passed by the Commissioner of Income Tax (Appeals)-16 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the AY.2008- 09.
The assessee has raised the following grounds:- “Disallowance u/s 14A-Rs.2,75,119/-
Ashok L. Shah a. The Ld. CIT(A) erred in confirming the adhoc disallowance u/s 14A r.w.Rule 8D of the Act Rs.2,75,119/-, although no expenses have been incurred on earning tax free income. b. The Ld. AO failed to take into consideration that the AO cannot ipso facto apply Rule 8D but can do so only where he records satisfaction on an objective basis that the assessee is unable to establish the correctness of its claim. c. the Ld. AO failed to establish any nexus between the expenditure incurred and the exempt income earned. d. Without prejudice the Ld. CIT(A) erred in confirming the computation of the disallowance under Rule 8D(2)(iii) made by the AO without having considered that (i) Capital introduced in partnership firms and(iii) PPF cannot be included within the definition of average investments.”
The brief facts of the case, are that the assessee filed his return of income for the A.Y. 2008-09 declaring total income to the tune of Rs.1,78,24,954/-. The return was processed u/s 143(1) of the I.T. Act, 1961 on 25.01.2010 creating a demand to the tune of Rs.5,21,370/- due to the non-credit of self assessment tax of Rs.4,52,113/- and some of the TDS. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Act was issued and served upon the assessee. The assessee was engaged in the business of money lending and bill discounting. On verification, it was found that the assessee invested a sum of Rs.4,02,53,568/- in the shares, Rs.64,54,300 in PPF, and Rs.1,46,43,145/- in three firms namely M/s Ashok L. Shah, M/s Fashion Inc and M/s First Fashion Inc, whose income was not included in the total income. Therefore, The Assessing Officer applied the provisions of Section 14A r.w. Rule 8D of the Act and assessed the expenditure to earn the exempt income to the tune of Rs.2,75,119/-. Since, the assessee was not satisfied therefore, filed an appeal before the Ashok L. Shah CIT(A) who also dismissed the claim of the assessee, therefore, the assessee has filed the present appeal before us.
ISSUE NO.1:- 4. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the assessee has argued that the Assessing Officer did not record any satisfaction to establish the correctness of the claim of the assessee. It is also argued that the no nexus was established between the expenditure incurred to earn the exempt income and the exempt income. Therefore, disallowance u/s 14A r.w. rule 8D of the Act to the tune of Rs.2,75,119/- is wrong and is liable to be set aside. It is alternatively argued that while computing the expenditure to earn the exempt income, the investment in the capital introduced partnership firm and PPF are not liable to be taken into consideration. However, on the other hand the Ld. Representative of the department has refuted the said contentions. Order of the assessment passed by the AO dated 25.10.2010 perused in which while assessing the expenditure to earn the exempt income the Assessing Officer included the investment made in partnership firm as well as PPF which nowhere liable to be considered to assess the expenses to earn the exempt income. The Assessing Officer assessed the total average value of investment to the tune of Rs.5,50,23,875/- which includes the investment in the partnership firm and investment in PPF. If, the such investment be excluded then the expenditure to earn the exempt income should not be more than half of the amount assessed by the AO to the tune of Rs.2,75,119/-. Taken into Consideration all the facts and circumstances mentioned above we are of the view that the Ashok L. Shah expenses to earn the exempt income should be restricted to the extent of 1,00,000/- in the interest of justice. Accordingly, we assessed the expenditure to earn the exempt income u/s 14A r.w. Rule 8D of the Act to the extent of 1,00,000/- and delete the remaining expenditure assessed by the AO to earn the exempt income. Accordingly, this issue is decided in favour of the assessee against the revenue.