A.C.I.T., CIRCLE-12(2), KOLKATA, KOLKATA vs. M/S SARVOTTAM CAPS LTD., KOLKATA
What did the Tribunal hold?
The Tribunal upheld the CIT(A)'s order, following the jurisdictional High Court's decision that only investments actually earning exempt income should be considered for disallowance under Rule 8D(2)(iii). The appeal filed by the revenue was dismissed.
What were the facts?
The assessee, a Non-banking Financial Company, claimed dividend and long-term capital gain income as exempt without offering any disallowance. The AO disallowed Rs. 64,95,145 under Section 14A read with Rule 8D(2)(iii). The CIT(A) restricted this disallowance to Rs. 22,12,570.
What were the issues?
Whether the disallowance under Section 14A read with Rule 8D(2)(iii) should be calculated on the entire investment or only on investments that yielded exempt income.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, KOLKATA BENCH ‘D’, KOLKATA
Before: Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM]
order
: March 09, 2018 ORDER
PER P.M. JAGTAP, AM
This appeal is preferred by the revenue against the order of Ld. CIT (Appeals) – 15, Kolkata dated 11.08.2016 whereby he restricted the disallowance made by the A.O. under section 14A by applying Rule 8D(2)(iii) amounting to Rs. 64,95,145/- to Rs. 22,12,570/-.
The assessee in the present case is a Non-banking Financial Company. The return of income for the year under consideration was filed by it on 13.10.2010 declaring a total income of Rs. 5,81,77,716/-. In the said return, dividend income of Rs. 2,39,63,159/- and long term capital gain of Rs. 1,36,03,296/-/- received by the assessee company during the year under consideration was claimed to be exempt from tax. No disallowance on account of expenses incurred in relation to Assessment Year: 2010-11 Sarvottam Caps Ltd. the said exempt income, however, was offered by the assessee as required by the provisions of section 14A. The A.O., therefore, applied Rule 8D and made a disallowance, in addition to direct expenses on account of indirect expenses to the extent of Rs. 64,95,145/- as per Rule 8D(2)(iii) being 0.5% of the average investment. 3. The disallowance made by the A.O. under section 14A was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) restricted the disallowance of Rs. 64,95,145/- made by the A.O. as per Rule 8D(2)(iii) to Rs. 22,12,570/- after taking into account only those investments which had actually earned dividend income during the year under consideration. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal. 4. At the time of hearing before the Tribunal, none has appeared on behalf of the assessee. This appeal of the revenue is, therefore, being disposed of ex-parte qua the respondent assessee after hearing the arguments of the learned DR and perusing the relevant material available on record. As agreed by the learned DR, the solitary issue involved in this appeal of the revenue is squarely covered in favour of the assessee by the decision of Hon’ble Kolkata High Court in the case of CIT vs REI Agro Ltd. (GA No. 3022 of 2013) wherein it was held that while computing disallowance to be made under section 14A by applying Rule 8D(2)(iii), only those investment which actually earned exempt income should be taken into account and not the entire
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