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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
This appeal by the Revenue is arising out of the order of CIT(A)-2 Mumbai, in appeal No. CIT(A)-2/IT/69/2012-13, dated 28-08-2015. The Assessment was framed by DCIT Circle 1(1), Mumbai for the A.Y. 2010- 11 vide order dated 31-01-2013 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) deleting the disallowance made by AO u/s 14A of the Act read with Rule 8D of the IT Rules, 1962 (‘the Rules’). For this Revenue has raised following two grounds: -
“1. "Whether on facts and in the circumstances of the case and in Law, the Ld. CIT(A) erred in M/s Graviss Hospitality Ltd. (A.Y:2010-11) restricting the disallowance of expenses u/s.14A @ 0.5% of the average investment amounting to Rs. 24,82,882/-, without establishing any nexus between investment in shares and assessee's own funds and without considering the specific provision of Rule SD of the IT rules."
"Whether on facts and in the circumstances of the case and in Law, the Ld. CIT(A) is right in directing that the amount of disallowance of expense4s u/s.14A to be added while computing book profit u/s. 11 SJB should be restricted @ 0.5% of average investment amounting to Rs.24,82,8821- as against the total amount of Rs.59,5 7,113/- disallowable under section 14A."
Briefly stated facts are that the assessee has earned dividend income of Rs. 2,47,16,284/- and claimed the same as exempt u/s 10(34) of the Act. The assessee made suo moto disallowance under rule 8D(2) of the rules at Rs. 5,00,000/- by estimating the time spent by the employees of the assessee relating to investments. The assessee contended that it has not incurred any interest expenditure towards earning of exempt income and therefore, there is no direct nexus between the expenses incurred and the exempt income. The AO did not accept the explanation of the assessee and directly applied rule 8D(2)(ii) & (iii) of the Rules and made disallowance of Rs.39,74,231/- and Rs. 24,82, 882/- under the respective rules in total to Rs. 64,57,113/- as against the suo moto disallowance made by the assessee at Rs. 5,00,000/-. Aggrieved, assessee preferred the appeal before CIT(A) who relying on ITAT decision in assessee’s own case for AY 2009-10 and 2008-09 allowed the claim of the assessee by observing in Para 3.6 as under: -
M/s Graviss Hospitality Ltd. (A.Y:2010-11) “3.6, I find that there is no change in the facts and circumstances of the case of the Appellant during the year vis-a-vis immediately preceding year. In fact, the investment has reduced from Rs.5459.95 lakhs in F.Y.2008-09 to Rs.4471.57 laks in F.Y.2009-10 and borrowings of the Appellant has reduced from Rs.2838.65 lakhs in F.Y.2008-09 to Rs.1680.48 lakhs in F.Y.2009-10. Hence, respectfully following the decisions of Hon'ble ITAT in Appellant's own case in A.Y.2008-09 and 2009-10 I delete the disallowance of Rs.59,57,113/made by the AO and direct the AO to accept the suo moto disallowance of Rs.500,000/- made by the Appellant in its return of income as disallowance u/s 14A of the Act. This ground of appeal is thus allowed”
Now, before us, the learned Counsel for the assessee stated that the issue is covered by Tribunal’s decision in assessee’s own case for AY 2008-09 in and in ITA No. 3542/Mum/2013 for AY 2009-10. The learned Counsel for the assessee stated that there is no change in investment and also no change in the expenses. We find that the Tribunal in AY 2008-09 vide order dated 17-06-2015 has allowed the claim of the assessee by observing as under: -
“8. We find that the facts and circumstances of the case for the year under consideration are identical to that of A.Y. 2009-10. We may further observe that the Hon’ble Bombay High Court in the case of “Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT” (supra) has categorically held that resort can be made to Rule 8D of the Income Tax Rules, if the AO is not satisfied with the correctness of the claim made by the assessee in respect of such M/s Graviss Hospitality Ltd. (A.Y:2010-11) expenditure. The satisfaction of the AO has to be arrived at having regard to the accounts of the assessee. Sub section 2(14) does not ipso-facto enable the AO to apply the method prescribed by the rules straightway without considering whether the claim made by the assessee in respect of such expenditure is correct. The satisfaction of the AO must be arrived at on an objective basis. A perusal of the assessment order under consideration reveals that the AO has failed to follow the guidelines of objective satisfaction as laid down by the Hon’ble Bombay High Court in the case of “Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT” (supra) while making the disallowance. The AO has straightway applied Rule 8D for working of the disallowance against the mandate of the provisions of section 14A of the Income Tax Act. We may further observe that the Ld. CIT(A) having regard to the accounts of the assessee has observed that the assessee has not incurred any interest/indirect expenditure for earning of the exempt income. The balance sheet of the assessee reveals that the assessee had reserve and surplus of Rs.2,69,82,76,106/- as on 31.03.08 as against the total investments of Rs.69,33,10,403/-. The reserve and surplus investments of the assessee as on 31.03.06 was at Rs.1,31,08,13,906/- and therefore there was an increase of about Rs.138 crores in reserve and surplus during the year. The total investments of the assessee as on 31.03.07 was at Rs.3,98,81,678/- which have increased to Rs.69,33,10,403/- as on 31.03.08 and so there was the investment of Rs.66 crore during the year under M/s Graviss Hospitality Ltd. (A.Y:2010-11) consideration. The loan liability of the assessee had considerably decreased during the year and the net current assets of the assessee had increased to Rs.72,19,41,777/- as against of Rs.11,32,40,029/- as on 31.03.07. The Ld. D.R., from the balance sheet has tried to explain that there is an increase in the fixed assets of the assessee and the assessee has also used its funds in repayment of the loan amount and hence it cannot be said that the entire surplus was used by the assessee for making investments. However, after considering the overall facts and circumstances and the explanation of the assessee regarding the utilization of the loan amount and also considering that there is sufficient increase in own/surplus funds of the assessee and there being no decrease in the loan liability and also considering the quantum of investment made in relation to reserve and surplus fund available, we do not find any infirmity in the order of the Ld. CIT(A) while deleting the disallowance on account of indirect expenditure under Rule 8D(2) of the Act. We further find that most of the investments made by the assessee during the year are in mutual funds which do not require any specific incurring of expenditure which are generally done through agents. Otherwise, there is no considerable increase of the investment in equity shares etc. The assessee has already disallowed a sum of Rs.2 lakh. Considering the nature of investments of the assessee during the year under consideration, we do not find any justification on the part of the AO in straightway applying Rule 8D and without recording any dissatisfaction in relation to the suo-moto
M/s Graviss Hospitality Ltd. (A.Y:2010-11) working made by the assessee. Even otherwise, facts for the year under consideration are squarely cover with the decision of the Tribunal in the own case of the assessee in the subsequent year. We therefore do not find any justification for the Ld. CIT(A) to confirm the disallowance under Rule 8D(2)(iii) of the Income Tax Rules without considering the working/computation offered by the assessee and also without ignoring the nature of investments made by the assessee. The order of the Ld. CIT(A) confirmed the disallowance under Rule 8D(2)(iii) is therefore set aside. In view of our observations made above, the disallowance under section 14A is restricted to the suo-moto disallowance of Rs.2 lakh offered by the assessee and the remaining disallowance over and above the disallowance offered by the assessee himself is therefore ordered to be deleted.”
As the issue is squarely covered in favour of assessee by Tribunal’s decision in assessee’s own case for AYs 2008-09 and 2009- 10, respectfully following the same, we dismiss the Revenue’s appeal.
In the result, the appeal of Revenue is dismissed.