MIRCHANDANI PROJECTS P. LTD,MUMBAI vs. DCIT CIR 10(2)(2), MUMBAI

I heard the parties and perused the record. The assessee received dividend income of ` 20.57 lakhs and claimed the same as exempt u/s. 10(34) of the Act. The assessee did not make any disallowance u/s. 14A of the Act and hence the Assessing Officer computed the disallowance as per Rule 8D of the I.T. Rules as under:- (a) disallowance out of interest expenditure ` 7,515/- (b) disallowance out of expenses ` 2,79,508/- Total : ` 2,87,023/- The learned CIT(A) also confirmed the same.

Learned AR submitted that the investment made by the assessee consists of capital introduced in various partnership firms, capital introduced in group companies and investment made in mutual funds. Learned AR submitted that the assessee has received entire dividend income of ` 20.57 lakhs from mutual funds only. He further submitted that the investments in mutual funds were made in immediately preceding year and entire investment have been redeemed during the year under consideration. Accordingly he submitted that, in the facts and circumstances of the case, the Assessing Officer was not justified in applying provisions of Rule 8D of the I.T. Rules.

On the contrary, learned Departmental Representative strongly supported the order passed by the learned CIT(A).

Having heard the rival submission, I am of the view that there is merit in the contention of the assessee. The assessee has held aggregate investment of ` 111.30 lakhs as on 31.3.2011 and the same has been reduced to ` 4.19 lakhs as on 31.3.2012. Opening balance of investment included investment in mutual funds aggregating to ` 111 lakhs, meaning thereby, the assessee has virtually invested its funds mainly in mutual funds and the same has been redeemed during the year under consideration. Under these set of facts, I agree with the contention of the assessee that there is no requirement to apply provisions of rule 8D for computing disallowance required to be made u/s. 14A of the Act. I also noticed that the assessee has invested only in three schemes of mutual fund units in the immediately preceding year, which has been redeemed during the year under consideration. Under these set of facts, I am of the view that a nominal disallowance of ` 10,000/- would meet the requirement of section 14A, which is in addition to interest disallowance of ` 7,515/- made by the Assessing Officer. Accordingly, I set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to restrict the disallowance u/s. 14A of the Act to ` 17,515/-.

In the result, appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 13.9.2017.