LIKHAMI COMMERCIAL CO. LTD.,KOLKATA vs. THE DCIT, CIR-7, KOLKATA, KOLKATA

This is an appeal by the Assessee against the order dated.27.01.2016 of. C.I.T.(A)-18, Kolkata relating to A.Y. 2009-10.

The only issue that needs consideration by the Tribunal is this appeal is the correctness of the disallowance of ‘other expenses’ under Rule 8D(2)(iii) of the Income Tax Rules, 1962 (Rules) read with Sec.14A of the Income Tax Act, 1961 (Act). 3. The Assessee is a company. It carries on the business of Non-Banking financing activities. It earned dividend income of Rs.27,43,330. The said income was not chargeable to tax. In terms of Section 14A of the Act read with Rule 8D of the Rules, disallowance of expenses that are incurred to earn tax free income has to be made. 4. The dispute in this appeal is with regard to disallowance of other expenses under rule 8D(2)(iii) of the rules. Rule 8D(2)(iii) of the rules relates to disallowance of other expenses incurred to earn tax free income and it reads as follows:

The plea of the Assessee before CIT(A) was that only investments which yielded dividend income during the relevant previous year ought to be considered while working average value of investments. In support of such plea the Assessee relied on decision of Hon’ble Delhi High Court in the case of ACB India Ltd. Vs. ACIT 374 ITR 108 (Del.). The CIT(A) did not agree with the aforesaid plea of the Assessee on the ground that the facts of the Assessee’s case are different from the facts of the case decided by Hon’ble Delhi High Court.

Aggrieved by the order of the CIT(A) the Assessee is in appeal before the Tribunal.

We have heard the rival submissions. Before us the plea of the learned counsel for the assessee was that while applying rule 8D(2)(iii) of the rules, AO should consider only the investments which yielded dividend income during the previous year and not the entire investments as appearing in the balance sheet while working average value of investments. This submission is made by the assessee keeping in view of the decision of the Tribunal (ITAT Kolkata) rendered in the case of REI Agro Ltd. Vs DCIT in wherein it was held that the only investments yielding dividend income during the previous year are to be considered in working average value of investments while computing disallowance u/s 14 A read with Rule 8D of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal ITA No.432/Kol/2016 Likhami Commercial Co. Ltd. A.Y.2009-10 3 against the order of the Tribunal in the case of REI Agro Ltd. (supra). The learned DR relied on the order of the CIT(A).

After considering the rival submissions we are of the view that in the light of the decision referred to by the learned counsel for the assessee the plea of the assessee for restricting the disallowance u/s 14A of the Act is found to be justified. The AO is accordingly directed to consider the average value of investments by considering only the investments which yield tax free income during the previous year. The appeal of the Assessee is accordingly allowed.

In the result the appeal of the assessee is allowed. Order pronounced in the Court on 17.11.2017.