THE BOMBAY DYEING & MFG. CO. LTD,MUMBAI vs. ACIT (OSD) CIR 2(1), MUMBAI

The Assessee in this appeal raised several grounds on various issues. However, at the time of hearing, the Ld. Counsel submits that except ground no.1 regarding disallowance made u/s 14A of the Act, the Assessee is not pressing the rest of the grounds. The Ld. Counsel for the Assessee also made endorsement to that effect stating that only ground no.1 is pressed.

Coming to the disallowance made by the Assessing Officer u/s 14A, the Ld. Counsel for the Assessee submits that assessment year being 2006-07, the provisions of Rule 8D have no application. The Ld. Counsel submits that Assessing Officer disallowed expenses attributable for earning dividend income by invoking Rule 8D r.w.s 14A which was sustained by the Dispute Resolution Panel-II. The Ld. Counsel submits that in identical circumstances, the Coordinate Bench of the Tribunal in Assessee’s own case for the immediately preceding assessment years 2004-05 and 2005-06 in and ITA No. 7330/Mum/2010 dated 7.4.2016 held that Rule 8D has no application prior to assessment year 2008-09 and therefore a reasonable disallowance should be made in view of the decision of the Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT [328 ITR 81] and such reasonable disallowance was arrived at estimating the disallowance at 2% of the dividend income. The Ld. Counsel for the Assessee submits that during this assessment year, Assessee earned exempt income of Rs.31,56,794/- and following the decision of the Coordinate Bench for the earlier assessment years, 2% of such exempt income may be directed to be disallowed u/s 14A of the Act.

The Ld. DR vehemently supported the orders of the authorities below.

We have heard both the parties, perused the order of this Tribunal in Assessee’s own case for earlier assessment years. The Coordinate Bench considered similar situation for the assessment years 2004-05 and 2005-06 and directed that 2% of the dividend income be disallowed as expenses

(A.Y.2006-07) M/s Bombay Dyeing & Mfg. Co. Ltd. attributable for earning dividend income u/s14A of the Act observing as under : “At the outset, the id. Counsel for the assessee stated that these two assessment year are A.Ys. 2004-05 and 2005-06 and Rule 8D is not applicable in these two assessment years in view of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom). The Id. Counsel for the assessee stated that prior to the applicability of Rule 8D of the Rules, the disallowance should be restricted to a reasonable extent, i.e., 1% to 2% in view of the decision of ITAT, Mumbai in the case of CIT vs. MIs. Godrej Agrovet Ltd (in of 2011, dated 8.1.2013). On query form the Bench, the Id. Sr. (DR) also conceded that of reasonable disallowance on this issue can be made and requested for estimation of disallowance of 2%. On this, the Id. Counsel for the assessee very fairly agreed for the same. In view of the above concession given by both the parties, we direct the A.O. to recompute the disallowance by estimating at 2% of the exempt income. The A.O. is directed accordingly.”

Following the said order, we direct the Assessing Officer to compute the disallowance at 2% of the exempt income during this assessment year also u/s 14A of the Act..

In the result, appeal of the Assessee is partly allowed.