ACIT 3(2)(1), MUMBAI vs. MUKUND GLOBAL FINANCE LTD, MUMBAI

This is an appeal filed by the Revenue against the order of CIT(A)- 8, Mumbai for the A.Y.2012-13 in the matter of order passed u/s.143(3) of the IT Act.

The only grievance of Revenue relates to deleting the disallowance of Rs.42,15,838/- u/s.14A of the IT Act.

Rival contentions have been heard and record perused.

Facts in brief are that during the course of assessment proceedings, the AO noted that the assessee is engaged in the business of providing loans and making investments, Corporate Finance and Corporate Advisory Services. The AO showcaused the assessee as to why M/s.Mukund Global Finance Ltd., disallowance u/s 14 r.w.r. 8D should not be made in its case. In response the assessee vide letter dated 27.01.2015 submitted the working of the disallowance u/s 14A r.w.r. 8D at RS.42,.89,317/-. Accordingly the AO. disallowed an amount of Rs. 42,89,317/- u/s 14A r.w.r.8D of the I.T. Rules. The A.O has also added this disallowance while computing book profit u/s.115JB of the Act.

By the impugned order, CIT(A) deleted the disallowance after observing as under:- 5.2.3 I find that the A.O. has grossly misinterpreted the appellant's submission dated 27.01.2015 made before him during the course of assessment proceedings. The appellant has fairly submitted the disallowance u/s 14A at Rs. 73,479/- made on the scientific methodology adopted by it. I find that the A.O. has not given any justification for rejecting the detailed and scientific methodology of computing expenses attributable to earning of exempt income as submitted by the appellant nor has he given any specific reasons for rejecting the computation of indirect expenses. In order to invoke the provisions of Rule 80 of the IT Rules, it is a pre-requisite for the A.O. to verify the claim of the appellant and record his objective satisfaction regarding the appellant's claim of expenses incurred or no expenditure incurred in relation to the exempt income having regard to the accounts of the appellant. A far more rigorous rejection of the appellant's contentions and methodology of suo moto disallowance was required from the A.O., in absence of which Rule 8D could not be invoked in a mechanical and automatic manner. This view also finds support in following judicial pronouncements: • Godrej & Boyce Mfg.Co. Ltd VS. DCIT [2010] 234 CTR 001 (Bom); • Maxopp Investment Ltd vs. CIT [2011] 203 Taxman 364/247 CTR 162 (Delhi HC); • CIT vs. I.P. Support Services India (P) Ltd. (ITA 283/2014) (Delhi HC); • CIT vs. Taikisha Engineering India Limited 370 ITR 338 (DeL); • CIT vs. Abhishek Industries Ltd. ([2015] 231 Taxman 85) (Punjab & Haryana) • Auchtel Products Ltd (_jTA No. 3183,2649 & 3185/Mum/2011) (Order dated 30 April 2012); • DCIT vs. Jindal Photo Ltd (2011-TIOL-653-ITAT-Del); • REI Agro Ltd. v. DCIT [2013] 144 ITD 141 (Kol); • ACIT v. Magarpatta Township Development & Construction Co. Ltd M/s.Mukund Global Finance Ltd., [2015] 152 ITD 469 (Pune); • Fali S Nariman vs. Addnl. CIT [2015] 68 SOT 134 (Mum. ITAT) • ACIT vs. Pawan Kumar Jhunjhunwala [2016] 66 Taxmann.com 13 (Kol. ITAT) • Damodar Valley Corporation vs. CIT [2016] 66 Taxmann.com 25 (Kol. ITAT) • CIT vs. Om Prakash Khaitan [2015] 376 ITR 390 (Delhi) • DCIT v. Subramanya Constructions & Development Co. Ltd. (ITA No. 404/2013); and • JM Financial Limited vs. ACIT (I.T.A No. 4521/Mum/2012 5.2.4 The A.O. has not challenged or disputed the fact that the appellant's fund in term of share capital and Reserve & surplus is Rs. 39.32 crores which are way above the investments of Rs. 19.84 crores. 5.2.5 In deciding the issue in the instant case, I place reliance on the following decisions of jurisdictional courts: • In Pukhraj Chunilal Bafnav. Dy. CIT [2014] 65 SOT 187/47 taxmann.com 288 (Mum. - Trib.) it was held that the Assessing Officer to trigger rule 80 had not to be satisfied with the correctness of claim of the assessee as regards expenditure in relation to exempt income. Hence, without examining the nature of expenditure disallowed by the assessee or correctness of allowance/disallowance, the Assessing Officer could not invoke Rule 8D. • Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. 313 ITR 340, wherein it has been held as under: "If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available" • M/s. Food link Services (I) Pvt. Ltd. v. DCIT ITA Nos. 4620/Mum./2011 and 7284lMum/2011 of Hon'ble Mumbai ITAT which followed the decision of the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. 313 ITR 340, wherein it was held that where assessee had sufficient interest free funds to meet its tax free investments yielding exempt income, it could be presumed that such investments were made from interest free funds and not loaned funds and, thus no disallowance under section 14A being warranted.