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Assessee by : Shri G.P. Mehta (AR) Revenue by : Shri Suman Kumar (DR) Date of hearing : 17.04.2017 Date of Pronouncement : 21.04.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by u/s 253 of the Income-tax Act (‘the Act’) is directed by assessee against the order of ld. CIT(A)-8, Mumbai dated 25.11.2011 for AY-2008-09. Though the assessee has raised as many as five grounds of appeal
. However, as per our considered view the only substantial ground of appeal is “whether the lower authorities erred in making the addition of Rs. 1,78,814/- u/s 14A of the Act.
2. Brief facts of the case related with the issue raised in the present appeal are that the assessee filed return of income for relevant AY on 28.09.2008 declaring total income of Rs. 1,92,55,600/-. The assessment was completed on 22.11.2010 u/s 143(3) of the Act. The Assessing Officer (AO) while passing the assessment order disallowed Rs. 1,78,814/- u/s 14A r.w. Rule 8D of the Act. On appeal before the ld. CIT(A), the disallowance was sustained. Hence, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
- Mutha Engineering Pvt. Ltd.
We have heard the ld. Authorized Representative (AR) of assessee and ld. Departmental Representative (DR) for Revenue and perused the material available on record. The Ld. AR of the assessee argued that assessee earned exempt income of Rs. 2,78,484/- being dividend income during the relevant AY. The AO determined the disallowance u/s 14A r.w. Rule 8D of the Act at Rs. 1,78,814/-. The disallowance consist of interest expenses of Rs. 1,58,596/- and expenses of Rs. 20,218/- being .5% of average value of investment. There was no direct expenditure relating to the exempt income. The Ld. AR of the assessee vehemently argued that the assessee is aggrieved by the disallowance of interest expenditure only. The Ld. AR of the assessee submits that assessee has own interest free fund are more than the investment made during the year under consideration. The ld AR of the assessee invited our attention to the capital account of the assessee as on 31.03.2008. The assessee has shown the reserve and surplus fund of Rs. 3,20,84,516/- as on 31.03.2008. The assessee made the investment of Rs. 64,05,486/- only. In support of his submission, ld. AR of the assessee relied upon the decision of HDFC Bank Ltd. v/s DCIT reported in 383 ITR 529 and prayed that the disallowance of interest expenses may be deleted. On the other hand, ld. DR for the Revenue supported the order of authorities below. The ld DR argued that the assessee earned exempt income of Rs. 2,78,484/- and the disallowances is less than the exempt income and reasonable one.
We have considered the rival contention of the parties and gone through the order of authorities below. In the return of income, the assessee has shown the exempt income of Rs. 2,78,484/- as dividend income. No voluntary disallowance was made by the assessee. The AO asked the assessee to explain the expenditure incurred for earning the exempt income. In reply the assessee contended that no expenditure has been incurred to earn the exempt income. The contention of assessee was not accepted by AO holding that certain percentage of expenses claimed by the assessee-company would definitely be attributed to the tax free income earned by the assessee. The assessee is having common pool of human and financial resources. Thus, the AO invoked provisions of Rule 8D and worked Mutha Engineering Pvt. Ltd.