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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI G.S. PANNU & SHRI C.N. PRASAD
These are cross-appeals filed by the assessee and the Revenue against the order of CIT(A)-41, Mumbai dated 10.02.2012, pertaining to the Assessment Year 2008-09, which in turn has arisen from the order passed by the Assessing Officer dated 31.12.2010 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In the captioned cross-appeals, a common issue relates to the disallowance made by the Assessing Officer u/s 14A of the Act amounting to Rs.83,87,132/-. Briefly put, the relevant facts are that the assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of manufacture of yarn. In the course of the assessment proceedings, the Assessing Officer noted that assessee had made investments to the tune of Rs.24,48,93,000/- in shares and securities and, therefore, disallowance was required to be made u/s 14A of the Act with respect of expenses relatable to such investments. Accordingly, the Assessing Officer computed the disallowance u/s 14A of the Act by applying the formula contained in Rule 8D of the Income Tax Rules, 1963 (in short ‘the Rules’). The disallowance made in terms of Rule 8D of the Rules comprised of interest expenditure – Rs.71,62,667/- as per Rule 8D(2)(ii) of the Rules and overhead expenditure – Rs.12,24,465/- as per Rule 8D(2)(iii) of the Rules.
In the appeal before the CIT(A), assessee raised various Grounds and the CIT(A) has allowed partial relief. Insofar as the disallowance out of interest expenditure is concerned, the CIT(A) held that the interest on cash credit loan obtained by the assessee against hypothecation of debtors/stock was liable to be excluded for the purpose of determining the interest expenditure relatable to the investments and earning of exempt income. Accordingly, the CIT(A) directed the Assessing Officer to exclude the interest of Rs.965.99 lacs from the computation of disallowance. Against such a decision of CIT(A), Revenue is in appeal before us.
As regards the disallowance of Rs.12,24,465/- made out of expenses, the CIT(A) affirmed the same, which has been challenged by the assessee before the Tribunal in the cross-appeal. Apart therefrom, an alternate plea has been raised to the effect that since assessee is eligible for benefit of Sec. 80IA of the Act, the income enhanced on account of disallowance u/s 14A of the Act would be eligible for deduction u/s 80IA of the Act.
In this background, the rival counsels have been heard. At the outset, the learned representative for the assessee pointed out that in the instant case no disallowance u/s 14A of the Act is merited in view of the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd., 378 ITR 33 (Del). It is canvassed that in the instant year assessee has not received any exempt income, an aspect which was brought out before the Assessing Officer, and duly noted in the assessment order at page 5. It was contended that in the absence of any receipt of exempt income, the judgment of the Hon'ble Delhi High Court comes into play, which prescribes that in such an event no disallowance u/s 14A of the Act is justified.
The ld. DR has not opposed the factual matrix brought out by the learned representative for the assessee but has merely reiterated the stand of the Assessing Officer.
After having considered the point raised by the assessee, we find that the disallowance made by the Assessing Officer u/s 14A of the Act in this year is untenable having regard to the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra). As a consequence, the appeal of Revenue is dismissed and the stand of assessee is allowed. The Assessing Officer is directed to delete the entire addition made u/s 14A of the Act. The alternate plea of assessee for relief u/s 80IA of the Act is rendered academic and is hereby treated as infructuous.
Resultantly, whereas the appeal of Revenue is dismissed, that of the assessee is allowed.
Order pronounced in the open court on 26th April, 2017.