S. MANSUKHLAL & CO.,MUMBAI vs. DCIT - 14(2), MUMBAI

This appeal filed by the assessee on 15.04.2016 is against the order of the CIT (A)- XIV, Mumbai dated 21.3.2009 for the AY 2005-06.

The only issue raised in this appeal relates to disallowance u/s 14A read with Rule 8D(2)(ii) & (iii) of the Act. 3. Regarding the disallowance u/s 14A r.w.Rule 8D(2)(ii) of the Rules, Ld AR filed a copy of the order of the Tribunal vide dated 24.10.2016 for the AY 2010- 2011 and read out the contents of para 10 (operational para) and mentioned that the Tribunal already decided this issue in favour of the assessee and deleted the addition made u/s 14A r.w. Rule 8D(2)(ii) of the Rules. While granting relief to the assessee, the Tribunal, on the facts of that year, held that there is no case of disallowance in view of the sufficient own funds and the legal presumption envisaged by the precedents on the subject. For the sake of completeness of this order, we extract the relevant portions from the para 11 (page 24 of the order) of the Tribunal’s order (supra) and the same reads as under:- “11......we agree with the proposition and contentions of the assessee that presumption will apply unless contrary is brought on record by the Revenue, that the assessee has made investment in shares, mutual funds and other securities capable of yielding exempt income out of its own surplus funds unless contrary is brought on record by the AO keeping in view the decision of the Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd (2009) 313 ITR 340 (Bom. HC), HDFC Bank Ltd vs. DCIT (2014) 366 ITR 505 (Bom) and HDFC Bank Limited vs. DCIT (2016) 67 taxmann.com 42 (Bom). In our considered opinion, this addition of Rs. 9,12,886/- made by the AO and sustained by the Ld CIT (A) u/s 14A r.w.r 8D(2)(ii) of the 1962 Rules is not sustainable in law keeping in view the facts and circumstances of the case and is hereby ordered to be deleted. We order accordingly.”

Considering the above, we are of the opinion that the AO should be directed to consider the decision of the Tribunal (supra) in the assessee’s own case for the AY 2010- 2011 and follow the same. AO shall grant a reasonable opportunity of being heard to the assessee as pr the set principles of natural justice. Accordingly we order. Accordingly, ground nos. 1 to 4 raised by the assessee are allowed.

Regarding the second issue relating to disallowance u/s 14A r.w. Rule 8D(2)(iii) of the IT Rules, 1962 it is the request of the assessee that the disallowance @ 0.5% of the “average investment” exceeded the exempt income credited in the P & L Account. Dividend income is only Rs. 6,30,746/- and 14A disallowance is Rs. 14,60,861. Therefore, Ld AR prayed for restricting the disallowance to 2% of the exempt income. The ground no.5 is relevant in this regard. The same has the strength of jurisdictional High Court judgment in the case of Godrej Agrovet Ltd. Of course, the said judgment pertains to the pre-amendments to the Rule 8D of the IT Rules and present appeal relates to the AY 2005-06. Considering the peculiar facts and circumstances of this case and the legal propositions in the matter, we are of the view, the AO ought to revisit the issue and decide the issue afresh after granting a reasonable opportunity of being heard to the assessee. Accordingly ground no.5 raised by the assessee is partly allowed.

In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 07th April, 2017.