RALLIS INDIA LTD,MUMBAI vs. ADDL CIT 3(3), MUMBAI

Rallis India Ltd., 21. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. It is evident, before the first appellate authority assessee had specifically taken a plea that it has own interest free fund of ` 348.67 crore to make the investment of ` 127 crore. However, the aforesaid contention of the assessee did not find favour with the learned Commissioner (Appeals). The fact that assessee was having substantial interest free funds available with it to take care of the exempt income yielding investment has not been disputed by the Departmental Authorities. Therefore, applying ratio laid down by the Hon'ble Jurisdictional High Court in HDFC Bank Ltd. v/s DCIT, [2016] 383 ITR 529 (Bom.) and CIT v/s HDFC Bank Ltd. v/s DCIT, [2014] 366 ITR 505 (Bom.), we hold that no disallowance of interest expenditure under rule 8D(2)(ii) can be made. As far as disallowance of administrative expenditure under rule 8D(2)(iii) is concerned, it is the contention of the assessee that one of the employee is looking after the investment activity. Therefore, the salary cost of the employee has already been disallowed by the assessee. We have noted, in assessment year 2007-08, the Tribunal in assessee's own case has M/s. Rallis India Ltd. held 2% of the dividend income earned by the assessee to be a reasonable disallowance under section 14A. Applying the same principle, we direct the Assessing Officer to disallow 2% of the dividend income under section 14A. These grounds are partly allowed.

We had considered rival contentions and found from record that assessee Suo-moto disallowed the sum of Rs.19,905/- under Rule 8D (2)(iii). However, AO has computed disallowance of Rs.68.40 lakhs. Tribunal in assessee’s own case consistently has recorded a finding to the effect that one of the employees was looking after investment activity, salary cost of which employee has already been disallowed by the assessee. After considering the entire facts and circumstances, the Tribunal has restricted the disallowance to 2% of the dividend income earned by the assessee. As the facts and circumstances during the year under consideration are exactly same, respectfully following the order of the Tribunal in assessee’s own case, we direct the AO to restrict the disallowance to the extent of 2% of the exempt income. We direct accordingly.

In the result, appeal of the assessee is allowed in part.