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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S.PANNU & SHRI RAVISH SOOD
ORDER PER G.S.PANNU,A.M:
The captioned appeal filed by the assessee pertaining to assessment year 2009-10 is directed against an order passed by CIT(A)-14, Mumbai dated 29/08/2013, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 30/11/2011.
In this appeal the only issue relates to a disallowance of Rs.8,24,555/- determined the income tax authorities under section 14A of the Act by applying the formula contained in rule 8D of the Income Tax Rules, 1962 ( in short ‘the Rules’.)
At the time of hearing, the Ld. Representative for the assessee pointed out that the disallowance under section 14A of the Act has been made out of interest as well as other expenses amounting to Rs.7,49,217/- and Rs.75,338/- respectively. It was pointed out that assessee has consistently asserted that there is no nexus between the interest bearing deposits and the investments made and, therefore, there was no interest expenditure incurred in relation to the investments which have yielded exempt income. The Ld. Representative for the assessee pointed out that in the instant year, there are no fresh investments made and that in the immediately preceding assessment year of 2008-09, on remand by the Tribunal vide order in dated 30/04/2012, the Assessing Officer has made no disallowance under section 14A of the Act with respect to the interest expenditure. It is pointed out that the investments in question had been made from own funds which carry no interest cost and that assessee company had free Reserves of Rs.697.20 lacs as on 31/03/2009, which was quite enough to cover the investments of Rs.147.34 lacs as at 31/03/2009.
Before us, the Ld. Departmental Representative has not disputed the factual matrix brought out by the appellant but contended that the lower authorities have computed the disallowance by applying rule 8D of the Rules noticing that assessee had earned exempt income during the year under consideration.
We have carefully considered the rival submissions. Admittedly, assessee is in receipt of exempt income in the year under consideration.
However, the presence of exempt income by itself cannot be the sole basis to compute the disallowance envisaged under section 14A of the Act in terms of rule 8D of the Rules. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. CIT, 328 ITR 81(Bom) has observed that application of rule 8D of the Rules to compute the disallowance rests on a pre-condition that the Assessing Officer was not satisfied with the correctness of the claim of the assessee in respect of the expenditure relatable to the exempt income. In other words, if in a given case, the assessee claims that no expenditure has been incurred in respect of the exempt income, then the Assessing Officer can apply rule 8D of the Rules for determination of the amount disallowable, only if he was not satisfied with the correctness of the claim of the assessee. In fact, the aforesaid proposition clearly flows from sub-sections (2) &(3) of section 14A of the Act and has also been adverted to by the Tribunal in assessee’s own case for assessment year 2008-09 vide order dated 30/04/2012(supra). Be that as it may, in the instant year we find that the lower authorities have not recorded any satisfaction that assessee’s claim of non-incurrence of any interest expenditure in relation to the exempt income is incorrect. Even otherwise, on facts also, it is quite clear that assessee had sufficient own non-interest bearing funds to cover up the investments which have yielded exempt income and, therefore, on this count also it cannot be said that any interest expenditure has been incurred in relation to the exempt income. Therefore, in so far as the disallowance of Rs.7,49,217/- out of interest expenditure is concerned, the same is held to be untenable and is hereby directed to be deleted.
In so far as the disallowance of overhead expenses determined in terms of rule 8D(2)(iii) of the Rules is concerned, we find no infirmity in the stand of the lower authorities inasmuch as similar point has also been disallowed by the Assessing Officer in pursuance to the order of the Tribunal dated 30/04/2012(supra) for assessment year 2008-09. Even in this year, at the time of hearing before us, the Ld. Representative for the assessee has not disputed the justifiability of the disallowance out of the overhead expenses in terms of rule 8D(2)(iii) of the Rules which has been determined by the Assessing Officer at Rs.75,338/-. Thus, to the aforesaid extent, the disallowance under section 14A of the Act is retained.
In the result, appeal of the assessee is partly allowed, as above.