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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal by the Revenue is arising out of the order of CIT(A)-20 Mumbai in appeal No. CIT(A)20/DC.9(2)/IT-464/2011-12 dated 10-10-2012. The assessment was framed by DCIT, Circle-9(2), Mumbai for the assessment year 2009-10 vide his order dated 30-12-2011 under section 143 (3) of the Income Tax Act 1961 (here in after referred ‘as the Act’).
The only issue in this appeal of Revenue is against the order of Commissioner of Income-tax (Appeals) deleting the disallowance need by Assessing Officer in respect to expenses relatable to exempt income by invoking the provisions of Section 14A of the Act read with rule 8B of the Income Tax Rule 1962 (here in after ‘the rules’). For this, Revenue has raised following grounds: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting relief of ₹ 1,56,37,376/- to the assessee u/s. 14A though the Assessing Officer has rightly disallowed the expenses incurred for earning dividend income as per the provisions of section 14A read with Rule 8D of the IT Act.”
3. Briefly stated facts are that the assessee has earned dividend income of Rs.6,07,65,798/- and claimed the same as exempt. The Assessing Officer computed the disallowing of expenses u/s. 14A of the Act at Rs.53,44,714/- being the expenses relatable to exempt income. The Assessing Officer merely made disallowance of expenses by invoking the provisions of Section 14A read with Rule 8D of the Rules at Rs.2,09,82,090/- and thereby made addition of Rs.1,56,37,376/-. Aggrieved, assessee preferred appeal before Commissioner of Income-tax (Appeals).
4. The Commissioner of Income-tax (Appeals) after considering the submissions of the assessee deleted the disallowance by stating that the assesse has its interest free funds more than the investment i.e. a sum of Rs.191.71 crores. The Commissioner of Income-tax (Appeals) also noted that the total investment made by the assessee is Rs.110.56 crores. The Commissioner of Income-tax (Appeals) while deleting the disallowance of expenses observed is as under: - “4.3 I have considered the finding of the Assessing Officer and rival submission of the appellant, carefully. Ld. Assessing Officer has wrongly considered the interest element of ₹ 1,62,22,837/- for disallowance of corresponding expenditure as per Rule 8D because there is no such element of expenditure relating any way to exempt income. It can be seen from the evidences on record that such interest pertains to the manufacturing and other related activities and is not at all related to the investment. Such dividend income is out of old investments which was made out of own fund or out of no interest bearing fund. It is very obvious that no investment has been made from any interest bearing fund hence, such interest element relating to other business and not at all connected with investment cannot be a part of calculation for disallowance expenditure under rule 8D. I find force in the arguments of the A.R. that immediately preceding year i.e. assessment year 2008-09 no such interest element has been taken for calculation under Rule 8D by the Assessing Officer who is nonetheless than an Addl. Commissioner of Income Tax whereas in this year, assessment has been made by the DCIT-9(2). Because of peculiar facts the then Assessing Officer of AY 2008-09 has taken such in directed interest income as Nil while calculating the disallowable expenditure under Rule income as Nil while calculating the disallowable expenditure under Rule 8D. Obviously present Assessing Officer has committed mistake while 8D. Obviously present Assessing Officer has committed mistake while taking un-related interest expenditure for calculation of disallowable expenditure. The reliance placed by Ld. A.R. on the decision of the Jurisdictional High court in the case of Reliance Utilities and Godrej and Boyce Manufacturing Company Ltd. (Supra) also support the contention of the appellant hence the working of disallowable expenditure to the extent of ₹.53,44,714/- is required to be considered. Thus, accordingly, addition of Rs.1,56,37,376/- made by way of disallowance of expenditure is deleted.
Aggrieved, now Revenue is in second appeal before Tribunal.
At the outset, the learned Counsel for the assessee drew our attention to the Tribunals order for Assessment Year 2010-11, wherein for the Assessment Year 2010-11 vide order dated 25.05.2016. The Tribunal has deleted the similar disallowance by observing is as under: - “3.2 During the course of hearing, Ld. DR was not able to controvert factual findings given by the Ld. CIT(A). It is noted that Ld. CIT(A) has very carefully analysed that own funds and interest free funds of the assessee were to the tune of Rs.191.71 crores as against total investment of Rs.114.93 crores. It is further noted by the Ld. CIT(A) after perusing minute details that even if the nexus of borrowed funds and funds investment was to be analysed, it was found that no borrowed funds were used in making tax-free investments. It was found that only surplus funds or interest-free funds were used for making investment in tax-free revenue’s. Under these circumstances, we find that Ld. CIT(A) has rightly deleted disallowance made by the AO, and no interference is called in the well-reasoned order of Ld. CIT(A). Nothing has been brought on record before us to negate the factual findings recorded by the Ld. CIT(A). Therefore, we uphold the order of the Ld. CIT(A) and dismiss the grounds raised by the Revenue.”
The learned Counsel for the assessee stated that the same advances of total interest free funds were utilized and assessee’s own funds which are more than the investment of110.56 crores. The assessee’s own total funds during the year are at Rs.191.71 crore. For this learned Counsel for the assessee drew our attention to the submission of the assessee has reproduced in the order of Commissioner of Income-tax (Appeals) and relevant funds position reads as under: - (A) Own Funds - (i) Share Capital .. Rs. 7,04,59,960 (ii) General Reserves – Rs. 96,35,42,749 [including transfer during the year Rs.31,91,00,137] (iii) Balance of Profit & Loss A/c Rs. 50,00,000
Total Own Funds Rs. 1,03,89,99,709 (B) Interest Free Fund [as per Schedule 7 at page No.33] (i)Advances from IP Park lilcensees ….. ….. Rs. 1,31,25,996 (ii)Advances from Convention & Exhibition Organizers Rs. 16,50,42,417 (iii)Security deposit from exhibitors ….. ….. Rs. 1,52,52,073 (iv)Security deposits from IT Park licensees ….. Rs. 1,01,03,135 (v)Security deposits from licensees (other) ….. Rs. 17,63,88,782 Total interest free funds Rs. 37,99,12,403 Grand Total of Own funds and interest free funds [(A)+(B)] Rs.141,89,12,112
The learned Counsel for the assessee took us drew the Tribunals order for the AY 2010-11 wherein similar is the position as regards the availability of assessee’s own funds and interest free funds. Further, ld. Counsel for the assessee also stated that in Assessment Year 2008-09 also the Assessing Officer has himself accepted the claim of the assessee and passed Assessment order u/s. 143(3) of the Act dated 27/12/2010. When these facts were confronting, ld. Senior DR relied on the AO’s order.
We find that the issue is clearly covered by Tribunal’s decisionin assessee’s own case in immediately preceding year, respectively following the same, we dismiss the appeal of the Revenue. 8. In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 24-02-2017