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

Order u/s.254(1)of the Income-tax Act,1961(Act) Per Pawan Singh, J.M. �या�यक सद�य iou iou �संह के अनुसार: iou iou 1. This appeal by assessee under section 253 of the Income Tax Act (‘Act’) is directed against the order of Ld. Commissioner of Income-Tax (Appeals) [for short ‘the CIT(A)’] dated 15.02.2016 passed on application u/s 154. The assessee has raised the following grounds of appeal: “On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] -: 1. erred in rejecting the rectification application filed by the Appellant before the CIT(A), to rectify its order, in view of decision of Jurisdictional Bombay High Court in case of Godrej Boyce 328 ITR

81. (Bom), wherein it is held that Rule 8D is applicable only from AY 2008-09 onwards; Application of Rule 80 for AY 2006-07 2. erred in rejecting rectification application, thereby applying Rule 8D for AY 2006-07 for working our disallowance under section 14A of the Act of certain expenditure incurred for earning exempt income; 3. erred in directing the AO to re-compute disallowance under section 14A of the Act by adopting similar methodology as prescribed by Rule 80 of the rules, by placing reliance on Mumbai Tribunal decision in case of Daga Capital Management (P) (Ltd) 117 ITO 169 (SB) for applicability of Rule 8D from retrospective effect, [which has been subsequently reversed by the Jurisdictional Bombay High Court in the case of Godrej & Boyce vs. DCIT (328 ITR 81)]; Disallowance of Interest while disallowance of expenditure u/s 14A of the Act 4. erred in not appreciating the fact that since the Applicant had sufficient own fund for making investment, no disallowance under section 14A read with Rule 8D of the Rule is required to be made in the present case; 2 S. Mansukhlal & Co. 5. Without prejudice to above, disallowance under section 14A of the Act, if any, for the period before AY 2008-09 (i.e. pre-rule 8D), should be restricted to 1 % or 2% of the dividend income. The Appellant craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of appeal at any time before, or at the time of, hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law.

2. The brief facts of the case are that assessee filed return of income for relevant AY on 30.10.2006 declaring total income of Rs. 58,65,262/-. The assessment was completed u/s 143(3) on 26.12.2008. The Assessing Officer (AO) while framing the assessment made the disallowance on account of interest expenditure u/s 14A/36(1)(iii) of Rs. 12,62,225/-. On appeal before CIT(A), the Ld. CIT(A) in its order dated 20.05.2009 while relied upon the case of Daga Capital Management Pvt. Ltd. 117 ITD 169(SB) directed the Assessing Officer (AO) to apply Rule 8D of the Act. The AO passed the order giving effect to the order of ld. CIT(A) on 17.02.2011 and made the disallowance of Rs. 5,86,904/-. Before passing the order giving effect, the assessee filed an application for rectification of order dated 20.05.2009 before the ld. CIT(A). On 04.10.2010, the application of the assessee for rectification of the order dated 20.05.2009 was dismissed vide order dated 15.02.2016. Thus the assessee has challenged the order dated 15.02.2016 before us.

3. We have heard ld. Authorized Representative (AR) of assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The main grievance of ld. AR of assessee is that ld. CIT(A) in its order dated 20.05.21009 while relied upon the decision of Daga Capital Management Pvt. Ltd. (supra) directed the AO to apply Rule 8D and computed the disallowance. The assessee filed rectification application before the ld. CIT(A) to consider the decision of jurisdictional High Court in case of Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81, wherein it was held that Rule 8D is applicable from the year subsequent to AY 2008-

09. On the other hand, ld. DR for the Revenue vehemently opposed the appeal of the assessee and would argue that in the case of Godrej & Boyce Mfg. Co. Ltd.(supra) that AO or the ld. CIT(A) can adopt any means of calculation for disallowance u/s 14A which is reasonable for determining the amount of such expenditure. The 3 S. Mansukhlal & Co. Hon’ble High Court has nowhere determined that on Rule 8D for earlier years is wrong or that no disallowance can be made before AY 2008-09.

4. We have considered the rival contention of the parties and gone through the order of ld. CIT(A). The ld. CIT(A) while disposing of the appeal in its order dated 20.05.2009 directed the AO that method of arriving the disallowance u/s 14A is laid down as per Rule 8D of I.T. Rules, 1962. It was clarified in the order that if the disallowance is reduced than the assessee would get relief to that extent. We have gone through the order of Hon’ble jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (supra) , wherein it was held that Rule 8D is applicable only from AY 2008- 09 i.e. having prospective effect. Since, the Rule 8D is applicable form AY 2008-09, the same is not applicable for the year under consideration. We have noticed that AO has already passed the order giving effect to the order of ld. CIT(A) on 17.02.2011and disallowed the interest expenses under Rule 8D(2) and of Rs. 4,01,162/- and average expenses under Rule 8D(ii) and thereby disallowed a total sum of Rs. 5,86,904/-. From the Profit & Loss A/c, we have seen that the assessee has sufficient interest free fund available in its Account. Thus, no interest disallowance was attracted against the assessee as per the decisions of Hon’ble Bombay High Court in HDFC Bank Ltd. (365 ITR 505) and in Reliance Utilities & Power Ltd ( 313 ITR 340). Considering the facts that the AO has to pass the order for giving effect within statutory period and the same has been passed on 17.02.2011. The order was passed by AO during the pendency of application of the assessee u/s154 before Ld CIT(A). Hence, we direct the AO to pass the order afresh after considering the decisions of Hon’ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. (supra), HDFC Bank Ltd. (365 ITR 505) and in Reliance Utilities & Power Ltd ( 313 ITR 340). Needless to say the AO shall pass the order after giving the opportunity of hearing to the assessee. We have noticed that the case is related with AY 2006-07, hence we further direct the AO to pass the order within six month of receipt of this order. With these order the appeal of the assessee is allowed. In the result, appeal filed by assessee is allowed. फलतः �नधा�रती �वारा दा�खल क� गई अपील मंजूर क� जाती है. Order pronounced in the open court on 15th February,2017.

4 S. Mansukhlal & Co. आदेश क� घोषणा खुले �यायालय म� �दनांक 15 Qjवर�,2017 को क� गई । Sd/- Sd/- (राजे�� / RAJENDRA (iou iou �संह / PAWAN SINGH)) iou iou लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई/Mumbai,�दनांक/Date: 15.02.2017 SK आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. Assessee /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब�ध अपील�य आयकर आयु�त, 4.The concerned CIT /संब�ध आयकर आयु�त 5. DR “E” Bench, ITAT, Mumbai /�वभागीय ��त�न�ध b खंडपीठ,आ.अ.�याया.मुंबई 6. Guard File/गाड� फाईल स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील�य अ�धकरण, मुंबई /ITAT, Mumbai