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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
This is an appeal by the assessee against order dated 27-2-2014 of Ld. CIT (A) 38/Mumbai for the assessment year 2009-10.
The solitary issue in dispute relates to disallowance of an amount of Rs. 18,64,095/- u/s 14A read with rule 8D.
Briefly the facts are, in course of assessment proceeding the assessing officer noticing that assesse had received exempt income by way of dividend amounting of Rs. 41,32,659/-, whereas, it has disallowed an amount of Rs. 33,670/- u/s 14A called upon the assesse to explain why disallowance u/s 14A should not be made by applying the provision of rule 8D. Though, assesse objected to the disallowance proposed by the AO, however, the assessing officer completed the assessment by disallowing a further amount of Rs. 18,64,095/- u/s 14A read with rule 8D. Assessee challenged the disallowance before the CIT (A). However, Ld. CIT (A) ultimately upheld the disallowance made by the AO.
The Ld. AR submitted that identical issue arose in assessee’s own case in assessment year 2010-11 and the Tribunal after considering the submissions of the asessee has restored the issue back to the assessing officer with certain directions. He submitted, similar direction may also be issued for the impugned assessment year. 5. The Ld. DR while agreeing that similar issue was dealt with by the Tribunal in assessee’s own case for the subsequent assessment year, submitted that matter can be remitted back to the assessing officer for reconsideration.
We have heard the parties and perused material on record. As could be seen before the first appellate authority the assessee contested disallowance of interest expenditure by confiding that it had sufficient interest free fund available to make investments in shares and securities. The aforesaid contention has not been examined by the CIT (A) in the light of the ratio laid down in the decisions of the honourable jurisdictional High court. We have also noted considering the aforesaid fact while deciding assessee’s appeal for assessment 2010-11 in ITA no. 6164/Mum/2013 dated 13/05/2016 the Tribunal has restored the matter back to the file of the assessing officer for fresh consideration with the following observations. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. As far as the disallowance of interest expenditure under rule 8D(2)(ii), it is the contention of the assessee it has sufficient surplus interest free fund available to make the investment. However, the aforesaid contention of the assessee has been brushed aside by the Assessing Officer and the learned Commissioner (Appeals), without proper verification. In case, the assesseehas mixed funds both borrowed and own interest free funds,as per the ratio laid down in the decisions relied upon by the learned Authorised Representative, the presumption would be the investment have been made out of interest free surplus funds. In the present case, the Assessing Officer has not established a direct nexus between the borrowal made by the assessee and the investment in shares. Unless, a direct one to one relationship is established between the borrowed funds and the investment made in exempt income yielding assets no disallowance under section 14A can be made. As this aspect has not been examined by the Departmental Authorities, we are inclined to restore the issue back to the file of the Assessing Officer for necessary
4 Ruchi Global Ltd. verification. If on verification, it is found that the assessee has sufficient interest free surplus fund available with it during the relevant previous year, which can take care of the investment in shares, no disallowance of the interest expenditure under section 14A r/w rule 8D can be made in terms of the ratio laid down by the Hon'ble Jurisdictional High Court in the case referred to above. As far as the disallowance of indirect / administrative expenditure under rule 8D(2)(iii) is concerned, it is noticed, the assessee itself has disallowed the amount of 9,024 under section 14A. However, the basis for such disallowance has not been provided in the course of hearing before us. It has been submitted by the learned Authorised Representative that the assessee has not incurred any administrative or indirect expenditure in relation to exempt income, hence, no disallowance should be made. However, we are unable to accept the contention of the assessee on mere face value. The assessee through supporting evidence has to establish that it has not made any administrative expenditure for earning exempt income. More so, when the assessee itself has made disallowance under section 14A. As held by the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010], 328 ITR 081 (Bom.). After coming into effect of rule 8D from the assessment year 2008–09, disallowance under section 14A has to be made in terms of rule 8D. A reference to section14A(3) also makes it clear that even in a case where assessee claims that no expenditure has been incurred by him in relation to exempt income, disallowance in terms of rule 8D(2)(iii) has to be made, of course, only after the Assessing Officer records his satisfaction that the disallowance made by the assessee is not correct with reference to the books of account maintained by the assessee. Since these factual verifications are very much essential before making disallowance under rule 8D(2)(iii), we restore the matter back to the file of the Assessing Officer to decide afresh after due opportunity of being heard to the assessee.
Facts being materially same in the impugned assessment year we set aside the impugned order of CIT (A) and restore the matter back to the file of the assessing officer to decide the issue afresh
5 Ruchi Global Ltd. keeping in view the direction of the tribunal reproduced here in above. The assessing officer must afford reasonable opportunity of being heard to the assessee before deciding the issue.
In the result assessee’s appeal is allowed for statistical purpose. Order pronounced in the open Court on 10.02.2017 Sd/- Sd/- N.K. PRADHAN SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 10.02.2017 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Nishant Verma Sr. Private Secretary