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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI G.S.PANNU
The captioned appeal filed by the Revenue pertaining to assessment year 2010-11 is directed against an order passed by CIT(A)-8, Mumbai dated 16/03/2016, 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 11/03/2013.
In this appeal, the only grievance of the Revenue is against the action of the CIT(A) in deleting a disallowance made by the Assessing Officer under section 14A of the Act. The Grounds of appeal raised by the Revenue read as under:- 1 "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s14A of the IT Act made by the AO without appreciating the fact that the AO had duly recorded dissatisfaction under section 14A(2) as the investments made by the assessee were out of the assessee's mixed funds and assessee failed to demonstrate that the investments made in shares were not done by utilizing the funds borrowed on interest and that the amount of expenditure for earning the exempt income is to be disallowed in terms of Rule 80 r.w.s. 14A."
2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal of the assessee to consider the revised computation of expenses disallowable u/s.14A filed through letter during the assessment proceedings without appreciating the fact that the AO has rejected the same as the assessee has failed to file the revised return within the time allowable as per the IT Act, relying on the decision of the Hon'ble apex court in the case of M/s Goetze India Ltd (284 ITR 323).
3. "The appellant prays that the order of CIT (A) on the above ground be set aside and that of Assessing Officer be restored."
3. In brief, the relevant facts are that the respondent assessee is engaged in the business of share trading and investments. During the year under consideration, it had earned dividend income of Rs.10,25,288/- on equity shares/mutual funds. In the return of income field, assessee had suo-moto disallowed a sum of Rs.51,72,453/- under section 14A of the Act. Such disallowance was worked out in terms of Rule 8D(2)(ii)of the Income Tax Rules, 1962 ( in short ‘the Rules’) at Rs.47,64,700/- and under rule 8D(2)(iii) at Rs.4,07,752/-totaling to Rs.51,72,453/-. However, in the course of assessment proceedings assessee claimed that the disallowance worked out in terms of Rule 8D(2)(ii) of the Rules was also not merited. The Assessing Officer did not accept the fresh claim made by the assessee as according to him, a fresh claim can only be made by filing a revised return of income. Accordingly, the Assessing Officer worked out the disallowance under section 14A of the Act by applying Rule 8D of the Rules at Rs.90,78,947/- as against Rs.51,72,453/- made by the assessee in the computation of income. The Assessing Officer worked out the disallowance under Rule 8D(2)(ii) of the Rules at Rs.83,63,274/- and under Rule 8D(2)(iii) of the Rules at Rs.7,15,673/-.
4. When the assessee carried the matter in appeal before CIT(A), the CIT(A) accepted the fresh plea of the assessee and deleted the entire disallowance of Rs.83,63,274/- made in pursuance to Rule 8D(2)(ii) of the Rules in relation to the interest expenditure and for the disallowance as per Rule 8D(2)(iii) it was reduced to Rs.4,07,752/- the suo-moto disallowance made by the assessee against, a sum of Rs.7,15,673/- worked out by the Assessing Officer. Against such an action of the CIT(A) Revenue is in appeal before the Tribunal.
As the aforesaid Grounds of appeal reveal, the only point of dispute before the Tribunal is with regard to the action of the CIT(A) in deleting the disallowance out of interest expenditure of Rs.83,60,274/- as per Rule 8D(2)(ii) of the Rules . In this context, the CIT(A) has noticed that assessee was entitled to raise a fresh claim even otherwise than through a revised return. The CIT(A) observed that the claim of the assessee has been rejected on mere technicalities as the fresh claim was made through a written communication and not through revised return. The CIT(A) has entertained the fresh plea by relying on the ratio of judgment of the Hon'ble Bombay High Court in the case of Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336(Bom). Moreover, on the merits of the issue CIT(A) found that there was sufficient interest free funds available with the assessee to cover the investment and, therefore, it has to be presumed that such investments were out of interest free funds following the ratio of the judgment of the Hon'ble Bombay High Court in the case of CIT. Vs. Reliance Utilities And Power Limited., 313 ITR 340 (Bom). Consequently, following the judgments of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd., 366 ITR 505(Bom) and in the case of HDFC Bank Ltd. vs. DCIT,383 ITR 529 (Bom), the interest disallowed in pursuance to Rule 8D(2)(ii) of the Rules has been deleted. Apart there from, the CIT(A) has observed in para – 5.1.6 of his order that the Assessing Officer has not given any justification for rejecting the claim of the assessee that no expenditure was incurred in earning dividend income. Accordingly, in this manner, the CIT(A) has allowed relief to the assessee, against which Revenue is in appeal before the Tribunal.
6. Though, the Ld. Departmental Representative has relied upon the order of the Assessing Officer in support of the Revenue, but no credible material argument has been put-forth as to how the decision of the CIT(A) is wrong, whereby the disallowance as per Rule 8D(2)(ii) of the Rules has been deleted following the ratio of the judgment of the Hon'ble Bombay High Court in the cases of Reliance Utilities & Power Ltd. (supra) and HDFC Bank Ltd.(supra). In the absence of any justifiable reason I find no reason to interfere with the conclusion of the CIT(A), which I hereby affirm. Even the reliance placed by the CIT(A) on the ratio of the judgment of the Hon'ble Bombay High Court in the case of Pruthvi Brokers & Shareholders Pvt. Ltd.(supra) to admit the fresh claim of the assessee is quite justified having regard to facts and circumstances of the case. It is quite clear that the fresh claim made by the assessee in relation to the computation of disallowance as per Rule 8D(2)(ii) of the Rules was a point requiring application of law for which the relevant facts are available on record. Therefore, CIT(A) made no mistake in admitting such fresh claim and allowing relief to the assessee. Under these circumstances, I hereby affirm the order of the CIT(A) and Revenue fails in its appeal.
Resultantly, appeal of the Revenue is dismissed. Order pronounced in the open court on 29/12/2016