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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM]
ORDER
Per N.V.Vasudevan, JM
This is an appeal by the Assessee against the order dated 10.03.2014 of C.I.T.(A)-XII, Kolkata relating to A.Y.2008-09.
The only ground of appeal
raised by the assessee reads as follows :-
1. That in the facts and in the grounds of appeal how far the Assessing Officer is legally correct in calculation the expenditure to be incurred by deeming mathematical fiction u/s 14A read with Rule 8D though no sums were expended for earning such exempted income. As such the burden is on the Revenue to prove the nexus between expenditure disallowed and non-taxable receipts in relation to exempt income.”
3. The Assessee is a company engaged in the business of letting out house property, wholesale market management and building promotion. In the course of assessment proceedings the AO noticed that the assessee has earned tax free income in the form of dividend of Rs.23,61,137/- besides Long term capital gain Rs.6,64,831/-and tax free interest income of Rs.12,555/-. The assessee had computed a sum of Rs.,2,62,261/- as expenditure incurred for the purpose of earning tax free income which is to be disallowed u/s 14A of the Act. The computation of disallowance u/s.14A of the Act, as 2 Kolay Properties (P)Ltd.. A.Yr.2008-09 made by the assessee was of other expenses falling within the ambit of Rule 8D(2)(iii) of the Rules. The AO in the order of assessment has observed that the assessee’s computation of inadmissible expenses of section 14A of the Act was not satisfactory but has not spelt out why it is not satisfactory. Thereafter the AO has observed as follows :- “5.4 It is seen from the accounts vide Schedule- G of balance sheet that the assessee has been maintaining a huge portfolio of investments in shares, securities, debentures and mutual funds. From these investments, the assessee has been earning appreciation in value by change of investments, besides earning dividend income, capital gains, etc. periodically. During the year under consideration, the assessee earned tax-free incomes by way of dividend of Rs.23,61,137/-, long term capital gains of Rs.6,64,831/- (tax-exempt) and interest of Rs.12,555/- on 6.75% tax free US'64 bonds. All these tax-exempt incomes have not accrued to the assessee as 'windfall', rather the assessee has been maintaining an establishment at head office & separate establishments at Nafar Babu's Bazar Section and House Property Section so as to earn income from different sources including those from investment in shares, units, etc. This finding finds force from the accounts of the assessee including Schedule- P & Q forming part of the P&L accounts.
5.5 The provisions of section 14A are applicable in respect of both direct and indirect expenditure, once it is found that such expenditure is incurred in relation to income not forming part of total income. In the present case, the assessee has certainly incurred managerial & administrative expenses in the maintenance of its investment portfolio [ Schedule- G of balance sheet ] for which the assessee has not maintained separate accounts to book related expenses. The auditor has already certified that the assessee has incurred expenditure that are inadmissible u/s 14A ( albeit, the quantum is to be decided by invoking rule 8D ). The assessee has no evidence against the observation of the auditor. In such facts and circumstances of the case, it is held that the assessee has incurred expenditure in relation to tax- exempt incomes earned during the year. For this reason, it is held that provisions of sub-section (2) & (3) of section 14A are applicable in the present case. In the result, the quantum of disallowance u/s 14A is to be computed by invoking rule 8D(2)(iii) as under:- Value of investments as on 01.04.2007 ( A ) = RS.5,36,95,183/- Value of investments as on 31.03.2008 ( B ) = Rs.5,71 ,89,823/- Average value of investment [(A+B)/2] (C) =Rs.5,54,42,503/-
Disallowance u/s 14A [ rule 8D(2)(iii) ] =0.5% of ( C) = Rs.2,77,213/-“ 2
3 Kolay Properties (P)Ltd.. A.Yr.2008-09 4. Aggrieved by the order of AO the assessee filed appeal before CIT(A) and CIT(A) upheld the order of AO observing as follows :- “5.2.3. Decision : I have considered the facts and submissions made on behalf of the appellant. This is a case where the Assessing Officer has made the disallowance under sec.14A of the Act following the working given by the Auditor of the appellant in the Tax Audit Report. The appellant has not furnished any explanation or certificate from the said Auditor to indicate that the said working is not based on correct facts and figures. It is a fact that for earning exempted income, capital as also some administrative expenses are necessary. The appellant has not brought on record any material to show that only own funds are utilized for the investment in the shares and mutual funds and no borrowed capital is employed. The satisfaction arrived at by the Assessing Officer is apparently based on facts available on record. Therefore, in my view, he was justified in making the impugned disallowance by invoking Rule 8D(2)(iii). The disallowance is therefore, confirmed. This ground of appeal is accordingly confirmed.”
5. Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.
We have heard the rival submissions and we have also perused the profit and loss account of the assessee for the relevant period. The same is given as Annexure to this order. A perusal of the profit and loss account shows that the expenses debited therein has no direct nexus with the earning of tax free income. The computation of expenses incurred in earning the tax free income as done by the assessee appears to be just and proper and calls for no interference. The difference between the computation done by the assessee and as done by the AO is very insignificant. The assessee as computed the disallowance u/s 14A of the Act was at Rs.2,62,261/- and the AO has computed the same at Rs.2,77,213/- and there appears to be a very minor difference alone. We therefore direct that the addition be restricted to the disallowance as made by the assessee.
Order pronounced in the Court on 12.04.2017.