M/S. COMPUTER AGE MANAGEMENT SERVICES PVT.. LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 17, Chennai, dated 30.03.2016 and pertains to assessment year 2011-12.

The only issue arises for consideration is disallowance of ₹59,25,357/- under Section 14A of the Income-tax Act, 1961 (in short 'the Act') read with Rule 8D of the Income-tax Rules, 1962.

Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee-company received dividend income of ₹3,72,79,429/-. However, no expenditure was incurred for earning the income. Referring to Section 14A and Rule 8D, the Ld.counsel for the assessee submitted that the expenditure incurred for earning the exempt income alone needs to be disallowed. According to the Ld. counsel, the entire investment was made from the assessee’s own fund and no expenditure was incurred for earning the dividend income. The Ld.counsel further submitted that the assessee itself worked out the expenditure at ₹10,04,673/-. Referring to the order of this Tribunal in the assessee's own case for 2006-07 in the Ld.counsel submitted that on identical set of facts, this Tribunal directed the Assessing Officer to disallow only 0.5% of average value of investment which has given rise to the income which does not form part of total income. Therefore, according to the Ld. counsel, the CIT(Appeals) is not justified in confirming the order of the Assessing Officer.

On the contrary, Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that the Assessing Officer computed the disallowance under Rule 8D of Income-tax Rules, 1962. Referring to the assessment order, the Ld. D.R. submitted that the direct expenditure was taken as NIL by the Assessing Officer. Since the assessee claimed before the Assessing Officer that its own fund was used for investment, the disallowance under direct expenditure was also taken as NIL. However, according to the Ld. D.R., under clause (iii) of Rule 8D(2) of the Income-tax Rules, 1962, 0.5% of the average value of investment, income of which does not form part of total income, was computed at ₹69,30,037/- and after reducing the disallowance made by the Assessing Officer to the extent of ₹10,04,673/-, the Assessing Officer computed the disallowance at ₹59,25,357/-.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee appears to have not incurred any direct expenditure for earning exempt income. It is also not the case of the assessee that any funds were borrowed for business. Therefore, this Tribunal is of the considered opinion that clause (i) and (ii) of Rule 8D(2) may not be applicable. However, in view of clause (iii) of Rule 8D(2), 0.5% of average value of investment, income from which does not form part of total income, has to be disallowed. The income earned by the assessee was ₹3,72,79,429/-. The average value of investment which resulted in income does not form part of total income is ₹1,38,60,07,410/-. Therefore, the Assessing Officer computed the disallowance at ₹69,30,037/-. After deducting the disallowance made by the assessee to the extent of ₹10,04,680/-, the Assessing Officer sustained the disallowance at ₹59,25,357/-. Since the Assessing Officer computed the disallowance under Rule 8D(2) of the Income-tax Rules, 1962, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the appeal filed by the assessee is dismissed.