DAGA GLOBAL CHEMICALS LTD,MUMBAI vs. ASST CIT 9(1), MUMBAI

This appeal has been preferred by the assessee against order dated 13/06/2013 passed by the Ld. CIT(Appeals)-19, Mumbai for the assessment year 2010-11, whereby the Ld. CIT(A) dismissed the appeal filed by the assessee against assessment order dated 18/12/2012 passed u/s 143(3) of the Income Tax Act, 1961(in short ‘the Act’).

2. Brief facts of the case which require necessary mention for the purpose of adjudicating the issues involves, emanating from the record and the contentions of the parties are that the assessee filed its return of income for the relevant assessment year declaring the total income of Rs. 6,22,36,210/-. The return of income was processed and assessment order u/s 143(3) was passed determining the total income at Rs. 6,30,45,710/- after making disallowance of Rs. 8,09,496/- u/s 14A read with Rule 8D of the Income Tax Rules. The assessee challenged the assessment order before the Ld. CIT(A). The assessee’s appeal was dismissed by the Ld. CIT(A) following the findings of the then CIT(A) in assessee’s own case for the assessment year 2009-10.

3. The learned CIT(A) failed to appreciate that interest expenditure of Rs. 1,44,66,763/- has no nenus with earning of exempt income as the investments on which exempt income is earned is out of own funds and hence disallowance u/s 14A. r.w. Rule 8D may be deleted.

4. The learned CIT(A) failed to appreciate the A.O has not duly recorded satisfaction before invoking 14A. r.w.Rule8D as assessee had submitted bifurcation of Financial expenses to A.O. to show that interest expense was not incurred for investment in shares or for earning exempt dividend income and A.O did not reject the same and still A.O applied Rule 8D in an automatic fashion and hence, no satisfaction was recorded by A.O as required u/s 14A before invoking Rule 8D.

5. The learned CIT(A) failed to appreciate that disallowance u/s 14A read with Rule 8D cannot exceed exempt income.

6. We have gone through the material placed before us in the light of the submissions of the Ld Counsel for the assessee. The sole grievance of the assessee is that the Ld. CIT(A) has wrongly confirmed the disallowance of Rs. 8,09,496/- made by the AO under section 14A read with Rule 8D of the Income Tax Rules, without appreciating the facts that no expenditure directly or indirectly was incurred by the assessee for earning exempt income and that investments in shares were made in earlier years out of own funds. We notice that the coordinate Bench vide order dated 01.01.2015 has decided the identical issue in favour of the assessee in assessee’s own case for the assessment year 2009-10 by holding as under:- “The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs.1,82,362/-as dividend income, therefore, there is no question of disallowance of Rs. 14,58,412/-by invoking section 14A r. w. Rule 8D under the facts available on record. It was also explained by the ld. Counsel for the assessee that on identical facts in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income. At best, if any disallowance could be made that can be restricted to Rs. 1,485/-which were claimed as demat charges. Disallowance u/s 14A r. w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of assessee. The appeal of the assessee is therefore, allowed.”