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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-12, Mumbai and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The sole ground raised by the assessee in this appeal is that the ld. CIT(A) erred in confirming the disallowance of Rs.2,89,004/- u/s 14A read with Rule 8D (iii). Also it is raised that the ld. CIT(A) ought not to have ITA No: 6028/Mum-2013 2 confirmed the disallowance when, neither he nor the Assessing Officer(AO) had linked up any expenses with earning of the tax free income.
In a nutshell, the facts are that the assessee had disallowed Rs.2,81,111/- u/s 14A of the Act while computing its income. However, in the revised return income, it reduced the said amount from the total income declared in its original income by showing the other income as Nil. During the course of assessment proceeding, the AO asked the assessee to show cause as to why disallowance of Rs.2,81,111/- shall not be made in its original income u/s 14A read with Rule 8D. In response to it, the assessee stated that it had not incurred any expenditure for earning the exempt income and hence no disallowance u/s 14A is called for. The AO followed the judgment of the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co Ltd. vs. DCIT (2010) 194 Taxman 203(Bom) and computed the disallowance as per Rule 8D(2)(iii) and made a disallowance of Rs.2,88,611/-.
The assessee preferred an appeal before the ld. CIT(A) against the above order of the AO. The ld. CIT(A) followed the judgment in Godrej & Boyce Manufacturing Co. Ltd. (supra) . But he agreed with the alternate plea of the assessee that the average value of investments ought to have been taken at Rs.5,29,22,210/- instead of the figure of Rs.5,77,22,210/- as taken by the AO while computing the disallowance u/s 14A read with Rule 8D.
The ld. counsel of the assessee files before us (i) Copy of ITR-V; Computation of total income (original and revised ), (ii) Letter written to CIT(A)-12, Mumbai dated 29.07.2013 and (iii) Submission before the AO. He submits that the provisions of Section 14A read with Rule 8D do not apply since no borrowed funds are utilized for earning of the exempt
ITA No: 6028/Mum-2013 3 income nor actual expenditure have been incurred “in relation to” earning of such exempt income. Further, the dividend income is credited by ECS in the Bank.
The Ld. DR supports the order passed by the ld. CIT(A) .
We have considered the rival submissions and perused the relevant material on record. Rule 8D was inserted by the IT (Fifth Amdt.) Rules, 2008 w.e.f 24/3/2008. Rule 8D has three sub rules . Rule 8D (2)(iii) reads as under:-
“an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.”
The Hon’ble Bombay High Court in Godrej & Boyce Mfg. Co Ltd. (supra) has held that Rule 8D is prospective in application w.e.f assessment year 2008-09. Also it has held that Rule 8D is reasonable in nature.
7.1 We find merit in the submission dated 29.07.2013 of the assessee before the ld. CIT(A) that if at all disallowance u/s 14A is made, it should be done only on investments, income from which is exempt and not on the total value of the investment as done by the AO. As per the revised calculation by the assessee the disallowance amount would be Rs. 2,64,611/- against Rs. 2,88,611/- made by the AO. As the revised calculation is a correct one, the AO is directed to disallow u/s 14A Rs. 2,64,611/- in place of Rs. 2,88,611/-.
In the result, the appeal is partly allowed.
ITA No: 6028/Mum-2013 4
Order pronounced in the open court on 28 /11/2016