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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)-3, Chennai in ITA No.72/14- 15/A-3 dated 30.06.2017. The assessment was framed by the Assistant Commissioner of Income Tax, Company Circle V(4), Chennai for the assessment year 2008-09 u/s.143(3) r.w.s. 147 of
- 2 - ITA No.2324/Chny/2017 the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 29.03.2014.
The only issue recalled by Tribunal vide its order in MP No.226/CHNY/2019 recalling the order in ITA No.2324/CHNY/2017 dated 14.03.2019 is as regards to disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act r.w.s. 8D(2) of Income Tax Rules, 1962. This appeal is recalled limited to this issue only. None is present from assessee’s side despite service of notice hence we proceed to hear this appeal ex- parte, qua assessee.
Brief facts are that the AO noticed that the assessee has earned dividend income of Rs.7,81,219/- in respect of investment made of Rs.1,49,01,500/- in shares of Olympic Cards Ltd., but the assessee has not disallowed any expenses relatable to earning of this exempt income. Hence, he invoked the provisions of section 14A r.w.s. 8D of the Rules. He noted that the assessee has debited a sum of Rs.7,54,241/- as interest in the Profit & Loss Account for the year ended 31.03.2008. Therefore, the AO made disallowance under Rule 8D(2)(ii) being interest payment of Rs.7,54,241/- and again made disallowance under Rule 8D(2)(i) i.e., direct expenses at
- 3 - ITA No.2324/Chny/2017 Rs.7,54,241/- (it seems that the AO has incorrectly applied to this provision of interest expenses). The AO also invoked Rule 8D(2)(iii) being administrative expenses i.e., 0.5% of average value of investment and therefore, made disallowance at Rs.22,394/-. The AO under Rule 8D(2)(ii) computed interest disallowance at Rs.1,38,932/-. Therefore, the total disallowance under Rule 8D(2)(i), (ii) & (iii) of the Rules, altogether made at Rs.9,15,566/-. The CIT(A) considering the submissions of the assessee that the assessee has only made investment in instruments giving rise to exempt income by taking loan of Rs.10,00,000/- on interest from proprietary concern M/s. Olympia Paper and Stationery Stores and balance amount was invested out of own funds and he filed details before CIT(A). The CIT(A) going through the working restricted the disallowance under Rule 8D(2)(ii) at Rs.62,193/- and deleted the balance addition under Rule 8D(2)(ii) & (iii) also by observing in para 5.1 as under:- “5.1 I have carefully considered the submission of the appellant in support of the grounds and I have gone through the facts and records. The disallowance u/s 14A arises in respect of his business income in proprietary concern M/s. Olympia Papers & Stationery Stores. From the proprietary concern it is seen that Rs 10 lakhs was invested in Equity share of Olympic Cards Limited. The disallowance of Rs.9,15,566/- as against this investment is highly excessive particularly when the interest paid during the year debited to the P&I A/c is much lesser. I find that the appellant has fairly conceded that the disallowance can at least be Rs.62,193/- applying the Rule 8D. This disallowance is reasonable and comparable to the Quantum of Investment from the business account. Based on the workings
- 4 - ITA No.2324/Chny/2017 submitted before me in the written submission and on facts and circumstances, I direct the AO to restrict the disallowance u/s 14A Rule 8D Rs.62,193/-. The Appellant gets relief of Rs.8,53,373/-. The grounds taken on this issue are partly allowed.
Aggrieved, Revenue is in appeal before the Tribunal.
We have heard ld.CIT-DR and gone through the facts and circumstances of the case. We noted that the assessee has taken a loan of Rs.10,00,000/- from its proprietary concern M/s. Olympia Paper and Stationery Stores and filed financial statements and also sources of other investments. We noted that the assessee has paid interest debited to proprietary business account which is a regular business account of Rs.7,54,241/-out of which at the most, the disallowance can be restricted to the loan taken from the assessee’s proprietary concern M/s. Olympia Paper and Stationery Stores of Rs.10,00,000/- which the CIT(A) has rightly disallowed and restricted the disallowance under Rule 8D(2)(ii) at Rs.62,193/- and balance disallowance was deleted. We also noted that the AO has wrongly made disallowance under Rule 8D(2)(i) being direct expenses as interest which cannot be a direct expense, hence this cannot be considered as direct expense. As regards to Rule 8D(2)(iii) disallowance by the AO of Rs.22,394/- since the funds were invested out of own funds and the AO has taken average value
- 5 - ITA No.2324/Chny/2017 of investment i.e.,0.5% and made disallowance at Rs.22,394/-, we sustain this addition and to that extent, the Revenue’s appeal is allowed. We direct the AO to re-compute the disallowance restricting the disallowance under Rule 8D(2)(i) at ‘nil’, under Rule 8D(2)(ii) at Rs.62,193/- and under Rule 8D(2)(iii) at Rs.22,394/-. In term of the above, the appeal of the Revenue is partly-allowed.
In the result, the appeal filed by the Revenue is partly-allowed.
Order pronounced in the open court at the time of hearing on 6th February, 2024 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 6th February, 2024 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� /CIT 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF.