WINDIA INFRASTRUCTURE FINANCE LTD,MUMBAI vs. ASST CIT RG 1(3), MUMBAI

This appeal u/s. 253 of the Income-tax Act is directed by assessee against 1. the order of CIT(A)-2, Mumbai dated 20.10.2014 for Assessment Year (AY) 2010-11).

Brief facts of the case are that assessee filed return of income for the relevant AY on 30.09.2010 declaring total income of Rs. 3,66,08,240/-. Initially the return was processed u/s 143(1) of the Act. Subsequently it was selected for scrutiny. While framing the assessment, the Assessing Officer (AO) observed that assessee received dividend income of Rs. 8,30,693/-, which was claimed as exempted u/s 10(34). The assessee was asked to explain why disallowance u/s. 14A r.w. Rule 8D should not be invoked. The assessee filed its reply and contended that there is no expenditure has incurred to earn to exempt income, therefore, no disallowance is called for. The contention of the assessee was not accepted and the AO worked out the disallowance as per section 14A r.w. Rule 8D and calculated the disallowance of Rs. 5,17,407/-. A the assessee has already disallowed a sum of Rs. 1,24,349/- thus a sum of Rs. 3,92,508/- (5,10,407/- – 1,24,349/-) was added in the income of assessee. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A), wherein the disallowance was restricted to Rs. 3,15,878/- holding that disallowance of Rs. 77,630/- made under rule 8D(2)(ii) was not warranted. Further aggrieved by the order of AO, the assessee filed the present appeal before us against sustaining the disallowance of Rs. 3,15,878/- u/s. 14A of the Act.

We have heard Ld. Authorised Representative (AR) of the assessee and Ld. Departmental Representative (DR) for Revenue and perused the material available on record. The Ld. AR for assessee argued that the assessee has made investment only in subsidiaries and its group concerns. No administrative Cost was incurred and hence no disallowance was called for u/s 14A r.w. Rule 8D(2)(iii). The Ld. AR of the assessee further argued that the disallowance made by AO on administrative expenses is too excessive. The AO disallowed Rs. 4,39,777/- which is 19.55% of the dividend income of Rs. 8,30,613/-. It was further argued that the AO has not recorded any dissatisfaction before calculating the disallowance. On the other hand, ld. DR for Revenue argued that assessee has not attributed any expenses toward earning of exempt income. It was further argued that administrative expenses as well as other related expenses relating to earning the dividend income as well as proportionate part of other expenditure should be disallowed. The Ld. DR for Revenue submitted that ld. CIT(A) has already given the relief of Rule 8D(2)(ii) to the assessee. The Ld. DR for Revenue vehemently supported the order of authorities below.

We have considered the rival contentions of the ld. representatives the assessee has claimed to have earned exempt income of Rs. 8,30,613/- during the year under consideration. The assessee disallowed a sum of Rs. 1,24,349/-. The AO has not recorded his dissatisfaction about the voluntary disallowance made by assessee before invoking Rule 8D, the assessee further contended before the Revenue authorities that the assessee has sufficient interest free funds available with them to make investment in securities. The assessee made the investment in subsidiary and group companies, the details and break ups of investment were provided during the assessment proceeding as well as at the first appellate stage. The AO instead of considering the submission and material supplied invoked the provision of Rule 8D, the assessee has own fund at Rs. 46.61 crore which were sufficient to take care of the investment activities of the assessee. The contention of the assessee that he has not incurred any expenditure for earning the dividend income is not acceptable blindly. Hence, we are of the view that it would be proper to make the disallowance of administrative expenses of Rs. 50,000/- for earning the dividend income, which would meet the end of justice. Thus, the total disallowance would be Rs. 1,24,349/- plus Rs. 50,000/- u/s 14A of the Act. The AO is directed accordingly. With this observation the appeal of the assessee is allowed in the above terms.