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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -15, Chennai, dated 24.09.2015 and pertains to assessment year 2012-13.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is with regard to disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act') in respect of the expenditure said to be incurred by the assessee for earning exempted income. Referring to the assessment order, the Ld.counsel submitted that the assessee itself made disallowance under Section 14A of the Act in respect of the income which does not form part of total income. During the year under consideration, according to the Ld. counsel, the assessee borrowed loan from M/s Shriram City Union Finance Limited and utilised the same for making investment in equity shares. The assessee, in fact, paid interest of `1,50,904/-, which was disallowed by the assessee while computing the taxable income. The assessee has also disallowed another sum of `2,12,110/- towards administrative expenses in connection with investments in equity shares. Totally, the assessee disallowed a sum of `3,63,014/- under Section 14A of the Act, therefore, according to the Ld. counsel, any further disallowance may not be called for.
The Ld.counsel for the assessee further submitted that the assessee pleaded before the CIT(Appeals) that investment in subsidiary company cannot be considered for making disallowance under Section 14A of the Act. Moreover, the Assessing Officer has taken the entire value of investments instead of taking the value of investment which earned dividend income. The share application money was also taken into consideration for the purpose of disallowance. According to the Ld. counsel, share application money does not result in earning of exempt income, therefore, the same has to be excluded while computing the disallowance under Section 14A of the Act. Even though the same was argued before the CIT(Appeals), according to the Ld. counsel, the CIT(Appeals) has not recorded any finding with regard to investment, which does not result in any income, and the share application money.
Therefore, according to the Ld. counsel, the same has to be disposed of. On a query from the Bench, whether the assessee has raised the specific ground before the CIT(Appeals), the Ld.counsel submitted that before the CIT(Appeals) the assessee challenged the entire disallowance of `50,55,472/- which included the disallowance made by the Assessing Officer with regard to investment which does not result in any income and also the share application money.
On the contrary, Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that the Assessing Officer computed the disallowance by applying the provisions of Rule 8D of the Income- tax Rules, 1962. According to the Ld. D.R., Rule 8D is mandatory for the assessment year under consideration. The Assessing Officer, after computing expenditure under all the three limbs of Rule 8D(2), disallowed the average amount. The CIT(Appeals), however, found that the investment made in the subsidiary company needs to be excluded. According to the Ld. D.R., the CIT(Appeals) directed the Assessing Officer to exclude the investment made by the assessee in the subsidiary company after proper verification of books of account. The CIT(Appeals) also directed the Assessing Officer to deduct the corresponding expenditure already disallowed suo moto by the assessee. Therefore, the CIT(Appeals) considered the claim of the assessee and gave appropriate relief wherever it is possible.
According to the Ld. D.R., now the assessee claims that the investment, which does not result any income, and share application money were not adjudicated by the CIT(Appeals).
According to the Ld. D.R., for the purpose of computing disallowance under Rule 8D(2)(iii), the Assessing Officer admittedly has taken note of the investments as on the last day of financial year and computed the disallowance at 0.5% in respect of the income which does not form part of total income. Therefore, it is not correct to say that the CIT(Appeals) has not adjudicated the same.
When the Assessing Officer computed the disallowance in respect of the average value of investment, which does not or shall not form part of total income, there is no need for remitting the matter back to the CIT(Appeals). In other words, the CIT(Appeals) confirmed the order of the Assessing Officer.
5. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the provisions of Rule 8D is applicable for the purpose of computing disallowance in respect of income which does not form part of total income. The Assessing Officer computed the disallowance at page 3 of the impugned order. In respect of direct expenditure, the Assessing Officer disallowed the entire interest paid by the assessee to the extent of `1,50,904/-. In fact, the amount borrowed by the assessee from Shriram City Union Finance Limited and the payment of interest to the extent of `1,50,904/- are not in dispute.
The entire borrowed funds were used in investment for earning the exempted income. The Assessing Officer has also taken the interest payment of `1,50,904/- as direct expenditure. Therefore, there is no dispute with regard to first limb of Rule 8D(2). Now coming to second limb, namely, Rule 8D(2)(ii), the assessee paid interest to the extent of `1,50,904/- which is directly relatable to earning of exempted income. The average investment was to the extent of `95,12,69,922/-. It is not known whether the assessee paid any interest on the borrowed funds for business. In other words, it is to be ascertained whether the assessee borrowed funds for business. In respect of expenditure incurred by the assessee by way of interest which is not directly attributable to any particular income or receipt, the disallowance has to be computed as per second limb of Rule 8D(2). The Assessing Officer has taken only the total investment value between 01.04.2011 and 31.03.2012.
The Assessing Officer has not taken the expenditure by way of interest other than direct expenditure incurred by the assessee during the relevant period. It is not known whether the assessee has borrowed any funds for the purpose of business other than for making investment. Moreover, for the purpose of Rule 8D(2)(iii), an amount equal to 0.5% of average value of investment income, which does not or shall not form part of total income, also needs to be considered. Therefore, this Tribunal is of the considered opinion that the Assessing Officer has not taken into consideration the expenditure incurred by the assessee for the purpose of computing disallowance as per Rule 8D(2)(ii) of the Income-tax Rules, 1962.
Moreover, the share application money, namely, the investment made by the assessee in allotment of share was also not specifically considered either by the Assessing Officer or by the CIT(Appeals). Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered. Accordingly, the orders of the authorities below are set aside and the entire disallowance made by the Assessing Officer under Section 14A of the Act is remanded back to the file of the Assessing Officer. The Assessing Officer shall compute the disallowance as per the provisions of Rule 8D(2) of the Income-tax Rules, 1962 and thereafter, decide the same afresh in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 15th September, 2016 at Chennai.