SAJJAN INDIA LTD,MUMBAI vs. DCIT (OSD) 7, MUMBAI

In assessee’s appeal, the assessee is challenging the order of the Ld. CIT(A) in confirming disallowance of Rs. 38,56,695/- u/s. 14A r.w. Rule 8D(2)(iii) as offered by the assessee in the return of income. The Revenue also in its appeal challenged the order of the Ld. CIT(A) in deleting the disallowance made u/s. 14A r.w. Rule 8D(2)(ii) and 8D(2)(iii) of the I.T. Rules.

Brief facts are that the Assessing Officer while completing the assessment noticed that assessee received dividend income of Rs. 1,43,59,191/- and this was claimed as exempt income. The assessee disallowed Rs. 38,56,695/- in the computation of income towards administrative expenses incurred in relation to exempt income as per Rule 8D(2)(iii). The Assessing Officer reworked out the disallowance under section 14A r.w. Rule 8D for the reason that assessee did not disallow interest under Rule 8D(2)(ii) though it was paying interest and assessee did not show that the investments were made out of own funds and not from borrowed funds. The Assessing Officer arrived at interest portion of Rs. 3,74,523/- and Rs. 72,83,764/- being 0.5% of average value of investments and disallowed both these amounts aggregating to Rs. 76,58,287/-. However, since the assessee has disallowed suo moto an amount of Rs. 38,56,695/-, he has restricted the disallowance to Rs. 38,01,592/-.

The assessee preferred an appeal before the Ld. CIT(A) contending that all the investments are made out of own funds and not from borrowed funds. Therefore, no part of interest should be disallowed. It was further contended that the investments which does not yield any dividend income should be excluded for the purpose of calculating average value of investments under Rule 8D(2)(iii), based on the decision of the Tribunal for Assessment Years 2007-08 to 2009-10. The Ld. CIT(A) following the order of the Tribunal in & 7532/M/2011 & 5856/M/12 dated 23.4.2014 worked out the disallowance based on the directions contained in the Tribunal’s order and arrived at the disallowance to be made towards administrative expenses only from the employee’s remuneration of Rs. 18.97 lakhs and that to on proportionate basis. However, since the assessee himself has calculated such administrative and other expenses for disallowance u/s 14A at Rs. 38,56,695/- and this was disallowed by the assessee himself in the computation of income, he deleted the disallowance made by the Assessing Officer under section 14A r.w. Rule 8D. The Ld. Counsel for the assessee contents before us that the Ld. CIT(A) should not have confirmed the disallowance of Rs. 38,56,695/- as offered by the assessee in the return of income having said that only a proportion of expenses out of Rs. 18.97 lakhs is disallowable u/s. 14A r.w. Rule 8D of the Act.

The Ld. Departmental Representative places reliance on the orders of the Assessing Officer.

We have heard the rival contentions and perused the orders of the authorities below. As far as the contention of the assessee is that the Ld. CIT(A) should not have confirmed the disallowance of Rs. 38,56,695/- is concerned, we do not find much force in the contention of the assessee since assessee himself has calculated these expenses as expenses incurred for earning exempt income. Thus, we find no grievance to the assessee as the Ld. CIT(A) has deleted the entire addition made by the Assessing Officer under section 14A r.w. Rule 8D following the directions of the Tribunal in earlier years. Thus, we dismiss the ground of the assessee.

Coming to the Revenue’s appeal the ground raised in respect of deletion of disallowance made u/s. 14A r.w. Rule 8D(2)(ii) and under Rule 8D(2)(iii). Since the Ld. CIT(A) has decided the issue following the Tribunal’s order in assessee’s own case after examining the surplus funds and investments made and also following the directions of the Tribunal in excluding investments which does not yield any dividend income for the purpose of Rule 8D(2)(iii), we do not see any infirmity in the order passed by the Ld. CIT(A). This ground of the Revenue is rejected.

The next issue in the appeal of the Revenue is that the Ld. CIT(A) erred in deleting the disallowance made u/s. 80IA on Captive Power Plant set up in the year 2003-04.

In the result, the appeal filed by the assessee is allowed and the appeal filed by the revenue is partly allowed for statistical purpose.