RAKESH S. RENIWAL,MUMBAI vs. DCIT CIR 3(1), MUMBAI

This appeal filed by the assessee on 23.12.2014 is against the order of the CIT (A)-7, Mumbai dated 29.9.2014 for the assessment year 2011-2012. In this appeal, assessee raised three grounds in toto and they revolve around the disallowance made u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rules, 1962.

Briefly stated relevant facts of the case are that the assessee is engaged in the business of „investment and financing‟ and filed the return of income declaring the total income of Rs. 43,14,335/-. Assessment was completed u/s 143(3) of the Act and the assessed income was determined at Rs. 45,55,629/- which includes the disallowance of Rs. 2,41,294/- which is the subject matter of the present appeal. In the assessment, AO noticed that assessee earned dividend income of Rs. 47,21,736/- and long term capital gains of Rs. 8,02,853/- and the same are claimed as exempt income u/s 10 of the Act. Further, AO noticed that the assessee suo moto disallowed a sum of Rs. 17,438/- u/s 14A of the Act. After considering the submissions of the assessee in this regard, AO came to the conclusions that the suo moto disallowance made by the assessee is not in accordance with the Rule 8D(2) of the IT Rules, 1962 and worked out the disallowance at Rs. 2,41,294/- after deducting the assessee‟s disallowance of Rs. 17,438/-. Aggrieved with the said addition made by the AO, assessee carried the matter in appeal before the first appellate authority.

During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) restricted the disallowance to Rs. 1,45,080/- ie 0.5% of the average value of the investment. Again aggrieved with the said decision of the CIT (A), assessee is in further appeal before the Tribunal.

During the proceedings before the Tribunal, none appeared on behalf of the assessee.

On the other hand, Ld DR for the Revenue relied on the orders of the Revenue Authorities.

I have heard Ld DR for the Revenue and perused the orders of the Revenue Authorities as well as the relevant material placed before me. The core issue before me is the correctness of the disallowance u/s 14A r.w. Rule 8D(2)(iii) of the IT Rules, 1962.. On perusal of the AO‟s order, I find, while calculating the average investment, AO included the investments which have never yielded dividends during the year under consideration. It is the case of the assessee that the investments which are not yielded any dividend income, are required to be excluded for calculating the average investments before applying the 0.5% of the average investments for calculating the disallowance under the provisions of Rule 8D(2)(iii) of the IT Rules, 1962. I find merit in the same. As such, CIT (A) has not passed a speaking order giving the reasons for calculating the average investment, before 0.5% is applied. Further, CIT (A) did not distinguish the cases relied on by the assessee. Therefore, considering the above, I am of the opinion that the issue is required to be remanded to the file of the CIT (A) for applying the law stands today and adjudicate the issue afresh after granting a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. CIT (A) is also directed to pass a speaking order in accordance with the provisions of section 250(6) of the Act. Accordingly, grounds raised