K. UTTAMLAL (EXPORTS ) P.LTD,MUMBAI vs. ASST CIT CIR 6(2), MUMBAI

सुनवाई की तायीख / Date of Hearing : 19.07.2016 घोषणा की तायीख /Date of Pronouncement : 19.07.2016 आदेश / O R D E R

PER D. KARUNAKARA RAO, AM:

2. On facts and in law, the Ld CIT (A) had erred in confirming the disallowance of Rs. 1,47,542/- out of expenses instead of Rs. 12,000/-. Under the facts and circumstances of the matter, he ought to have directed the Assessing Officer to restrict the disallowance to Rs. 12,000/- out of expenses.

3. On facts and in law, the Ld CIT (A) had erred in not directing the AO to tax STCG @ 10% as per section 111A, instead of normal rate of tax levied by Assessing Officer. Under the facts and circumstances of the matter, he ought to have directed the Assessing Officer to tax Short Term Capital Gain @ 10%”.

2. Briefly stated relevant facts of the case are that the assessee earned exempt income of Rs. 7,23,039/- from its investments & LTCG on sale of shares. Assessee quantified the disallowance u/s 14A of the Act to Rs. 33,292/- whereas, AO invoked the provisions of Rule 8D of the IT Rules, 1962 and quantified the disallowance at Rs. 3,52,311/-. On appeal, CIT (A) confirmed the disallowance made by the AO. Aggrieved, assessee is in appeal before the Tribunal.

3. During the proceedings before us, Ld Counsel for the assessee submitted that the Revenue Officers ignored the fact that the assessment year under consideration is being 2007-2008 not covered by the provisions of Rule 8D of the IT Rule, 1962 which came into existence in subsequent AY 2008-09. On these facts, Ld Counsel for the assessee submitted that in view of the binding judgment of the Hon’ble jurisdictional High Court in the case of Godrej Agrovet the disallowance applying the flat rate of 2% of the exempt income should meet the conditions of Rule 8D(iii) of the IT Rules. He also submitted that the said judgment further expanded to cover the disallowance up to 5% of the exempt income.

4. On the other hand, Ld DR for the Revenue vehemently argued for restricting the disallowance to 5% of the exempt income.

5. After hearing both the parties on this issue and on perusal of the binding judgment of the Hon’ble Bombay High Court in the case of Godrej Agrovet (supra), we are of the opinion that disallowance of a percentage of exempt income as upheld by the Hon’ble High Court, is appropriate. For the sake of completeness of this order the relevant para of the High Court’s judgment is extracted as follows:

.....................assessment year is 2007-08 under consideration is outside the scope of provisions of Rule 8D. The said provisions cannot be treated as applicable to the A.Y.2007-08 under consideration indirectly when the same is precluded by the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, reported in (2010) 328 ITR 81(Bom). The Hon’ble Bombay High Court also in the case of CIT vs. M/s. Godrej Agrovet Ltd vide Income Tax Appeal No. 934 of 2011, dated 8.1.2013, has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the assessment year 2008-09. The relevant portion of the said judgment of the Bombay High Court (supra) reads as under: 4. So far as question (b) is concerned, the Tribunal in its impugned order dated 17.9.2010 while applying the decision of this court in the matter of Godrej (supra) has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the respondent-assessee on the basis its order dated 27.2.2009 for the assessment year 2002-2003 and order dated 10.9.2009 for the Assessment Years 2003-2004 and 2004-2005 wherein disallowance was restricted to 2% of the exempt income. Further; the Tribunal has remanded the matter to the AO to verify the disallowance claimed and restrict the disallowance only to the extent to 2% of the total exempt income. We find no fault with the order of the Tribunal.