DCIT CIR 6(1), MUMBAI vs. JAYNEER CAPITAL P.LTD, MUMBAI

ORDER PER G.S.PANNU,A.M: The captioned appeal filed by the Revenue pertaining to assessment year 2007-08 is directed against an order passed by CIT(A)- 14, Mumbai dated 15/09/2014, which in turn arises out of an order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’) dated 13/01/2014.

(Assessment Year : 2007-08) 1. "Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) erred in deleting the interest expenditure disallowance of Rs. 47,50,382/-, towards earning exempt income"

2. "Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) is justified in holding that the disallowance u/s 14A cannot be computed by applying Rule 80 by relying on the judgment of Bombay High Court in the case of M/s Godrej & Boyce Mfg. Ltd. vs. DClT(2010) 3281TR 81 (Bom) without appreciating the fact that the Revenue has challenged the said decision and filed SLP"

4. "Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in misinterpreting the provisions of sub section 2 and sub section 3 of Section 14A of the Act, inserted by the Finance Act, 2006 with effect from April 1, 2007, would apply prospectively to all pending proceedings ?"

6. "Whether on the facts and in the circumstances of the case and in law, the Id ClT(A) erred in not appreciating that the disallowance as computed under Section 14A was in term of the formula prescribed in Rule 80 of the Income Tax Rules, 1962?"

3. At the time of hearing, the background of the case was explained as follows. That the impugned proceedings relate to a disallowance determined under section 14A of the Act in pursuance to the order of the Tribunal in dated 7/9/2012, whereby the original disallowance made by the Assessing Officer was set aside. The Assessing Officer had made the disallowance under section 14A of the (Assessment Year : 2007-08) Act with respect to the element of interest expenditure based on the ratio of loans to total funds. This approach was based on the formula adopted in the preceding assessment year 2006-07. In assessment year 2006-07 also the Tribunal had remanded the issue back to the file of the Assessing Officer. In this manner, the Assessing Officer in the impugned order worked out the disallowance under |section 14A of the Act at Rs.47,50,382/-, after considering the suo-motu disallowance worked out by the assessee. The CIT(A) however, deleted the addition on the ground that the total shareholder funds of the assessee as on 31/3/2002 exceeded the investments. According to the CIT(A), in view of the aforesaid directions of the Tribunal, no disallowance out of interest expenditure could be made under section 14A of the Act.

(Assessment Year : 2007-08) that the CIT(A) has proceeded on a mistaken footing in order to delete the impugned addition.

5. On the other hand, Ld. Representative for the assessee pointed out that assessee was not aware of the order passed by the Assessing Officer for assessment year 2006-07 and that assessee company would take separate steps for the same. Be that as it may, the plea of the assessee is that in any case, disallowance out of interest expenditure in terms of section 14A of the Act is not merited because all the investments are made in group companies and, further that the same were made out of internal accruals and non-interest bearing funds. The Ld. Representative for the assessee pointed out that the strategic investments are liable to be excluded for the purposes of computing the disallowance under section 14A of the Act, and even on this count disallowance out of the interest expenditure was not merited. On this plea, Ld. Representative for the assessee submitted that the matter may be verified by the Assessing Officer, inasmuch as, assessee had already canvassed such a position in the course of the original assessment proceedings under section 143(3) of the Act dated 15/12/2009.