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Income Tax Appellate Tribunal, ‘C’ BENCH,
Before: Shri M.Balaganesh, & Shri S.S.Viswanethra Ravi
This appeal by the Assessee directed against the order dated 03-12-2013 of the Commissioner of Income Tax (Appeals),XII, Kolkata for the assessment year 2006-07.
In this appeal, the assessee has raised the following effective ground:- 1. For that the Commissioner of Income Tax (Appeals) XII, Kolkata, was not justified in sustaining the disallowance of Rs.50,483/- considering 1% of the exempted Income (Dividend Income) of Rs.50,48,305/- as indirect expenditure incurred to earn such exempt income and in doing so, AO erred in law as well as on facts. M/s. Modern Fibotex India Ltd 1
The sole ground raised for our consideration to decide is as to whether the CIT-A is justified in confirming the disallowance of Rs.50,483/- being 1% as indirect expenditure of Dividend earned in the facts and circumstances of the case.
The facts are that the assesse is a company involved in the business of manufacture and export of textiles and dealers and investors of shares and securities and also derived income from interest and dividend for the year under consideration. The assessee filed its return of income showing loss of Rs.15,69,781/- on 30-11-2006. Under scrutiny and a notices u/s.143(1) and 142(1) of the Act were issued. The assessee submitted details/documents and filed written submissions.
In its return, the Assessee claimed dividend of Rs.50,48,305/- as exempt income and the Assessing Officer was of the view, the assesse would have incurred expenditure in earning claimed exempt income and sought explanation why such expenditure should not be disallowed from such exempt income. The main contention of the assessee amongst other contentions as raised in its written submissions was that the Section 14A does not apply as it came into force from 01-04-2007 i.e from A.Y.2007-08. The AO not satisfied with the contentions of the Assessee, made applicable Rules 8D(2)(ii) and 8D(2)(iii) of Rules 1962 and computed a sum of Rs.3,77,590/- for the purpose of Section 14A of the Act and disallowed the same and added to the total income of the Assessee. M/s. Modern Fibotex India Ltd 2
The Assessee challenged the assessment order before the CIT-A, contending that it did not invest in shares deriving funds from borrowed loans. The Share Capital and Reverses & Surplus of the Assessee were more than the investments standing as on 31.03.2006. The Assessee relied on the decision of Hon’ble High Court of Bombay in the case of Godrej & Boycee Vs DClT reported in 284 ITR 85. Considering the submissions of the Assessee, the CIT-A did not agree with the finding of the AO in computing the expenditure by applying the Rule 8D(2)(ii) and 8D(2)(iii) of Rules 1962, but, however, restricted the disallowance to 1% of exempt income by relying on orders of Kolkata Tribunal, wherein, according to CIT-A, held in many cases that 1% may be taken into consideration in determining the expenditure that may have incurred in earning the exempt income and accordingly, the CIT-A disallowed Rs.50,483/- as against Rs.3,77,590/- as made by the AO. The relevant portion of which is reproduced herein below:
I have carefully considered the submission put forth on behalf of the appellant alongwith the supporting details/documents furnished & case laws relied upon, perused the facts of the case including the impugned assessment order and other materials brought on record. I find substantial force in the argument advanced on behalf of the appellant. I agree with the contention of the A/R that the provisions of Rule 8D of I. T. Rules are not applicable in the appellant's case being the relevant assessment year 2006-07 as the same are applicable from the assessment year 2008-09 onwards in view of the decision of the Hon' ble High Court of Bombay in the case of Godrej & Boycee Mfg. Co.(supra). At the same time I agree with the contention of the Assessing Officer that expenses incurred relating to the earning of the exempt dividend Income are still disallowable u/s.14P, of the Act in the relevant assessment year. However, I am of the view that the AO was not justified in applying the provisions of Rule 8D of the I. T. Rules, 1962 for determining the disallowable expenses u/s 14A of the Act in the relevant AY as the same are not applicable in this year. I also find that the various M/s. Modern Fibotex India Ltd 3
Benches of the jurisdictional ITAT, Kolkata have held that 1 % of the exempt income can reasonably be considered as the indirect expenditure incurred to earn such exempt income for the assessment years prior to the assessment year 2008-09. Under the facts & circumstances of the case and respectfully following the decisions of the Hon'ble ITAT,Kolkata, I direct the AO to restrict the disallowance of indirect expenses incurred u/s 14A of the Act to Rs.50,483/- being 1% of the dividend income of Rs.50,48,305/- as against Rs. 3,77,590/- 'disallowed by him. Thus, these grounds of appeal of the appellant are partly allowed.
Having not satisfied with order of CIT-A, the Assessee before us and the Ld.AR reiterated the submissions as made before the AO and CIT-A. The Ld.AR relied on the order of AO.
Heard rival submissions and perused the material evidence on record. As rightly pointed by the Ld.AR as it could be gathered from the written submissions dt:16-12- 2008 as filed before the AO and from the impugned order of CIT-A, the provision of Rule 8D came into force from 01- 04-2007 relevant to A.Y 2007-08 and the impugned order was passed involving the return of income filed for the A.Y.2006-07 and, therefore, the applicability of the provisions of Rule 8D therewith, in our opinion, does not apply to the year under consideration. But, however, we find that the order of CIT-A is justified in respect of restricting the disallowance at 1%, as he rightly taken into consideration the observations of the Kolkata Tribunal in holding that the 1% of exempt income is reasonable in computing the expenditure in earning the dividend income. The Hon’ble Jurisdictional High Court of Calcutta in the case M/s. Modern Fibotex India Ltd 4 of CIT vs M/S R.R.Sen & Brothers in GA No.3019/12 in ITAT No.243/2012 upheld the decision of the Kolkata Tribunal in computing the expenditure at 1% of dividend income. The relevant portion of which is reproduced herein below:
The Court:- The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under the income tax. The Tribunal has computed expenditure at 1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. We find no reason to interfere.
In the light of principle laid down by the Hon’ble Jurisdictional High Court of Calcutta and in view of the discussion herein above, we are of the view the order of CIT-A does not require our interference and it is justified, accordingly, the sole ground raised by the Assessee fails and it is dismissed.
The ground no-2 is general and needs no consideration and it is dismissed.
In the result, the appeal filed by the Assessee is dismissed.
Order Pronounced in the Open Court on 28th September,2016