TEJASKIRAN PHARMACHEM INDUSTRIES P.LTD,MUMBAI vs. DCIT CIR 8(3), MUMBAI

The common issue in all the grounds of appeal is against the part confirmation of order of the AO by the ld.CIT(A) on disallowance u/s 14A by ignoring the fact that the assessee has totally disallowed in its entirety the expenses claimed in the profit and loss account suo-motto and there were no 2 5222/Mum/2013 element for expenses direct or indirect on to which the provisions of section 14A r.w.rule 8D of the Income tax Rule, 1962 could be applied.

The facts of the case in brief are that the assessee filed return of income on 28.9.2011 declaring total income at Rs.1,51,24,342/-. The return of income was processed under section 143(1) and thereafter the case of assessee was selected for scrutiny and statutory notices under section 143(2) dated 10.9.2012 and 142(1) dated 16.9.2013 were duly issued and served on the assessee. During the course of assessment proceeding, the AO found that the assessee earned tax free dividend income amounting to Rs.28,73,98,458/- from the investments amounting Rs.1,27,00,11,256/- (investment in shares and bonds) at the year end. However, the assessee disallowed only Rs.3,29,580/- u/s 14A of the Act. Finally, the assessment under section 143(3) was framed by the AO vide order dated 31.10.2013 by assessing the total income at Rs.2,07,67,330/- by making disallowance u/s 14A to the tune of Rs.56,41,322/-. Aggrieved by the order of AO, the assessee preferred an appeal before the ld. CIT(A), who after considering the submissions of the assessee partly allowed the appeal of the assessee by directing the AO to exclude while computing the disallowance u/s 14A r.w.r 8D investments in Rural Electrification Corporation Limited bonds Rs.71,00,000/- and in Birla Sun Life EMP Rs.28,22,24,658/-. The assessee 3 5222/Mum/2013 challenged the order of the ld.CIT(A) before the Tribunal and hence this appeal is before us.

The ld.Counsel vehemently submitted before us that the assessee suo motto disallowed a sum of Rs.3,29,580/- while filing the return of income which were only expenses charged to profit and loss account. The ld. AR drew our attention to the pages 3 and 6 of the assessee’s paper book which comprised of profit and loss account and Schedule-L qua details of other expenses. The ld. Counsel while drawing our attention to the page 3 of the paper book pointed out that the assessee has not charged any expenses to the profit and loss account other than Rs.3,29,580/- under Schedule-L which were disallowed suo-motto while computing the taxable income of the assessee.

The ld.counsel for the assessee submitted that the disallowance u/s 14A could not be exceed the actual amount of expenses charged to the profit and loss account and therefore the application of provisions of section 14A is without application of mind and without referring to books of accounts of the assessee is bad in law and be deleted.

The ld.DR, on the other hand, supported the orders of authorities below.

We have considered the rival submissions and perused the materials placed on record. We find from the copy of computation of total income at page 1 of the paper book filed by the assessee that the assessee has suo motto disallowed a sum of Rs.3,29,580/- which is the total amount of expenses charged to the profit and loss account under the head “other expenses”. The details whereof is filed at page 6 of the paper book. We find merit in the submissions of the assessee that the disallowance u/s 14A cannot exceed the actual amount of expenses charged to the profit and loss account. From the perusal of the page 3 of the paper book, which is a copy of profit and loss account for the year ended on 31.3.2011, we find that the only expenses debited by the assessee in the profit and loss account under head other expenses as detailed in Schedule-L, is Rs.3,29,580/- which was disallowed by the assessee suo motto therefore there is no scope for any further disallowance u/s 14A of the Act. The disallowance u/s 14A has to be worked out by the AO referring to the books of account of the assessee and not to invoke the said provision blindly without examining the books of account of the assessee. We, therefore, set aside the order of ld. CIT(A) by directing the AO to delete the addition as made under section 14A of the Act.

In the result, appeal of the assessee is allowed.