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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-11, Chennai, dated 21.01.2015 and pertains to assessment year 2011-12.
Sh. Saroj Kumar Parida, the Ld. counsel for the assessee, submitted that the only issue arises for consideration is with regard to disallowance made by the Assessing Officer under Rule 8D of Income-tax Rules, 1962. According to Ld. counsel , the assessee had surplus funds to the extent of `64,04,90,000/- and interest earned on the investment made was `18,17,910/-. According to the Ld. counsel, no borrowed funds were used to earn any exempt income. This Tribunal in the assessee’s own case for the assessment year 2010-11 in found that only 0.5% of the average value of the investment, income from which does not form part of total income as appearing in the balance sheet of the assessee on the first day and last day of the previous year, has to be allowed as expenditure for earning the income by applying third limb Rule 8D(2). In view of the above, according to the Ld. counsel , only 0.5% of the average investment has to be disallowed.
3. We heard Shri Sasikumar, the Ld. Departmental Representative also. According to the Ld. D.R., there is no nexus between the investment and the available funds. If the assessee claims that the surplus funds were used for making investment for earning exempted income, it is for the assessee to establish the same in the absence of any material available on record. According to the Ld. D.R., the Assessing Officer has rightly made disallowance by applying second limb of Rule 8D(2).
We have considered the rival submissions on either side and perused the relevant material available on record. The assessee is a State Government undertaking. For the assessment year 2010- 11 in the same issue came before this Tribunal in the assessee's own case. This Tribunal after considering the material available on record has observed as follows:-
“6. We have carefully gone through the provisions of Rule 8D of the Income-tax Rules, 1962, which reads as follows:- (1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).
(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- B A X--- C Where A =amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B =the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; C =the average of total assets as appearing in the balance- sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance- sheet of the assessee, on the first day and the last day of the previous year.
For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.
Rule 8D was introduced with effect from 24.03.2008. Therefore, the same is very much applicable for the year under consideration. When the Assessing Officer is not satisfied about the correctness of the claim of expenditure or the assessee’s claim that no expenditure was incurred, then the Assessing Officer shall recompute the expenditure by applying the procedure laid down in Rule 8D(2). As per sub-Rule (2) of Rule 8D, the aggregate of the three limbs provided therein has to be taken into consideration for the purpose of computing the expenditure. In the case before us, the assessee admittedly utilized the reserve available to the extent of `54,54,90,000/-. Therefore, no direct expenditure was incurred for earning the income which does not form part of total income. The assessee also has not incurred any expenditure by way of interest. Therefore, the second limb of the Rule 8D(2) is not applicable. Now coming to the third limb, the amount equal to 0.5% of the average value of the investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year, has to be taken into consideration. This Tribunal is of the considered opinion that the third limb of Rule 8D(2) has to be applied. Therefore, the computation made by the Assessing Officer by adopting second limb of Rule 8D(2) may not be correct. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to take 0.5% of the average value of the investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year, as expenditure for earning income.”
The facts remain same as that of the assessment year 2010-
Therefore, this Tribunal cannot take a different view. Therefore, by following the order of this Tribunal in the assessee's own case for assessment year 2010-11 in dated 19th February, 2016, the orders of the lower authorities are set aside and the Assessing Officer is directed to take 0.5% of the average value of investment, income from which does not or shall not form part of the total income as expenditure in the balance sheet of the assessee on the first day and last day of the previous year to be allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced on 24th March, 2016 at Chennai.