TIL LIMITED,KOLKATA vs. D.C.I.T CIR - 1,KOLKATA, KOLKATA

This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XXIV, Kolkata dated 28.02.2013. Assessment was framed by DCIT, Circle-1, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2008 for assessment year 2006-07.

Solitary issue raised by assessee in this appeal is that L’d CIT(A) erred in confirming the action of Assessing Officer by disallowing proportionate business expenditure of ₹2,47,370/- u/s 14A of the Act read with Rule 8D(iii) of the IT Rules, 1962 (for short ‘the Rule’).

Facts in brief are that assessee in the present case is a Limited Company and engaged in the manufacture business for sale of mobile cranes, fork lit trucks and generator sets and also engaged in trading of earthmoving machineries and spare parts. During the year, assessee has erned income of ₹7,940/- in the form of dividend and also incurred Long Term Capital Gains (LTCG for short) loss amounting to ₹1,42,92,609/-. The AO observed that the aforesaid income / loss do not form of total income of assessee and the assessee has not disallowed any expenditure in respect of such loss / income in the computation of its total income by virtue of the provisions of section 14A of the Act. Although there was a role of management in the investment made from which the aforesaid income / loss was happened. Accordingly the AO has applied Rule 8D of the Rule and disallowed a sum of ₹2,47,370/- in terms of provision of Sec. 14A of the Act r.w.s 8D(iii) of the Rule and which was added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who has confirmed the action of AO by observing as under:- “3.3 In the case of CIT Vs Dhanalakshmy Bank Ltd. (supra), the Hon'ble Kerala High Court has held that if separate accounts are not maintained for taxable and non-taxable items of income, then disallowances as per Rule 8D are to be made. The onus is on the assessee to prove that the investments for earning exempt income TIL Ltd. v. DCIT Cir-1, Kol. Page 3 has been made out of own funds. In the case of Dhanuka & Sons (supra), the Hon'ble Calcutta High Court has held that the onus is on the assessee to prove that own fund has been utilized for earning exempt income. In the case of ACIT Vs Champion Commercial Co. Ltd. [2012] 26 taxmann.com 342 (Kol), the Hon'ble ITAT Kolkata has held that in a situation in which the assessee claims that no expenditure has been incurred on earning dividend, the provision of section 14A(2) read with Rule 8D can be invoked. In the case of Southern Petro Chemical Industries Vs. DCIT 93 TTJ (Mad.) 161, the Hon'ble ITAT Chennai has held that the investment decisions are strategic decisions in which top management is involved and therefore, proportionate management expenses are required to be deducted while computing the dividend income for the purpose of exemption u/s. 10(33). Considering the facts of the case, I am of the opinion that the AO has correctly applied the provision of section 14A read with Rule 8D in the instant case. Accordingly, the disallowance of Rs.2,47,370/- u/s.14A read with Rule 8D is upheld. This ground of appeal is dismissed.”

At the outset, we observe that the issue is squarely covered in favour of assessee and against the Revenue by the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. M/s R.R.Sen 7 Brothers P. Ltd. in GA No.3019 of 2012 in ITT No. 243 of 2012 dated 04.01.2013 had held as under:- “The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under income tax. The Tribunal has computed expenditure at 1% of such dividend income, which, according to them, is the thumb rule applied consistently. We find no reason to interfere. The appeal is dismissed.”