THE INVESTMENT TRUST OF INDIA LIMITED,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.1349/Mds/2015 :- 2 -:

2010-2011 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The assessee has raised only one substantive ground that 2. the Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer on applicability of provisions of Section 14A r.w. 8D of the Act without considering the actual expenditure incurred for the purpose of earning exempted income.

The Brief facts of the case that the assessee is a Non 3.

Banking Finance Corporation (NBFC) and engaged in the business of hire purchase, leasing, investments and trading in shares and securities. For the assessment year 2010-2011, the return of income was filed on 24.09.2010 with loss (-) of �2,96,75,416/-.

Subsequently, the return was processed u/s.143(1) of the Act and also notice u/s.143(2) of the Act was issued on 25.08.2011. In compliance to notice, the assessee’s ld. Authorised Representative appeared from time to time and furnished information and the Assessing Officer has completed assessment by additions including disallowance u/s.14A r.w.

Rule 8D. The ld.Assessing Officer on perusal of the Books of Accounts found dividend income of �7,36,757/- received by the assessee and claimed exempt u/Sec.10(34) of the Act. Further assessee has not disallowed any expenditure relating to exempted income. The ITA No.1349/Mds/2015 :- 3 -:

Assessing Officer considering the investment and exempt income applied provisions of Sec.14A r.w. Rule 8D and wrongly considered expenditure of �4,19,80,254/- as having nexus to the dividend income and overlooked the characteristic of the expenditure pertaining to premium on maturity of optional fully convertible debentures (OFCD) issued by the Company in financial year 2002-2003 and presumed that these funds were utilized by the company for making investment as reflected in Balance Sheet and calculated disallowance under Rule 8D(i) (ii) and (iii) of the Income Tax Rules �4,66,94,821/- and passed order u/s.143(3) of the Act dated 28.03.2013. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).

ITA No.1349/Mds/2015 :- 4 -: of India Limited towards acquisition of business of Hire Purchase, Leasing, Finance and Securities Trading and these debentures are to redeemed after ten years at a premium of �60 per debentures and assessee has provided �4,19,80,254/- as premium accrued during the year on redemption of debentures in the books of Accounts and Assessing Officer has disallowed the expenditure under presumption of direct nexus attributable to exempt income. The ld. Authorised Representative filed submissions and relied on judicial decision of CIT vs. Hero Cycles (323 ITR 518) (P & H) and decisions of Mumbai High Court. But the ld. Commissioner of Income Tax (Appeals) distinguished the decision and relied on the judgment of Bombay High Court in the case of Godrej & Boyce Mfg co. 328 ITR 81 and held that Rule 8D is applicable from assessment year 2008-09 and the ld. Authorised Representative contented that the Debenture amount was not utilized for the purpose of investments earning exempted income.

The Commissioner of Income Tax (Appeals) overlooked the submissions and confirmed the findings of the Assessing Officer and passed the order. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee assailed an appeal before the Tribunal.

Before us, the ld. Authorised Representative reiterated his 5. submissions made before the Assessing Officer and Commissioner of ITA No.1349/Mds/2015 :- 5 -:

Income Tax (Appeals). The assessee explained that disallowance under Sec.14A r.w.Rule 8D is applicable from the assessment year 2008-09 onwards, and the assessee earned dividend income and claimed exempt. But the Assessing Officer considered the provision for Premium on Redemption of Optionally Convertible Debentures of �4,19,80,254/- as direct expenditure and by mistake attributed to exempted income and presumed that the Debenture proceeds were utilized for making investments but the assessee company has incurred �5,303/- as direct expenditure and prayed for deletion of addition.

On the other hand, the ld. Departmental Representative 6. relied on the orders of the lower authorities and objected to the submissions .

ITA No.1349/Mds/2015 :- 6 -: and application of provisions of Rule 8D. We are of the opinion that the Assessing Officer has to consider the expenditure pertaining to exempted income only for disallowance and such expenditure should be restricted to exempted income earned as held in the case of M/s.Joint Investment P. Ltd vs. CIT 372 ITR 694 (Del). Therefore, we set aside the order of Commissioner of Income Tax (Appeals) and remit the issue to the file of Assessing Officer to recalculate the disallowance under Rule 8D considering the expenditure having direct nexus with exempted income only.

Order pronounced on Thursday, the 3rd day of March, 2016, at Chennai.