DEBABRATA BHADURY,MUMBAI vs. ACIT 16(1), MUMBAI

The solitary issue in dispute in the present appeal is disallowance of ` 3,64,791 under section 14A of the I.T. Act, 1961 r/w rule 8D of the I.T. Rules, 1962.

Brief facts are, assessee an individual filed his return of income for the assessment year under consideration on 22nd September 2009, declaring total income of ` 15,38,460. During the assessment proceeding, the Assessing Officer while verifying the return of income noticed that assessee during the relevant previous year has earned exempt income by way of dividend, whereas he has not disallowed any expenditure relating to earning of such exempt income. He, therefore, called upon the assessee to explain why disallowance under section 14A r/w rule 8D should not be made. In response to the query raised by the Assessing Officer, it was submitted by the assessee that he has not incurred any direct or indirect expenditure while earning the exempt income. Hence, no disallowance under section 14A is called for. The Assessing Officer, however, did not find merit in the submissions of the assessee. After verifying the information available on record that the Assessing Officer accepted that assessee did not incur any interest expenditure as far as exempt income is concerned but he certainly incur indirect / administrative expenditure for which disallowance under section 8D(2)(iii) has to be made. From the details on record, the Assessing Officer noticed that the average value of investment yielding exempt income was ` ` 7,29,58,255. On the aforesaid average value of investment, the Assessing Officer disallowed 0.5% towards indirect / administrative expenditure. Being

Learned Authorised Representative without disputing the fact that disallowance of administrative / indirect expenses has to be made in terms of rule 8D(2)(iii), however, submitted that while working out the average value of investment, the Assessing Officer has considered the total investment as on 31st March 2009 at ` 7,58,23,885, which also includes investment of ` 35,00,000 made with Allahabad Bank and Post Office Senior Citizen Scheme which are not exempt income yielding investment. He, therefore, submitted that while working out the disallowance under rule 8D(2)(iii), the amount of ` 35 lakh should be reduced from the average value of investment.

Learned Departmental Representative, though, relied upon the order of the learned Commissioner (Appeals) and the Assessing Officer but at the same time he submitted, the Assessing Officer may be directed to verify this fact.

We have considered the submissions of the parties and perused the material available on record. At the outset, we may observe that the assessee per se has not challenged the disallowance of expenditure under section 14A r/w rule 8D(2)(iii) @ 0.5% of the 4 Shri Debabrata Bhadury average value of investment. The assessee has only disputed the quantum of average value of investment taken by the Assessing Officer. In the course of hearing, the learned Authorised Representative has furnished a chart showing the investment standing in the name of the assessee as on 31st March 2008 and 31st March 2009 as under:–

It is the contention of the assessee that fixed deposit of ` 20 lakh with Allahabad Bank and investment of ` 15,00,000 in Post Office, Senior Citizen Scheme are not investment yielding exempt income. In view of the aforesaid submissions of the learned Authorised Representative, we direct the Assessing Officer to verify this fact and if it is found that aforesaid two investment would not yield exempt

In the result, appeal stands allowed for statistical purposes. Order pronounced in the open Court on 22.04.2016