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Order u/s.254(1)of the Income-tax Act,1961(Act) अनुसार PER Rajendra A.M.- लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dated 19/10/2011 of the CIT (A) – 39, Mumbai the assessee has filed the present appeal.Assessee-company,engaged in the business of financing and investment, filed its return of income on 30/09/2008,declaring a loss of Rs. 4.22 crores. The Assessing Officer (AO) completed the assessment u/s.143 (3) of the Act,on 24/12/2010, determining the income of the assessee at Rs.(-) 3.78 crores.
2.Effective ground of appeal is about confirming the addition of Rs. 43.15 lakhs on account of disallowance made u/s.14A of the Act.During the assessment proceedings,the AO noticed that assessee had both exempt income yeilding investment as well as business assets in the balance sheet,that it had earned income under both the heads i.e. taxable income and exempt income, that the assessee was maintaining consolidated accounts.He required the assessee to show cause as to why disallowance u/s.14A of the Act read with Rule 8D of the income tax rules, 1962 (Rules) should not be made.The assessee argued that it had not incurred any interest expenditure during the year under appeal,that no disallowance could be made u/s.14A of the Act.However,the AO was not convinced and held that the assessee had maintained consolidated accounts precluding possible of establishing one to one nexus between expenses and exempt income yielding investments,that it had not maintained separate accounts for exempt income,that it could not establish the correctness of its claim.The AO invoked the provisions of rule 8D of the rules and made a disallowance of Rs. 43,15, 285/-.
3.Aggrieved by the order of the AO, the assessee preferred an appeal before the first appellate authority(FAA).Before him,it was contended that provisions of disallowance u/s.14A and application of Rule 8D was not automatic,that section 14 A could not be invoked unless there was proximate cause for disallowance, that the Action and rule could not be applied in mechanical manner.After considering the order of the AO and the submission of the assessee, the FW held that the assessee had invested in tax free investment to the tune of Rs. 86.30 crores, that certain admissible expenses were required for making and maintaining the tax
8395-Aha Holding free investment and earning tax free income,that the exact amount of expenditure could not be found out from the accounts maintained by the assessee,that disallowance made by the AO under Rule 8D(2) (iii) read with section 14 A of the Act was appropriate.
4.Before us,the Authorised Representative (AR) stated that the assessee had made investment in the group companies,that strategic investments should have been excluded while computing the disallowance u/s.14 A of the Act,that while making the disallowance the AO had considered the stock in trade also,that disallowance u/s.14A was not applicable to stock in trade,that the paintings and property appearing in the balance sheet of the assessee were not excluded while making the disallowance.He referred to cases of Garware Wall Ropes Ltd.(65SOT86),JM Financial Ltd.(ITA/4251/M/2012),CCI Ltd.(206 Taxmann 563).The Departmental Representative (DR)supported the order of the FAA.
5.We have heard the rival submissions and perused the material before us. We find that the AO had made the disallowance u/s.14A of the Act r.w.Rule 8D of the Rules,that while making the disallowance he had included the strategic investments as well as stock in trade, that both the items should have been excluded for making the disallowance.We find that assessee had not provided necessary details in that regard to the AO/FAA.Therefore, we are of the opinion that,in the interest of Justice,matter should be restored back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. The assessee is directed to furnish the necessary details to the AO.The effective ground of appeal is decided in favour of the assessee,in part.