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Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA
Before: Shri P. M. Jagtap, A.M. & Shri N.V.Vasudevan, J.M.)
ORDER Shri P.M.Jagtap, A.M. This appeal filed by the assessee is directed against the order of ld. CIT-XXIV, Kolkata, dated 04.03.2013 for the assessment year 2008- 09 whereby he confirmed the disallowance of Rs.74,272/- made by the AO under section 14A of the Income-Tax Act, 1961 read with rule 8D of Income-Tax Rules 1962.
The assessee in the present case is an individual who filed his return of income for the year under consideration on 29.03.2010 declaring total income of Rs.28,66,930/-. During the course of assessment proceedings, it was noticed by the AO that the assessee has earned dividend income on investment made and the same is claimed to be exempt from tax. No disallowance on account of expenses incurred in relation to earning of the said exempt income however was offered by the assessee as required by the provisions of section 14A of the Act.
2 Assessment Year 2009-10 The AO therefore, applied rule 8D and made disallowance of Rs.74,272/- under section 14A computed as under: Disallowance of ½% of average value of investment: The average of value of investment, income from which does not form part of total income, is: Investment in shares, bonds and mutual funds - Rs.1,67,28,773/- as on 31.03.2008
Investment in shares, bonds and mutual funds - Rs.1,29,79,962/- as on 31.03.2009 Total - Rs.2,97,08,735/-
Average - - Rs.1,48,54,367.5/- Disallowance @0.5% - Rs. 74,272/-
On appeal, the ld. CIT(A) confirmed the disallowance made by the AO under section 14A of the Act read with rule 8D of the Income Tax Rules. Aggrieved by the order of the ld. CIT(A), the assessee has preferred this appeal before this Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has not disputed the applicability of section 14A read with rule 8D in the facts of the assessee’s case. He however has disputed the quantum of disallowance worked out by the AO as per rule 8D by submitting that only the investment on which the exempt income was actually earned by the assessee during the year under consideration should be taken into consideration and not the entire investment as done by the AO. In support of this contention, he has relied on the decision of the Coordinate bench of this Tribunal in the case of REI Agro Ltd. –vs- DCIT (ITA No.1331/Kol/2011) wherein it was held that for computation of disallowance section 14A by applying Rule 8D(2)(ii), only those investments shall be considered which earn exempt income and not the total investment appearing in the balance-sheet. Respectfully following the said decision of the Coordinate bench of this Tribunal, we direct the AO to 3 Assessment Year 2009-10 recompute the disallowance to be made under section 14A by applying Rule 8D after taking into consideration only the investment which actually earned the exempt income and not the entire investment.
In the result, the appeal filed by the assessee is partly allowed.
Order Pronounced in the Open Court on 22nd April, 2016.