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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JMAND SHRI RAJESH
आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the assessee is directed against the order dated 07.06.2012 of Commissioner of Income Tax (Appeals)-12, Mumbai (hereinafter called as the CIT(A) ) for assessment year 2007-08. The assessee has raised following grounds of appeal:
M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT
“The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of Rs.45,24,390/- under Section 14A read with Rule 8D.
Both the lower authorities erred in holding that Rule 8D was to be applied retrospectively. The appellant submits that Rule 8D is substantive law, and cannot be applied retrospectively.
Both the lower authorities erred in invoking that Rule 8D, without recording any objective satisfaction as to how the appellant’s submission was erroneous.
4. Both the lower authorities erred in applying sub-sections (2) and (3) of section 14A, while computing Book Profit u/s 115JB. Having regard to the facts and circumstances of the cas4e and the provisions of law, the appellant submits that the Assessing Officer be directed to exclude disallowance made u./s 14A while computing Book profit u/s 115JB.
5. Without prejudice to the foregoing grounds, and in any event, the Appellant submits that the allocation of expenditure under Section 14A read with Rule 8D to the tune of Rs.21,65,696/- is highly excessive and arbitrary, and is required to be reduced substantially.” Additional grounds of appeal
(AY 2007-08) 1. “The learned Commissioner of Income Tax (Appeals ) ought to have directed the Assessing Officer to grant full credit for TDS claimed amounting to Rs.22,80,044/-, as against Rs.16,13,545/- allowed by the Assessing Officer.
2. The appellant submits that the Assessing Officer be directed to allow full credit for tax deducted at source amounting To Rs.22,80,044/- having regard to the fact that all certificates of tax deducted at source are before him.”
M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT
The issue raised in ground no. 1, 2, 3&5 relates to confirming the 2. disallowance of Rs.45,24,390/- u/s 14A read with Rule 8 D of the Act. The brief facts of the case are that the assessee company was engaged in the business of trading and investments in shares and securities beside doing money lending business. The assessee filed its return of income on 31.10.2007 at an income of Rs.7,38,35,574/-. The case of the assessee was selected for scrutiny and notices u/s 143(2) & 142(1) were duly issued and served upon assessee. The AO framed the assessment u/s 143(3) vide order dated 29.12.2009 at Rs.7,84,75,009/- under the normal provisions of the Act and Rs.16,29,60,549/- u/s 115 JB of the Act by adding Rs.46,39,435/- u/s 14A read with Rule 8D of the Act comprising of Rs.24,44,070/- under rule 8D(ii) on account of interest and Rs.21,95,365/- under rule 8D(iii) on the basis of average investments on the ground that assessee received dividend income of Rs.4,76,68,340/- and disallowance u/s 14A rule 8D of Rs.10,31,305/-was made by the assessee being expenses pertaining to the exempt income and worked out the aforesaid disallowance of Rs.46,39,435/- vide para 3 of the assessment order.
3. Aggrieved by the order the AO, the assessee carried the matter before the CIT(A) who confirmed the addition to the tune of Rs.45,24,390/- on the ground M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT that the assessee himself submitted the calculation of the said disallowance before the AO and thereby allowed the relief of Rs.1,15,345/- as noted in para 3.3 of the appeal order by the ld. CIT(A) which is reproduced as under.
“3.3. I find that the appellant has himself accepted the fact that Rs.45,24,390/- would be the calculated amount of disallowance under Section 14A of the Income-tax Act. As per the working submitted by the appellant, it is seen that computation has been done keeping the above facts in mind. The AO is, therefore, required to adopt the disallowance at Rs.45,24,390/- as worked out by the appellant. The addition is sustained to the extent of the above mentioned amount. This ground of appeal is therefore, partly allowed.”
The ld. CIT(A) has wrongly confirmed the addition of Rs.23,58,695/- on account of interest under rule 8D(ii) of the Act by ignoring the facts of the case of the assessee that assessee had its own sufficient funds amounting to Rs.65.30 crores whereas the investments at the end of the year were Rs.49.64 crores. The ld. Counsel for the assessee argued that since the assessee had its own adequate funds and therefore no disallowance of interest under rule 8D(ii) is called for as rule 8D was not applicable to current assessment year. The ld. Counsel relied on the decisions of Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. 366 ITR 505 (Bom.), CIT Vs. SBI DHFL Ltd. 376 ITR 296 (Bom.),Pr. CIT Vs. India
M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT Gelatine and Chemicals Ltd. 376 ITR 553 (Guj.) in support of his arguments. The ld Counsel further submitted that the loan funds had substantially decreased during the year from Rs.5,80,06,448/- to Rs.59,63,482/-. As regards the disallowance under rule8D (iii) the ld. Counsel submitted that the total expenses charged to the Profit and Loss A/c were Rs.84,63,105/- and out of the said expenditure, the assessee had, suo motto, disallowed while filing the return of income a sum of Rs.10,31,305/- thereby restricting claim of expenses of Rs.74,34,800/-. It was also pointed out that appellant was fully engaged in the business of share trading, speculation, and financing, and that dividend was a passive earning where the amounts were credited directly to the bank account, without any effort. The ld. Counsel finally prayed that the disallowance of Rs.21,99,365/- under rule 80D(iii) of the Act is excessive having regard to the total claim of expenses of Rs.74,31,800/- and net profit of Rs.18.52 crores and requested for reasonable disallowance under rule 8D(iii). It was also submitted by the ld. Counsel of the assessee that assessee had never submitted the calculation of disallowance as mentioned by the CIT(A) in his order rather filed a working sheet “without prejudice” to the contention as raised u/s 14A read with Rule 8D which was wrongly treated by the CIT(A) as assessee had worked out the disallowance u/s 14A rule 8D(iii) of the act thereby treating “without prejudice” submission as M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT entire submission by ignoring the main contention raised by the assessee and therefore, the findings of CIT(A) were erroneous. The ld. CIT(A) also recorded the facts in the appeal order as regards the assessee’s contention that no interest is allocable under rule 8D(ii). The ld. AR of the assessee finally submitted that provisions of section 14A read with Rule 8D were not applicable for the AY 2007- 08 the year under consideration. To support his contention the ld. Counsel placed a reliance in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. CIT (328 ITR 81) and prayed that the issue to remitted back to the file of the AO by setting aside the order of the authorities below to work out a reasonable disallowance, after considering all contentions of the assessee. The ld. DR relied on the authorities below.
We have heard the rival submissions and perused the material on record.
We find from the order of the authorities below that disallowance of Rs.23,58,695/- was confirmed by the CIT(A) under rule 8D (ii) and Rs.21,65,696/- under Rule 8D (iii) being half percent on average investment from the audited account of the assessee. It is clear that the total shareholder’s funds as on 31.03.2007 were Rs.65.30 crores whereas the total investments as on that date was Rs.49.65 crores.
M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT We are in agreement that the submissions of the ld. Counsel for the assessee that the investments were made out of owned funds of the assessee and therefore, the disallowance made u/s 14A read with Rule 8D(ii) of Rs. 23,58,695/- were wrong and against the law as laid down by the Jurisdictional High Court and various other Courts. In the case of CIT Vs. HDFC Bank Ltd. (supra) the Hon’ble Bomay High Court has held that assessee’s capital , profits reserves, surplus and current account deposits were higher than higher than the investments in the tax free securities and in view of this factual position it would have to be presumed that investments made by the assessee would be out of the interest free funds available with the assessee. In the case of CIT Vs Gujrat Power Corporation Ltd (supra) the Hon’ble Gujrat High Court has held that the assessee had demonstrated that it had other sources of investments and no part of the borrowed could be stated to be used for the purpose of earning tax free income, the invocation of the provisions of section 14A for taxing such interest was not justified. The facts of the case of the assessee are squarely covered by the above decisions and we respectfully following the ratio laid down , delete the addition of Rs.5,49,368/- under rule 8D(2)(ii). it was held that view taken by the Commissioner Appellant and Tribunal was in accordance with the law and merely because there was a common pool of funds and a presumption cannot be drawn that investment yielding tax free return were M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT made out of borrowed funds. In the case of Pr. CIT Vs. India Gelatine and Chemicals Ltd. 376 ITR 553 (Guj.) it was held that tribunal categorically found on the basis of material on record that assessee has tax free return out of which the investments was made and the deletion of disallowance u/s 14A read with Rule 8D was justified. The case of the assessee is squarely covered by the above decisions and we, therefore, delete the disallowance of Rs. 23,58,695/- on account of interest made under rule 8D(ii). As regards the disallowance u/s 14A read with Rule 8D(iii) of Rs.21,65,696/-, it is pertinent to state that Rule 8D was made applicable w.e.f. AY 2008-09. We are of the view that Rule 8D is not applicable to the AY 2007-08 in view of the judgment of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. CIT (328 ITR 81) (supra). Moreover, the disallowance of Rs. 21,65,696/- was excessive. We, therefore, set aside the order of the CIT(A) and restore back the matter to the file of the AO with the direction to work out disallowance u/s 14A on a reasonable basis after allowing reasonable and appropriate opportunity to the assesee on this points. Thus the additions of Rs. 23,58,695/- is deleted and on the additions of Rs. 21,65,696/- the matter is restored back to AO for making reasonable disallowance. The appeal of the assessee is partly allowed. The AO is directed accordingly.
M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT
As regards the ground no. 04 which deals with the calculation of the income made under the provisions of section 115 JB of the Act. Since the issue as regards the disallowance u/s 14A has been decided in para 05 above and therefore our decision on the ground no. 1,2,3,&5 would , mutatis mutandis, apply to ground no. 05 as well accordingly. The AO is directed accordingly.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 28thJanuary, 2016
Sd/- Sd/- (Shailendra Kumar Yadav) (Rajesh Kumar) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 28.01.2016 Ps. Ashwini Gajakosh आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT – concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File
M/s. Laadki Trading & Investments Ltd. Vs. Addl.CIT