RUCHI REALTY HOLDINGS LTD,MUMBAI vs. ACIT RG 3(3), MUMBAI

This is an appeal directed against the order dated 02.10.2013 passed by the learned Commissioner of Income Tax (Appeals)-7, Mumbai [hereinafter referred to as the learned “CIT(A)”] relevant to the assessment year 2010-11.

The assessee filed the return of income for A.Y.2010-11 by way of ‘e-filing’ declaring total income at Rs.91,31,616/- on 29.09.2010. The return of income was processed u/s. 143(1) of the Income Tax Act, 1961( in short “the Act”). Thereafter, the case was selected for scrutiny and notices u/s.143(2) & 142(1) were issued to the assessee and thereafter Assessing Officer disallowed the expenditure to the tune of Rs.21,08,186/- in view of the provision contained in section 14A r.w. Rule 8D of the Act. Thereafter the assessee filed an appeal before learned CIT(A) but the learned CIT(A) dismissed the appeal therefore, the assessee is before us raising the question on the amount of Rs.21,08,186/- disallowed u/s. 14A r.w. Rule 8D.

We have heard the arguments advanced by the learned representative of the parties and perused the records carefully. The assessee-company has claimed dividend income of Rs.1,49,615/- as exempt u/s.10(34) of the Act. Assessee has not made any fresh investment in the shares in the relevant Assessment Year. Assessee-company paid interest of Rs.2,01,61,926/- under subvention scheme of the real estate business only. Assessee- company also earned the interest income of Rs.1,27,87,064/-. The assessee-company did not borrow any interest bearing loan for the purchase of shares. Section 14A of the Act speaks about the expenditure incurred in relation to the income not includable in the total income. No doubt, in view of the said circumstance the assessee did not incur any expenses to purchase the bonds if any. On seeing the above said facts and circumstances of the case apparently the provision of section 14A r.w. Rule 8D of the Act is not applicable in this case. We also found support of law settled in [2014]366 ITR 505 (Bom) case titled as CIT Vs. HDFC Bank Ltd., [2013] 215 taxman 272/33 taxmann.com151(Gujarat) case titled as CIT-IV Vs. Suzlon Energy Ltd. and [2014]272 CTR (Guj) 270 case titled as CIT Vs. Torrent Power Ltd. The own funds available with the assessee is 39.50 crores as against investment of Rs.8.62 crores. Hence no disallowance of interest is called for.

With regard administrative expenses, we notice that the assessee did not make fresh investment in shares. Opening balance of shares were continued to be held during this year. Hence disallowance as per Rule 8D(2)(iii) of the Income Tax Rule is not practicable. Accordingly we direct the Assessing Officer to compute disallowance @ 10% as dividend income.

In view of the above, we modify the order of learned CIT(A) on this issue and direct the Assessing Officer to compute disallowance as stated above.

In the result, the appeal of the assessee is hereby partly allowed accordingly.