ALLAHABAD BANK,KOLKATA vs. D.C.I.T CIR - 6,KOLKATA., KOLKATA

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ITA 466/KOL/2013Status: DisposedITAT Kolkata13 January 2016AY 2002-034 pages
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What did the Tribunal hold?

The Tribunal held that Rule 8D was not applicable for the assessment year in question. Following the jurisdictional High Court's decision, the Tribunal directed the Assessing Officer to disallow 1% of the dividend income under Section 14A.

What were the facts?

The assessee bank had earned exempt income from dividends and tax-free securities. The Assessing Officer disallowed a significant amount under Section 14A using Rule 8D, which was later restricted by the CIT(A). The assessee appealed this disallowance.

What were the issues?

The primary issue was the applicability of Rule 8D for the assessment year 2002-03 and the quantum of disallowance under Section 14A for earning exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

Before: Shri N.Vasudevan, & Shri M. Balaganesh

This appeal of the assessee arises out of the order of the Learned CIT(A)-VI, Kolkata in Appeal No. 06/CIT(A)-VI/Cir-6/11-12/Kol dated 24-12-2012 for the Asst Year 2002-03 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2.

The only issue to be decided in this appeal is as to whether in the facts and circumstances of the case, the disallowance u/s 14A of the Act could be made in the sum of Rs. 8,89,18,716/-.

3.

The brief facts of this issue is that the assessee had derived the following exempt income :-

Dividend income 14,89,69,574 Interest on tax free securities 3,86,70,000

------------------ 18,76,39,574 The assessee voluntarily disallowed a sum of Rs. 19,44,035/- u/s 14A of the Act for the Asst Year 2002-03. The Learned AO adopted Rule 8D of the Rules and made disallowance u/s 14A of the Act to the tune of Rs. 8,89,18,716/-. On first appeal, the Learned CITA restricted the disallowance u/s 14A of the Act to the tune of Rs. 1,39,49,000//- being 0.5% of average value of investments by adopting Rule 8D(2)(iii) of the Rules. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeal) - VI, Kol has erred in confirming the application of provisions of Rule 80 read with section 14A(2) of the Income Tax Act, 1961 without bringing on record any cogent reasons for disregarding and rejecting the estimate including the manner of making estimate of disallowances amounting to Rs.19,44,035 offered by the appellant bank itself.

2. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeal) - VI, Kol has erred in directing the Learned Assessing Officer to consider Rs.1 ,39,49,000, being 0.5% of the tax free investment, as amount disallowable under section 14A.

3. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeal) - VI, Kol has erred in disregarding the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. [(2010) 328 ITR 81 (Bom)] in which it was held that Rule 80 shall be applicable from assessment year 2008- 09 onwards.

4. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeals) - VI, Kol has erred in restricting the disallowances under section 14A to Rs. 1,39,49,000 instead of Rs.19,44,035 offered by the appellant bank which is most reasonable expenses in relation to earning of tax-free income.

5. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeals) - VI, Kol has erred in disregarding the order of Learned CIT(A) - VI, Kol in respect of assessment year 2007-08 in the appellant's own case (Appeal No. 1 014/CIT(A)-VI/2009-1 0/Cir- 6/Kol and order dated 15.11.2010) in which 1 % of the tax-free

income was held to be reasonable expenses for the purpose of disallowances under section 14A.

6. That, on facts as well as on law, the Learned Commissioner of Income Tax (Appeals) - VI, Kol has erred in disallowing 0.5% of tax free investments under section 14A in total disregard of many judicial pronouncements of Hon'ble ITAT, Kolkata in which Hon'ble ITAT, Kolkata held that 1 % of tax-free income shall be held as amount of disallowances u/s 14A in relation to earning of tax-free income.

7.

That, your appellant begs your leave to urge any additional ground or modify any grounds of appeal before or at the time of hearing.

4.

The Learned AR argued that for the Asst Year 2002-03, the provisions of Rule 8D cannot be made applicable as per the decision of the Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd reported in 328 ITR 81 (Bom) and the same is applicable only from Asst Year 2008-09 onwards. He further argued that this issue is covered by the decision of the Hon’ble Jurisdictional High Court in the case of R.R.Sen & Bros Pvt Ltd wherein it was held that 1% of exempt income is to be adopted for the purpose of disallowance u/s 14A of the Act. In response to this, the Learned DR vehemently supported the orders of the lower authorities.

5.

We have heard the rival submissions and perused the materials available on record. The relevant assessment year under appeal is 2002-03 at which point of time , the provisions of Rule 8D was not in force and the same was made applicable only from Asst Year 2008-09 as decided in the decision of Godrej & Boyce Manufacturing Company Ltd in 328 ITR 81 (Bom). However, it is not in dispute that the assessee had derived taxable income as well as tax free income and incurred expenditure for deriving both the incomes and hence disallowance is definitely warranted in terms of section 14A which is brought in the statute book with retrospective effect from 1.4.1962. The disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income. The Hon’ble Jurisdictional High Court in the case of CIT vs M/s R.R.Sen & Brothers P Ltd in GA No. 3019 of 2012 in ITAT NO. 243 of 2012 dated 4.1.2013 had held as under:- “ The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under income tax. The tribunal has computed expenditure at 1% of such dividend income, which, according to them, is the thumb rule applied consistently. We find no reason to interfere. The appeal is dismissed.”

Respectfully following the judicial precedent, we direct the Learned AO to disallow 1% of dividend income under this issue and accordingly, the grounds raised by the assessee are set aside to the file of Learned AO to make addition as directed above.

6.

In the result, the appeal of the assessee is allowed subject to directions contained hereinabove.

Order pronounced on 13 . 01.2016

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