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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI N.K. BILLAIYA & SHRI PAWAN SINGH
O R D E R PER N.K. BILLAIYA, AM: These appeals by the assessee are preferred against to separate orders of the Ld. CIT(A)-9, Mumbai dated 29.1.2013 and 17.9.2013 pertaining to Assessment years 2009-10 and 2010-11. The grievance in both these appeals is common and relates to the disallowance made u/s. 14A r.w. Rule 8D. Since the facts are common in both these appeals, they were heard together and disposed of by this common order for the sake of convenience.
We are considering the facts of A.Y. 2009-10 in ITA No. 1961/M/2013. The assessee is in the business of manufacturing and trading of diamonds. While scrutinizing the return of income, the Assessing Officer noticed that the assessee has earned dividend income which is claimed to be exempt. On perusal of the computation of income, the AO found that the assessee has already disallowed Rs. 52,985/- u/s. 14A of the Act. The AO observed that it is incorrect. The assessee was asked to explain why the disallowance should not be made in accordance with Rule 8D of the Act. On receiving no plausible reply, the AO proceeded by computing the disallowance u/s. 14A as per Rule 8D of the Act and the same was computed at Rs. 19,35,978/-.
The assessee carried the matter before the Ld. CIT(A) but without any success.
Before us, the Ld. Counsel for the assessee vehemently submitted that no borrowed capital was used for making the investments from which exempt income have been earned. It is the say of the Ld. Counsel that all the borrowings mentioned in the balance sheet are for specific purpose and were utilized for those purposes only and no part of it was diversified towards investments. Drawing our attention to the balance sheet at page-9 of the Paper Book, the Ld. Counsel stated that the assessee is having own funds as on 31.3.2008 at Rs. 72 crores and as on 31.3.2009 at Rs. 60 crores against investment of Rs. 7.80 crores as on 31.3.2009. It is the say of the Ld. Counsel that the assessee was having sufficient own funds for making the investments. Strong reliance was placed on the decision of the Hon’ble High Court of Bombay in the case of CIT Vs Reliance Utilities and Power Ltd. 313 ITR 340. The Ld. Counsel concluded by saying that there is no question of disallowing interest and in so far as administrative expenses are concerned, the assessee itself has suo moto disallowed Rs. 52,985/- being 10% of the exempt income and in addition the assessee has also disallowed Rs. 3,12,064/- out of PMS expenses. Therefore, no further disallowance is to be made.
Per contra, the Ld. Departmental Representative heavily relied upon the findings of the Revenue authorities.
We have carefully considered the orders of the authorities below and have given a thoughtful consideration to the relevant documentary evidences brought on record before us. A perusal of the balance sheet at page-9 of the Paper Book shows that the assessee’s own funds as on 31.3.2009 stand at Rs. 60 crores. The investment is at Rs. 7.80 crores. The ratio laid down by the Hon’ble High Court of Bombay in the case of Utilities and Power Ltd (supra) clearly apply. This has been followed by the Hon’ble High Court of Bombay in the case of HDFC Bank 366 ITR 505. Therefore, we do not find any reason in making the disallowance in so far as interest is concerned.
6.1. Regarding disallowance in respect of administrative expenses, in our considered opinion, the same has to be computed on investments on which income is earned which are exempt from tax. We, therefore, restore this issue to the file of the AO. The AO is directed to recompute the disallowance as per Rule 8D not making any disallowance in respect of interest but only administrative expenses taking into consideration the investments on which income is exempt. After computing the disallowance, the amount already disallowed by the assessee should be deducted. Needless to mention, a reasonable opportunity of being heard to be given to the assessee.
In the result, both the appeals filed by the assessee are treated as allowed for statistical purpose. Order pronounced in the open court on 16th December, 2015.