MULTIGRAPH MACHINERY CO. LTD,MUMBAI vs. DCIT 3(2), MUMBAI

During hearing of this appeal, the crux of argument advanced by Ms. Kinjal S. Doshi, ld. counsel for the assessee, is identical to the ground raised by asserting that the ld. First Appellate Authority did not delete the disallowance in spite of the fact that no expenditure was incurred in earning the exempt income. On the other hand, Shri Asgar Zain, V.P., ld. DR, defended the conclusion arrived in the impugned order.

2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that, the assessee received dividend income of Rs.1,85,87,400/- which was claimed exempt from taxation, whereas, no expenditure was offered for disallowance u/s 14A of the Act by the assessee by claiming that the investment is mainly in one company i.e. M/s Manugraph Ltd. and that is an old investment. It was also claimed that it was a business investment as the assessee was earning commission on the sale of the products of M/s Manugraph Ltd. It was also claimed by the assessee own funds were utilized for the investment, therefore, no interest is disallowable. We find that the ld. Assessing Officer accepted the contention of the assessee to this extent that no interest has been disallowed u/s 14A, whereas disallowance on account of administrative expenses were calculated at 0.5% of the average investment, under Rule-8D of the Rules, which comes to Rs.16,26,637/- which has been challenged by the assessee. We note that assessee incurred expenditure of Rs.2.44 crores on account of salaries and Rs.1.06 crores on 3 Multigraph Machinery Company Ltd. account of other expenses. The assessee also made purchases and sale of other shares other than that of M/s Manugraph Ltd. and also made investment in mutual funds as is evident from the declared income in the form of long term and short term capital gains. Thus, broadly, we are in agreement with the conclusion drawn by the ld. Commissioner of Income Tax (Appeals) to the extent since the assessment year involved is 2008-09, therefore, the decision from Hon’ble jurisdictional High Court in Godrej & Boyce Manufacturing Company Ltd. vs CIT 328 ITR 81 (Mum.) is applicable to the facts of the present appeal. Therefore, disallowance on account of administrative expenses is to be calculated as per Rule 8D. However, at the time of hearing before us, the Ld A.R contended that the assessee’s majority of investments are brought forward from earlier year and further most of the investments are strategic investments in nature and they have not been made with the objective of earning dividend income. Accordingly it was contended that the disallowance to be worked out as per Rule 8D will work out more and accordingly prayed that the provisions of Rule 8D should not be applied to the facts of the instant case. Since the present contentions of the assessee have not been examined by the assessing officer, we are of the view that this issue requires fresh consideration. Accordingly, we set aside the order of Ld Commissioner of Income Tax (Appeals) on this issue and restore the same to the file of the Assessing Officer with the direction to examine this issue afresh by duly considering the contentions of the assessee raised before us.