RAJAT INDULAL DOSHI,MUMBAI vs. A.C.I.T. CIRCLE 16(1), MUMBAI

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ITA 7242/MUM/2011Status: DisposedITAT Mumbai07 October 2015AY 2007-083 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the issue of disallowance under Section 14A requires fresh examination by the Assessing Officer, considering the assessee's contention of sufficient interest-free funds. This decision applies to both assessment years.

What were the facts?

The assessee earned exempted income like dividend and long-term capital gains. The Assessing Officer disallowed expenses under Section 14A using Rule 8D. The CIT(A) applied Rule 8D for AY 2008-09 and partially for AY 2007-08.

What were the issues?

Whether disallowance under Section 14A is warranted when the assessee possesses sufficient interest-free funds to cover investments, and the applicability of Rule 8D for the relevant assessment years.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Hearing: 8.9.2015Pronounced: 7.10.2015

स्थधमी रेखध सं./जीआइआय सं./PAN. :AABPD9790M अऩीरधथी ओय से / Appellant by Shri Bhupendra Shah प्रत्मथी की ओय से/Revenue by Shri S K Mishra सुनवधई की तधयीख / Date of Hearing : 8.9.2015 घोषणध की तधयीख /Date of Pronouncement: 7.10.2015 आदेश / O R D E R Per B R Baskaran, AM: Both the appeals filed by the assessee are directed against the separate orders passed by Ld CIT(A)-27, Mumbai for assessment years 2007-08 and 2008-09. Both the appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.

2.

The solitary issue urged in both the appeals relate to the disallowance made u/s 14A of the Act.

3.

The facts are that assessee is an individual and has earned exempted income in the form of dividend and long term capital gains. The AO computed the disallowance in both the years u/s 14A of the Act by 2 and 7243/Mum/2011 applying Rule 8D of IT rules. In the appellate proceedings, the Ld CIT(A) held that the provisions of Rule 8D shall not apply to AY 2007-08. However, he directed the AO to compute the interest disallowance in proportion to loan funds to total funds. In AY 2008-09, he upheld the disallowance made by the AO.

4.

The contention of the assessee before us is that the assessee is possessing sufficient interest free funds to cover the investments and hence there is no requirement to make any disallowance out of interest expenditure as per the decision of the Hon’ble jurisdictional Mumbai High Court in the case of Reliance Utilities and power ltd (331 ITR 340). The Ld A.R also placed reliance on the decision rendered in the case of Hero Cycles (323 ITR 518).

5.

On the contrary, the Ld D.R submitted that the assessee has not established one to one nexus between the interest bearing funds and the investments made.

6.

We have heard rival contentions and perused the record. There is no dispute with regard to the fact that the provisions of Rule 8D shall not be applicable for AY 2007-08 in view of the decision of Hon’ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd (328 ITR 81). However, it is submitted that the Ld CIT(A) has followed the same methodology as prescribed in Rule 8D for computing the interest disallowance for AY 2007-08. However, the main contention of the assessee is that there is no requirement to make any disallowance out of interest expenditure, since the interest free funds are far in excess of the investments made. In this regard, the assessee has placed reliance on the decision of jurisdictional High Court in the case of Reliance Utilities and power Ltd (supra). We notice that the tax authorities have not examined this contention of the assessee with reference to the Balance sheet and

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