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30-12-2019, Mentor Capital, Section 14A, 8D, 254, Tribunal Mumbai

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8 months 3 weeks ago #11904 by amit
Section - 14A, 8D, 254, 119, 250, 8D(2)(iii)
Order Date - 30-12-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - Mentor Capital Limited
Respondent - DCIT
Justice - C.N. PRASAD JM & S. RIFAUR RAHMAN AM
Citation - 120Taxpundit25
Appeal No. - ITA.NOs. 605 & 606/MUM/2018
Asstt. Year - 2013-14 & 2014-15

Order

PER : C.N. PRASAD (JM)

1. These cross appeals are filed by the assessee and revenue against different orders of the Learned Commissioner of Income Tax (Appeals) – 51, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 18.12.2017 for the Assessment Years 2013-14 & 2014-15.

2. Briefly stated the facts are that, the assessee an investment company filed return of income on 30.09.2013 for the A.Y. 2013-14 declaring loss of ₹.21,78,23,416/-. The assessment was completed u/s.143(3) on 10.03.2016 and while completing the assessment the Assessing Officer noticed that the assessee made suomoto disallowance of ₹.4,34,49,075/- towards expenses attributable for earning exempt income. Assessing Officer also further noticed that assessee claimed exempt income and is having investment yielding income as well as business assets. Assessing Officer also noticed that assessee maintains consolidated accounts and there is no possibility of establishing one to one nexus to expenses and exempt income yielding investments. Assessing Officer also observed that the assessee utilized borrowed funds and claimed interest. The Assessing Officer has recorded his dissatisfaction that the working of disallowance shown by the assessee is not correct and required the assessee to explain as to why the disallowance u/s. 14A r.w. Rule 8D should not be made.

3. Assessee furnished its explanation stating that only direct expenses incurred for earning income which is exempt from tax should be disallowed u/s. 14A. In other words, it is submitted that the expenditure which is directly linked to the income which is free from tax can be subject to disallowance u/s. 14A of the Act. It was further submitted that no interest to be disallowed since own funds have been used for purchase of investments earning exempt income. Reliance was also placed on various decisions. However not convinced with the submissions of the assessee the Assessing Officer invoked the provisions of section u/s. 14A r.w.r.8D and made disallowance of ₹.7,92,91,328/- comprising of interest of ₹.6,00,42,412/- under Rule 8D(2)(ii) and expenses of ₹.1,92,48,916/- under Rule 8D(2)(iii) of I.T. Rules. -. However, since the assessee itself shown suomoto disallowance of ₹.4,34,49,075/- Assessing Officer computed the balance disallowance u/s. 14A r.w. Rule 8D at ₹.3,58,42,253/-.

4. Similarly, for the A.Y. 2014-15 the Assessing Officer computed the disallowance under Rule 8D at ₹.7,73,27,738/- comprising of interest of ₹.5,48,38,414/- under rule 8D(2)(ii) and expenses of ₹.2,24,89,323/- under rule 8D(2)(iii) of I.T. Rules. However, since the assessee itself made suomoto disallowance of ₹.2,24,89,323/- Assessing Officer computed the balance disallowance u/s. 14A r.w. Rule 8D of I.T. Rules at ₹.5,48,38,414/-.

5. Assessee carried the matter before the Ld.CIT(A) and the Ld.CIT(A) deleted the interest disallowance made under Ruled 8D(2)(ii) of I.T. Rules observing that assessee had sufficient interest free funds in the form of share capital and reserves as against the investments yielding exempt income. Ld.CIT(A) following the decision of the Hon'ble Jurisdictional High Court in the case of the HDFC Bank [ITA.No. 330 of 2012] and Reliance Utilities [313 ITR 340 (Bom)] held that no interest disallowance is warranted. He also observed that in assessee’s own case for the A.Ys. 2008-09 to 201 12 the ratio of these decisions of the Hon'ble Jurisdictional High Courts have been followed by the Tribunal while deciding the issue in assessee’s favour. However, coming to the disallowance made under Rule 8D(2)(iii) of I.T. Rules, Ld.CIT(A) sustained the same observing that the same is confirmed by the Tribunal in earlier years. Against this order of the Ld.CIT(A) both assessee as well as the revenue are in appeal before us.

6. In so far as the revenue’s appeals are concerned, the revenue challenged the order of the Ld.CIT(A) in deleting the disallowance made u/s. 14A r.w. Rule 8D(2)(ii) of I.T. Rules in respect of interest. Ld. DR vehemently supported the orders of the Assessing Officer and Ld. Counsel for the assessee supported the order of the Ld.CIT(A).

7. On hearing both sides and perusing the order of the Ld.CIT(A) we find that Ld.CIT(A) deleted the disallowance of interest as the assessee had surplus interest free funds in the form of capital and reserves and therefore following the decisions of the Hon'ble Jurisdictional High Court in the cases of HDFC Bank (supra) and Reliance Utilities (supra) he has deleted the disallowance. In the circumstances, we do not see any valid reason to interfere with the findings of the Ld.CIT(A). Grounds raised by the revenue are rejected.

8. Coming to the appeals of the assessee, the assessee challenged the order of the Ld.CIT(A) in confirming the disallowance of administrative expenses disallowed under Rule 8D(2)(iii) of I.T. Rules. The ground raised by the assessee reads as under: -

1. The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of administrative expenditure of ₹.4,34,49,075/- instead of restricting disallowance to the lower of actual expenditure claimed in the computation of income or ½% of

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