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Income Tax Appellate Tribunal - Mumbai

Fine Estates P.Ltd, Mumbai vs Acit Cir 2(1)(2), Mumbai on 16 November, 2017

IN THE INCOME TAX APPELLATE TRIBUNAL "J" BENCH, MUMBAI
       BEFORE SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM

                         ITA No. 6747/Mum/2016
                               (A.Y. 2012 -13)
 Fine Estates Private Limited              The Deputy Commissioner
 4 t h Floor, Kalpataru Heritage,          of Income Tax Circle -2(1),
                                     Vs.
 127 M.G. Road, Mumbai -400                Mumbai
 001
            Appellant                 ..           Respondent
                          PAN No. AAACF2738F

           Assessee by                :    Rakesh Mohan, AR

           Revenue by                 :    Arju Garodia, DR

Date of hearing: 08-11-2017 Date of pronouncement : 16-11-2017

                                 ORDER


PER MAHAVIR SINGH, JM:

This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-4, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-4/IT-45/ACIT-2(1)(2)/2015-16 dated 14-09-2016. The Assessment was framed by the Assistant Commissioner of Income Tax, Circle 3(1), Mumbai (in short ACIT) for the assessment year 2011-12 vide order dated 20-03-2015 under section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').

2. The first two inter connected issues in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowance expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D2(i) of the Rules (hereinafter the Income Tax Rules) and also disallowing under MAT provisions of section under section 115JB of the Act.

"ground 2 2 ITA No. 6747/ Mum/2016 M/s Fine Estates Private Limited (A.Y. 2012-13) Without prejudice to the above, on the facts and in circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the learned AO in disallowing additional amount of ₹ 45,13,887/- under section 14A by applying Rule 8D (2)(i) on account of the expenditure attributable to earning the exempt income under the normal provisions of the Act. The appellant prays that the disallowance of ₹ 45,13,887/- may kindly be deleted.

Ground No.3 On the facts and in the circumstance of the case and in law, the Hon 'ble CIT(A) erred in confirming the action of the learned AO in adding an additional amount of ₹ 45,13,887/ - under section 14A of the Act under the MAT provisions of the Act. The appellant prays that the addition of ₹ 45,13,887/ - may kindly be deleted. "

3. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has earned the dividend income of ₹ 32,39,311/- and claim the same as exempt income under section 10(34) of the Act. The assessee itself computed the disallowance under section 14A of the Act Read with Rule 8D of the Rules at ₹ 17,54,944/-. The AO worked out the disallowance under section 8D(2) vide Para 5.3 and 5.4 as under: -

M/s Fine Estates Private Limited (A.Y. 2012-13) "In view of the above discussion, I am not satisfied with the working of disallowance made by the assessee. Accordingly, the calculation mechanism provided in the Rule 8D of I.T. Rules, 1962 needs to be applied for worki ng out the quantum of disallowances under section 14A of the I.T. Act, 1961. The working is as under: -

i) Expenditure directly related to exempt income =₹ 1,62,486/ -

ii) Proportionate interest expense under Rule 8D(2)(ii) = AX B/C = ₹44,40,750/ -

iii) ½ % of the average of the investments yielding exempt income:

=0.5% X B=₹ 16,65,595/ -

*A=Interest       Expenditure            =    69,46,688
(=71,09,174 -1,62,486)

*B=Avearge                               Investments
(29,44,72,735+37,17,65,290)/2 -
33,31,19,013

*C=Average Assets =(43,64,01,304 + 60,57,98,214)/2=52,10,99,759 5.4 Therefore, disallowance u/s.14A read with Rule 8D will be the aggregate of above, which works out to ₹62,68,831/-. Since, the assessee has itself disallowed an amount of ₹ 17,54,944/-, therefore, balance amount 4 ITA No. 6747/ Mum/2016 M/s Fine Estates Private Limited (A.Y. 2012-13) of ₹ 45,13,887/- is disallowed and added back to the income of the assessee."

Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the action of the AO. Aggrieved, assessee is in second appeal before Tribunal.

4. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee suo moto has disallowed a sum of ₹ 17,54,944/- and AO has not recorded any satisfaction as to why the computation of disallowance by the assessee is not correct. Once, the satisfaction is not recorded by the AO as regards to the correctness of the claim of the assessee, no disallowance under section 14A r.w. Rule 8D of the Rules can be made. Accordingly, we restrict the disallowance as suo moto disallowed by the assessee at ₹ 17,54,944/- and delete the disallowance made by the AO. This issue of the assessee's appeal is allowed.

5. At the outset, the learned Counsel for the assessee stated that the issue of disallowance of expenses relatable to exempt income while computing income under section 115JB of the Act is covered in favour of assessee and against Revenue by the decision of Special Bench of this Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR (AT) 313 (Delhi - Trib.) (SB) wherein the Tribunal has clearly held that no disallowance under section 14A of the Act r.w.r 8D of the Rules can be made while computing book profit under section 115JB of the Act. The learned CIT Departmental Representative could not controvert the above proposition. Accordingly, we are of the view that this issue is covered by the special bench decision of this Tribunal in the case of Vireet Investments (P.) Ltd. (supra), respectfully following the same, we delete the disallowance and allow this issue of assessee's appeal.

M/s Fine Estates Private Limited (A.Y. 2012-13)

6. The next issue in this appeal of assessee is against the order of CIT(A), confirming the disallowance of interest expenses claimed by assessee under section 36(1)(iii) of the Act. For this assessee has raised following ground No. 4: -

"Ground No 4 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the AO in holding that the balance amount of interest of ₹ 1,27,996/- was not allowable as deduction under section 36(1)(iii) of the Income Tax Act. The appellant prays that the disallowance of ₹ 1,27,996/ - may kindly be deleted."

7. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the similar issue in AY 2011- 12 was decided by the CIT(A) and dismissed the issue of assessee's appeal as the assessee is failed to provide any evidence. Even, now before us, the assessee could not file any detail for allowance of interest. Accordingly, we dismiss this issue of assessee's appeal.

8. In the result, the appeal of assessee is partly allowed.

Order pronounced in the open court on 16-11-2017.

               Sd/-                                                     Sd/-
       (N.K. PRADHAN)                                            (MAHAVIR SINGH)
      ACCOUNTANT MEMBER                                          JUDICIAL MEMBER

Mumbai, Dated: 16-11-2017
Sudip Sarkar /Sr.PS
                                    6

                                                          ITA No. 6747/ Mum/2016

M/s Fine Estates Private Limited (A.Y. 2012-13) Copy of the Order forwarded to:

1. The Appellant

2. The Respondent.

3. The CIT (A), Mumbai.

4. CIT

5. DR, ITAT, Mumbai BY ORDER,

6. Guard file.

//True Copy// Assistant Registrar ITAT, MUMBAI