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 All India Federation of Tax Practitioners vs. ITO (ITAT Mumbai)
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ACIT - 22(3), 3rd Floor, Tower No. 6, Vashi Rly Station Complex, Vashi, Navi Mumbai Vs M/s IRB Infrastructure Developers Ltd., (Formerly known as M/s DVJ Leasing & Finance Pvt Ltd),
November, 27th 2013
                `     ""                                     

                 MUMBAI BENCH "I", MUMBAI
        .. ,       ,                                                                 
                        . : 4395/ /2012
                             A.Y. 2007-2008
                         ITA No. : 4395/Mum/2012
                        (Assessment year: 2007-2008)
  ACIT - 22(3),                               Vs    M/s IRB Infrastructure
  3rd Floor, Tower No. 6,                           Developers Ltd., (Formerly
  Vashi Rly Station Complex,                        known as M/s DVJ Leasing &
  Vashi, Navi Mumbai                                Finance Pvt Ltd),
                                                    IRB Complex,
                                                    Chandivali Farm,
                                                    Andheri (E),
                                                    Mumbai -400 072
                                                    PAN: AMZPS 2908 Q
   (Appellant)                                         (Respondent)
                         Appellant by          :    Shri O.P. Singh
                       Respondent by           :    None

    /Date of Hearing                           : 13-11-2013
    /Date of Pronouncement                     : 22-11-2013

    ,  :
       The appeal is filed by the department against the order of
CIT(A) 17, Mumbai, dated 13.04.2012, wherein, the following grounds
have been taken:
       "1.   Whether on the facts and in the circumstances of the case and in law, the Ld.
             CIT(A) is justified in law in holding that provisions of rule 8D for the purpose of
             disallowance of expenses under section 14A is not applicable for this year as
             these provisions are not retrospective in nature and hence cannot be applied to
             assessment year prior to assessment year 2008-09 in view of decision of
             Bombay High Court in the case of Godrej and Boyce manufacturing private
             Limited 328 ITR 81 ignoring the fact that department has not accepted the
             decision of the Bombay High Court and has filed SPCIAL LEAVE PETITION
             before Supreme Court.
       2.    Whether on the facts and in the circumstances of the case and in law, the Ld.
             CIT(A) is justified in holding that Rule 8D cannot be applied in AY 2007-08,
             without appreciating the fact that AO has held this method as reasonable for
             applying in assessee's case for AY 2007-08".
                                           2                M/s IRB Infrastructure Developers
                                                                          (Formerly known as
                                                           M/s DVJ Leasing & Finance Pvt Ltd)
                                                                         ITA 4395/Mum/2012

2.     The solitary issue pertains to the disallowance under section 14A,
restricted by the CIT(A) at Rs. 11,59,234/-, against the disallowance
computed by the AO at Rs. 1,33,00,000/-.

3.     At the time of hearing, the case was called for, but neither any body
attended the case, nor there was any prayer for adjournment. As there was
no attendance on behalf of the assessee, we propose to proceed ex parte.

4.     The facts in brief are that the assessee is in the business of
investments, leasing, road maintenance and toll collection. In the assessment
proceedings, the AO noticed that there were investments to the tune of Rs.
268.25 crores, on which, the assessee earned dividend income of Rs. 9.37
crores, which was claimed as exempt. The AO, therefore, asked the assessee,
as to why disallowance under section 14A not be computed in accordance
with Rule 8D, as per the ratio laid down by the Special Bench of the ITAT in
the case of ITO vs Daga Capital Management (P) Ltd., reported in 117 ITD
169 (Mum-SB). He, therefore, went on to compute the disallowance under
section 14A, in accordance with Rule 8D and added back Rs. 1,33,00,000/-.

5.     The assessee, being aggrieved by the decision approached the CIT(A),
before whom, the assessee, reiterated its submissions made before the AO
and further submitted that Rule 8D, as prescribed, would be applicable from
assessment year 2008-09 and onwards. Since, the impugned assessment
year is 2007-08, Rule 8D would not be applicable.

6.     The assessee, in continuation of its submissions before the CIT(A),
submitted the bifurcation of expenses, as under:
               Particulars                                  Amount (Rs)        Percentage
Exempt Income                                                93,769,082           47%
Income other than Exempt income                             107,766,042           53%
                    Total                                   201,535,124
Office & Administrative Expenses           Amount (Rs)
Disallowed/Considered Separately
Donations                                        750,000
Amortisation of Share Issue Expenses           3,784,562
Amortisation     of     Debenture  Issue       2,003,595
Provision for Diminution in Value of            811,839
Subtotal                                       7,349,996
                                            3                 M/s IRB Infrastructure Developers
                                                                            (Formerly known as
                                                             M/s DVJ Leasing & Finance Pvt Ltd)
                                                                           ITA 4395/Mum/2012

Subtotal of Other Expenses detailed              6,217,744
Total as per Books                              13,567,740
               Particulars                       Common       Amount (Rs)      Proportionate
                                                   Exp.                        Disallowance
Rates and taxes                                     No              57,960            -
Membership and subscription fees                    No              10,000            -
Books & Periodicals                                 No              12,500            -
Conference Expenses                                 No             450,000            -
Legal and professional expenses                    Part             92,552            26,388
Auditor's remuneration (including service          Yes           1,346,880          626,668
Director Sitting Fees                              Yes                               197,742
Advertisement expenses                             No              425,000            -
Insurance                                          Yes           2,692,941              4,249
Printing and stationary                            Yes               9,133            84,544
Tender Fees                                        No              181,708                  -
Salary                                             No              467,000           162,846
Bank Charges                                       Yes             350,000            56,410
Miscellaneous expenses                             Yes             121,240
                                                                       831               387
                                                                 6217,745          1,159,234
                  Total Disallowance under section 14A                             1,159,234

7.     The assessee, accordingly worked out the disallowance, linked
towards tax free income of Rs. 11,59,234/-.

8.     This amount, as submitted by the assessee, before the CIT(A),
was found to be reasonable by the CIT(A). He, therefore, restricted the
disallowance to Rs. 11,59,234/-, as against Rs. 1,33,00,000/-,
computed by the AO.

9.     Against this order, the department is in appeal before the ITAT.

10.    Before us, the DR, placed reliance on the order of the AO.
However, he accepted the current legal position, as laid down by the
Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.
Ltd. vs DCIT, reported in 328 ITR 81, wherein it has been held that
disallowance is to be computed under Rule 8D from assessment year
2008-09 and onwards and that some reasonable disallowance should
be made.
                                    4            M/s IRB Infrastructure Developers
                                                               (Formerly known as
                                                M/s DVJ Leasing & Finance Pvt Ltd)
                                                              ITA 4395/Mum/2012

11.   We have heard the arguments of the DR and have perused the
orders of the revenue authorities. In regard to the financial expenses, it
is found from the submissions of the assessee, as incorporated in the
impugned order of the CIT(A), that the assessee has paid interest to
the tune of Rs. 55,36,341/- out of which Rs. 53,94,940/- was paid on
debentures and the balance of Rs. 1,41,401/- was paid towards
unsecured loans. This clearly shows that no interest was at all
attributable towards any loan taken for the purposes of investment.

12.   We also find that the assessee had itself, bifurcated the
expenses, which could be attributed towards the disallowance, as per
the chart submitted before the CIT(A). It is, therefore, clear from the
orders of the revenue authorities that there is really no infirmity in the
computation of amount to be disallowed under section 14A and also,
no nexus which could be drawn to link administrative expenses to the
earning of dividend. Besides this, the financial expenses are also not
getting linked to the earning of dividend, therefore, disallowance as
computed by the assessee and accepted by the CIT(A) to be reasonable,
seems to be fair. We, therefore, sustain the order of the CIT(A) and
reject the grounds raised by the department.

13.   In the result, the appeal filed by the department is dismissed.

Order pronounced in the open Court on 22nd November, 2013.

         Sd/-                                                   Sd/-
      (.. )                                                  (  )
   (P.M. JAGTAP)                                      (VIVEK VARMA)
ACCOUNTANT MEMBER                                   JUDICIAL MEMBER

Mumbai, Date: 22nd November, 2013

 /Copy to:-
                             5         M/s IRB Infrastructure Developers
                                                     (Formerly known as
                                      M/s DVJ Leasing & Finance Pvt Ltd)
                                                    ITA 4395/Mum/2012

     1)  /The Appellant.
     2)  /The Respondent.
     3)   () -17 Mumbai / The CIT (A)-17, Mumbai.
     4)    ­8, Mumbai /The CIT -8, Mumbai,
     5)     "" ,     , /
        The D.R. "I" Bench, Mumbai.
        Copy to Guard File.
                                            /By Order
        / / True Copy / /


                                 Dy./Asstt. Registrar
                                  I.T.A.T., Mumbai
*  . .
*Chavan, Sr. PS
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