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 Deepak Sales & Properties Pvt. Ltd vs. ACIT (ITAT Mumbai) (Special Bench)
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Shri Ashok Kumar Damani, 1st Floor, Surya Mahal Bldg., 5, Burjori Bharucha Marg, For, Mumbai 400 023 Vs. The DCIT, Range 4(1), Room No.640, 6th Floor, Aaykar Bhavan, MK Road, Mumbai 400 020
March, 03rd 2014
                MUMBAI BENCHES `A' MUMBAI
               [^ .. , Û  /
                   .. [,    ¢ 

              . / ITA No. 1050/MUM/2011
                  [ [ /Assessment Year 2007-08
 Shri Ashok Kumar Damani,     / The DCIT, Range 4(1),
1st Floor, Surya Mahal Bldg.,     Room No.640, 6th Floor,
5, Burjori Bharucha Marg,         Aaykar Bhavan, MK Road,
For, Mumbai 400 023               Mumbai 400 020

    . /   . / PAN/GIR No. :               AADBD 1845K

    ( /Appellant)              ..         (× / Respondent)
               . / ITA No. 2153/MUM/2011
                [ [ /Assessment Year 2007-08

The DCIT, Range 4(1),         / Shri Ashok Kumar Damani,
Room No.640, 6th Floor,           1st Floor, Surya Mahal Bldg.,
Aaykar Bhavan, MK Road,           5, Burjori Bharucha Marg,
Mumbai 400 020                    For, Mumbai 400 023

    . /   . / PAN/GIR No. :               AABPD 1845K

    ( /Appellant)              ..         (× / Respondent)

 Assessee by :        Shri Hiro Rai
 Revenue   by :       Shri M.L.Perumal
            / Date of Hearing       : 24/02/2014
          /Date of Pronouncement : 24/02/2014

                            / O R D E R
                                           2          . / ITA No.1050&2153/MUM/2011
                                                            [ [ /Assessment Year 2007-08


      These cross appeals are directed against order dated 10/12/2010 passed
by Ld. CIT(A)-10, Mumbai for the assessment year 2007-08. The grounds of
appeal read as under:
     Grounds of Assessee's Appeal:
     "1. The addition on account of disallowance of expenses by attributing the same
     towards earning of exempt income u/s.14A be deleted.

     2. Without prejudice, the future of Stock in trade not be treated as investments for
     the purpose of calculation of disallowance u/s.14A."

     Grounds of Revenue's appeal:
     "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)
     erred in deleting the addition of Rs.43,63,190/- made u/s.14A read with Rule 8D
     of the Income Tax Act by Assessing Officer.

     2. On the facts and in the circumstances of the case, the impugned order of the
     Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be

2.   Since common issue was involved and these appeals were argued
together by both the parties, for the sake of convenience these are being
disposed of by this common order. The only issue raised in the present appeal
is regarding disallowance made under section 14A of the Income Tax Act, 1961
(the Act). The assessee has earned tax free dividend income of Rs.81,24,340/-.
The AO applied Rule 8-D and calculated the disallowance at a sum of
Rs.43,63,190/-, which comprise of two components, one of the expenditure by
way of interest amounting to Rs.27,80,520/- and another component on
account of a sum equal to ½%        of the average value of investment amounting
to Rs.15,82,670/-.    The addition was agitated in the appeal filed before Ld.
CIT(A). It was submitted before him that in view of enough sufficient own
funds no expenses       could be attributed on account of interest expenses
incurred for making investment in the assets on which tax free income has
been earned. This contention of the asessee has been accepted by Ld. CIT(A)
                                         3          . / ITA No.1050&2153/MUM/2011
                                                         [ [ /Assessment Year 2007-08

and addition on account of interest amounting to Rs.27,80,520/- is deleted.
However, Ld. CIT(A) has upheld the other component of Rs.15,82,670/-. The
department is aggrieved with the deletion of a sum of Rs.27,80,520/- and
assessee in its appeal is aggrieved by the sustained disallowance of a sum of

3.    After narrating the facts it was submitted by Ld. AR that what has been
done by Ld. CIT(A) is that he has upheld one part of the calculation under rule
8-D. He submitted that for the assessment year under consideration Rule -8D
cannot be applied. He submitted that it will be appropriate if the matter is
restored to the file of AO with a direction to re-adjudicate this issue in the light
of decision of Hon'ble Bombay High Court in the case of Godrej & Bocye Mfg.
Company Ltd ,. Vs. DCIT, 328 ITR 81(Bom). He submitted that though Ld.
CIT(A) has considered the decision of Bombay High Court in the case of Godrej
& Boyce Mfg. Company Ltd. (supra) but ultimately he has upheld the
disallowance with reference to Rule 8-D.

4.    Arguing the appeal of the revenue, it was submitted by Ld. DR that AO
was right in making disallowance with reference to Rule-8D.          He submitted
that the disallowance made by AO should be upheld.            Giving reply to the
arguments of Ld. AR , Ld. DR relied upon the order passed by Ld. AO.

5.    We have heard both the       parties and their contentions have carefully
been considered. After careful consideration of the issue, we find that Rule 8D
cannot be applied for the assessment year 2007-08              according to      the
aforementioned decision of Hon'ble Bombay High Court in the case of Godrej &
Boyce Mfg. Company (supra). While granting the part relief to the assessee, Ld.
CIT(A) has upheld the disallowance only in accordance with Rule 8D. Such
action of Ld. CIT(A) is not in accordance with the aforementioned decision of
Hon'ble Bombay High Court . Therefore, accepting the request of Ld. AR, we
                                      4         . / ITA No.1050&2153/MUM/2011
                                                     [ [ /Assessment Year 2007-08

restore this issue in its entirety to the file of AO with a direction to re-
adjudicate the disallowance as per aforementioned decision of Hon'bele
Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd. (supra).
We direct accordingly.

6.    In the result, for statistical purposes, both the appeals should be
considered to be allowed as the matter has been restored back in its entirety
to the file of AO.

     Order pronounced in the open court on 24/02/2014
          Û   24/02/2014                            

                      Sd/-                                Sd/-
(.. [ / R.C.SHARMA)                       (..  / I.P. BANSAL)
  / ACCOUNTANT MEMBER                     Û  / JUDICIAL MEMBER
 Mumbai;              Dated 24/02/2014

    /Copy of the Order forwarded to :
1.  / The Appellant
2.   × / The Respondent.
3.    () / The CIT(A)-
4.     / CIT
5.    ,   ,             / DR, ITAT,
6.   [  / Guard file.

                                                         / BY ORDER,
×  //True Copy//
                                   /                (Dy./Asstt. Registrar)
                                       ,   / ITAT, Mumbai
.../Vm, Sr. PS
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