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I.T. Enfraservices Pvt. Ltd. D-922, New Friends Colony, New Delhi Vs. Dy. Commissioner of Income Tax, Circle 11(1), New Delhi
March, 20th 2015
                  DELHI BENCH : `C ' : NEW DELHI

          BEFORE SH. R.S. SYAL, A.M. & SH. C.M. GARG, J.M.

                            ITA No. 2993/Del /2011
                           Assessment Year: 2006-07

I.T. Enfraservices Pvt. Ltd.           Vs.      Dy. Commissioner of Income
D-922, New Friends Colony,                      Tax, Circle 11(1), New Delhi
New Delhi
    (Appellant)                                         (Respondent)

     Appellant by : Sh. Rajeev Jain, CA
     Respondent by: Sh. T. Vasanthan, Sr. DR

                                         Date of hearing: 18.03.2015
                                         Date of pronouncement: 19.03.2015



       This appeal by the assessee is directed against the order dated 16.03.2011

passed by the learned CIT(A) in relation to the assessment year 2006-07.

2.     It is a recalled matter inasmuch as the earlier ex-parte order passed by the

Tribunal was subsequently recalled vide its later order dated 26.09.2014.

3.     The only issue raised in this appeal is against the sustenance of

disallowance made by the Assessing Officer under Section 14A of the Income-

tax Act, 1961 (hereinafter referred to as "the Act").

4.     Briefly stated facts of the case are that the assessee earned dividend

income of Rs. 66,50,450/- which was claimed as exempt. A sum of Rs.

38,13,687/- was voluntarily offered as interest relatable to the exempt income.
                                                       ITA No. 2993/Del /2011
                                                                 AY: 2006-07

The Assessing Officer invoked the provisions of Rule 8D and computed

disallowance to the tune of Rs. 39,38,727/- under Section 14A of the Act

comprising of, interest at Rs. 34,06,384/- and other administrative expenses at

Rs. 5,32,343/-, being ½% of the average value of investment. The assessee filed

application under Section 154 contending that it had voluntarily disallowed a

sum of Rs. 38,13,687/- under Section 14A and the Assessing Officer after

finalizing the assessment made the addition for a sum of Rs. 39,38,727/- without

allowing reduction for the amount suo motu disallowed by the assessee. Vide

order under Section 154, the Assessing Officer reduced the amount of

disallowance by Rs. 34,06,384/-, being the amount of interest disallowed by him

under Section 14A in the order passed u/s 143(3) of the Act. The learned CIT(A)

observed in the impugned order that after allowing relief by the Assessing

Officer, the disallowance stood reduced to Rs. 5,32,343/- (Rs. 39,38,727 ­ Rs.

34,06,384). He, therefore, found that a sum of Rs. 4,07,003/- (Rs. 38,13,687 ­

Rs. 34,06,684) was further to be allowed by the Assessing Officer out of total

disallowance remaining at Rs. 5,32,343/-. He, therefore, sustained such

disallowance at Rs. 1,25,340/- which resulted into dismissal of the assessee's


5.    We have heard the rival submissions and perused the relevant material on

record. In principle, we hold that Rule 8D cannot be applied to the assessment

year under consideration and the disallowance is required to be made only on
                                                        ITA No. 2993/Del /2011
                                                                  AY: 2006-07

some reasonable basis. It can be seen from the computation of income filed by

the assessee along with its return of income that it voluntarily disallowed a sum

of Rs. 38,13,687/- by giving the narration "Interest disallowed". It is not a case

where the assessee offered disallowance under Section 14A for a sum of Rs.

38.13 lacs covering both interest and other expenses. In other words, the

disallowance offered by the assessee at Rs. 38.13 lac was only towards interest

relatable to investments made in securities fetching exempt income. When the

assessee applied for rectification, the Assessing Officer withdrew the amount of

interest disallowance made by him in the assessment order to the tune of Rs.

34.06 lacs. Thus, the total disallowance under Section 14A stands at Rs.

5,32,343/-. If we consider the amount offered as disallowable by the assessee

and the amount still remaining as disallowable, it turns out that only a sum of

Rs. 1,25,340/- remains as additionally disallowable under Section 14A other

than interest. In our considered opinion, the amount of such disallowance is

reasonable and no further interference is warranted.

6.    In the result, the appeal is dismissed.

      The decision is pronounced in the open court on 19th March, 2015.

       Sd/-                                              Sd/-
  (C.M. GARG)                                      (R.S. SYAL)
JUDICIAL MEMBER                                 ACCOUNTANT MEMBER
Dated: 19th March, 2015.
Copy forwarded to:
1.     Appellant
                          ITA No. 2993/Del /2011
                                    AY: 2006-07

2.   Respondent
3.   CIT
4.   CIT(A)
5.   DR
                      Asst. Registrar, ITAT, New Delhi
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