IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `D': NEW DELHI)
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
And
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No.4222 /DEL/ 2012
(Assessment Year :2009-2010)
Jindal Equipment leasing & Vs. ACIT
Consultancy Services Ltd. Circle -4(1),
New Delhi New Delhi.
PAN: AAACJ0091P
(APPELLANT) (RESPONDENT)
ASSESSEE BY :Shri K. Sampath,Adv.
REVENUE BY :Ms. Shumaina Sen, Sr.DR.
ORDER
PER T. S. KAPOOR:
This is an appeal filed by the assessee against the order of the
Commissioner of Income Tax (Appeals)-VIII, New Delhi dated 27.06.2012
for the assessment year 2009-10. The grounds of appeal taken by assessee
are as under:
"1. The orders of lower authorities are bad and wrong in law.
2. On facts and in the circumstances of the case, the Ld.
Commissioner of Income Tax (Appeals) (CIT (A)) erred in
confirming the disallowance of Rs.52,00,515/- u/s14A of the
Income Tax Act, 1961.
3. That the authorities below grossly erred in applying rule
8D of Income Tax Rule,1962 to facts of the case since the
application of the same resulted in absurd results.
2 ITA No.4222/Del/2012
4. Without prejudice, the disallowance as per third limb as
contained in rule 8D (2)(iii) could not have been computed at
Rs.59,42,538/- when the total expenses incurred by the
appellant (other than the amount covered by rule 8D (2) (i) &
8D (2) (ii) were to the tune of Rs.9,10,121/- only. Thus the
authorities below erred in disallowing what the appellant has
not even claimed.
5. The appellant craves leave to add, amend, and modify all
or any of the above grounds of appeal."
2. The brief facts of the case are that, assesse is engaged in the business
of Investment in Shares and Securities, and advancing loans etc. The return
of income was filed on 15.09.2009 and in its return of income the assessee
had made a disallowance of Rs.4,65,60,335/- u/s 14A. The AO while
examining the calculation of disallowance observed that on account of
expenses an amount calculated at the rate of 0.5% of average investment was
to be disallowed but the assessee had calculated only a proportionate amount
in respect of such expenses. Therefore, relying upon rule 8D, the AO
worked out the disallowance of such expenses at Rs.59,42,538/- in stead of
Rs.7,42,023/- as calculated by assessee and, therefore, made an addition of
the difference between two amounting Rs.52,00,515/-.
3. Dissatisfied with the order, the assessee filed appeal before Ld. CIT
(A) and submitted that disallowance of expenses was calculated on the basis
of proximate relationship with the exempt income and in this respect a
3 ITA No.4222/Del/2012
complete break up of expenses debited in profit and loss account was
submitted and it was submitted that out of total administrative expenses
amounting to Rs.9,10,121/- the assessee itself had made disallowance of
Rs.7,42,023/- and had claimed total expenses of Rs.1,68,098/- only against
which there was other taxable income.
4. The Ld. CIT (A) after going through the submissions filed by assessee
did not agree with the contentions of assessee and upheld the addition made
by AO by holding as under:
" I have considered the submissions of the appellant
findings of the AO and the facts on record. The Hon'ble
Bombay High Court in the case of Godrej & boyce
Manufacturing Co. Ltd. vs. DCIT 328 ITR 81 has held that rule
8D is applicable from A. Y 2008-09. Rule 8D considers three
circumstances under which disallowance is required to be made
which are as under:-
(I) The amount of expenditure directly relating to income
which does not form part of total income:
(II) Secondly, proportionate disallowance of interest which is
not directly attributable to any particular income or receipt, and;
(III) Thirdly, an amount equal to one-half percent of the
average of the value of the investment, income from which does
not form part of the total income, as appearing in the balance
sheet of the assessee, on the first day and the last day of the
previous year.
The disallowance, as envisaged above, is aggregate of all the
three. Therefore, there may not be any disallowance under (i)
and (ii) above but still on facts of a case there can be
disallowance under (iii) above.
4 ITA No.4222/Del/2012
Now applying the facts of the case of the appellant to the above
said three disallowances as per provisions of Rule 8D referred
above, it is very clear that disallowance is to be made as per
clauses mentioned above.
In the instant case it is observed that the appellant has computed
the disallowance under sub rule-2 of 8D clause-(ii) as per the
provisions of rule 8D. However, as regards clause-(iii) the
appellant had made disallowance of Rs.7,42,023/- on
proportionate basis which is not as per the provisions of rule
8D. Since expenditure has been incurred on earning of dividend
income therefore, the disallowance made by the AO under the
provisions of clause-(iii) of sub rule-2 of rule 8D which comes
to Rs.59,42,538/- and after adjusting the disallowance made by
the appellant of Rs.7,42,023/- which resulted in a total
disallowance of Rs.52,00,515/- is as per law. The contention of
the appellant that this is more than the administrative expenses
incurred by the appellant does not hold good in view of the fact
that the terminology used in rule 8D is the term expenditure and
not expenditure on account of administrative expenses. In view
of the findings above, the disallowance made by the AO is as
per law. These grounds of appeal are dismissed."
5. Aggrieved, the assessee filed appeal before this Tribunal. At the out
set the Ld. AR took us to page 11 of paper book wherein, a copy of profit
and loss account was placed and invited our attention to the total expenses
and argued that total expenses other than interest amounted to Rs.9,10.121/-
out of which the assessee suo motu had surrendered an amount of
Rs.7,42,023/- as disallowance u/s 14A and, therefore, the assessee had at its
own disallowance made of substantial portion of expenses and addition
made and upheld by Ld. CIT (A) is far more than total expenses. He further,
5 ITA No.4222/Del/2012
argued that `F' Bench of Delhi Tribunal in ITA No.3467 under identical
facts had upheld the order of Ld. CIT (A) wherein, under similar
circumstances the disallowance on account of such expenses was restricted
to the maximum of total expenses. In view of that, he argued that maximum
total disallowance can not exceed of Rs.9,10,121/-.
6. The Ld. DR on the other hand read from order of Ld. CIT (A) at page
no. 7 and argued that disallowance has been upheld by Ld. CIT (A) on the
basis of provisions of rule 8D and he further argued that clause (iii) of rule
8D does not talk about expenses but it talks about total expenses and,
therefore, he argued that Ld. CIT (A) had rightly upheld the disallowance. In
his rejoinder, the Ld. AR submitted that rules are not mandatory and if a rule
gives absurd results, it should be ignored.
7. We have heard the rival parties and have gone through the material
placed on record, we find from profit and loss account of assessee placed at
page 11 of paper book that total expenses incurred by assessee other than
interest were Rs.9,16,546/- out of which assessee had already made a
disallowance of Rs.7,42,023/- which is quite reasonable, keeping in view the
other taxable income of the assessee. The calculation made by AO gives
absurd results which cannot be the intention of the legislature and moreover
6 ITA No.4222/Del/2012
the Hon'ble Tribunal in ITA No. 3467 has held that disallowance of such
expenses cannot exceed total expenses.
8. In view of the above, we are of the considered opinion that addition
made by AO was unreasonable and was against the facts and circumstances
of the case and, therefore, we delete the same.
In view of the above the appeal filed by assessee is allowed.
Order pronounced in open court on 12th /04/ 2013.
Sd/- Sd/-
(U. B. S. Bedi) (T.S. Kapoor)
Judicial Member Accountant Member
Dated the 12th day of April, 2013
S.Sinha
Copy forwarded to
1. APPELLANT
2. RESPONDENT
3. CIT
4. CIT (A)
5. CIT(ITAT), New Delhi.
AR,ITAT
NEW DELHI.
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