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Jindal Equipment leasing Consultancy Services Ltd. New Delhi & Vs. ACIT Circle -4(1), New Delhi.
April, 17th 2013
                     (DELHI BENCH `D': NEW DELHI)


                            ITA No.4222 /DEL/ 2012
                          (Assessment Year :2009-2010)

 Jindal Equipment leasing &        Vs.         ACIT
Consultancy Services Ltd.                      Circle -4(1),
New Delhi                                      New Delhi.
(APPELLANT)                                    (RESPONDENT)

                     ASSESSEE BY :Shri K. Sampath,Adv.
                   REVENUE BY :Ms. Shumaina Sen, Sr.DR.


      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

      Copy forwarded to
        1. APPELLANT
        2. RESPONDENT
        3. CIT
        4. CIT (A)
        5. CIT(ITAT), New Delhi.

                                                              NEW DELHI.
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