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TMI Blog2016 (7) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the disallowance of Expenses of Rs. 7,45,425/- made by the Income-tax Officer, Ward 8(3)(2), Mumbai (AO) u/s.14A of the Act, as against Rs. 73,740/- disallowed by the appellant in the return of income. 2. The AO erred in taking finance cost of Rs. 25,75,333/- for the purpose of working of indirect expenses, while computing disallowance u/s.14A of the Act, read with Rule 8D, without substantiating the fact that, the loans on which interest have been paid has been utilized for the purpose of investment in shares. 3. Each of the above grounds is without prejudice to one another." 3. The brief facts of the case are that the assessee company is carrying on the business of construction of residential and industrial houses. The assessee company was asked to furnish the details of computation of disallowance of expenses u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 for earning exempt income. It was asked by the A.O. that the assessee company had obtained loans and paid interest of Rs. 25,75,333/- and the assessee company had invested Rs. 1,47,38,012/- in the quoted shares, while in computing disallowance u/s 14A of the Act , the assessee company has not consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- ii) Proportionate of interest expenditure computed in accordance with the formula give in Rule 8D(2)(ii) (A X B/C) 25,75,333/- X 147,48,012 /5,65,45,990 Rs. 6,71,684/- iii) Amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and last of the previous year. 0.5% of Rs. 1476,48,012/- Rs. 73,741/-. iv) Total expenditure disallowed u/s 14 A Rs. 7,45,425/- Note i) A= Interest (finance cost) debited to P&L A/c Rs. 25,75,333/- ii) B= Average of exempt income bearing investments = Rs. 1,47,48,012/- iii) C= Average of total assets appearing in the balance sheet on the first and last day of the previous year = Rs. 5,45,990/- B Average value of investments- Opening balance of investments + Closing balance of investments 2 = Rs. 1,47,48,012/- + Rs. 1,47,48,012 2 = Rs. 1,47,48,012" Thus, total expenditure disallowed u/s 14A was Rs. 7,45,425/- out of which interest expenditure of Rs. 6,71,684/- and amount equal to one half percent of the average of the value of investment, income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng has been provided to the assessee company for taking average total asset at Rs. 5,65,45,990/-. Thus it was submitted that average total assets worked out by the A.O. of Rs. 5.65 crores is ad-hoc and arbitrary. The correct amount of average total assets as worked out by the assessee company is follows:- Sr No. 31st March,2009 31st March, 2009 1 Fixed assets 44,76,237 42,19,014 2 Investments 1,47,48,012 1,47,48,012 3 Current assets and loans and advances 7,10,49,650 5,77,00,054 Total assets (A)9,02,73,899 (B)7,66,67,080 The average of total assets A+B = 8,34,70,490" 2 The assessee contended that based upon the correct working, the total disallowance u/s 14A of the Act would work out to Rs. 5,17,831/- as under:- 1. Expenditure directly related to dividend income Rs.4,44,091 2. Interest not directly attributable A*B/C A. Interest 25,13,455 B. Avg. value of investment 1,47,48,012 Opening bal. 1,47,48,012 Closing balance 1,47,48,012 C Avg. of total assets 8,34,70,490 Ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) of Income Tax Rules, 1962 was voluntarily disallowed by the assessee company on its own in the computation of income filed with return of income filed with the Revenue. The learned counsel drew our attention to page 7 of paper book filed before the Tribunal which is computation of income whereby disallowance u/s 14A of the Act of Rs. 73,740/- was made by the assessee company of its own while filing return of income with Revenue which has not been considered by the AO and the learned CIT(A). It is stated that the investments are very old and no fresh investments were made during the previous year. It is submitted that the net owned funds of the assessee company comprising of 'reserves and surplus' and 'share capital' are much more than the investments made by the assessee company in the shares yielding exempt income. The assessee company submitted that it has made investment of Rs. 1.47 crores as at 31-03-2009 which was also the opening balance as on 01-04-2008 as no new investments were made by the assessee company during the relevant previous year. The assessee company's own funds comes to Rs. 1.86 crores as on 31st March, 2009 and Rs. 1.91 crores as on 31st March, 2008. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DCIT (2014) 366 ITR 505(Bom HC) and decision of Hon'ble Bombay High Court in writ petition in HDFC Bank Limited v. DCIT(2016) 67 taxmann.com 42(Bom. HC) and hence no disallowance is warranted for interest paid by the assessee company under Section 14A of the Act read with Rule 8D(2)(ii) of Income Tax Rules, 1962 . Further, we have observed that the assessee company had made disallowance of Rs. 73,740/- voluntarily of its own under Section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 and the learned CIT(A) confirmed the same amount in his appellate orders dated 27-08-2012 which has led to double disallowance of the same amount which is added twice to the income of the assessee company which is not permitted under the Act. Hence we order deletion of the additions made by the AO as sustained by learned CIT(A) u/s 14 A of the Act read with Rule 8D of Income Tax Rules, 1962. It is also not brought on record that the Revenue is in appeal against the appellate orders of the learned CIT(A) . We order accordingly 8. In the result, the appeal filed by the assessee company in ITA N0. 7383/Mum/2012 for the assessment year 2009-10 is allowed as indicated above. Order p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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