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TMI Blog2021 (5) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of the assessee at Rs. 138, 36, 88, 165/- under the normal provisions of the Act, after making addition of Rs. 22, 44, 117/- on account of disallowance U/ s 14 A read with Rule 8 D of the Income Tax Rules, 1962 (in short, the Rules), addition of Rs. 57, 26, 985/- on account of disallowance U/ s 36 (1)(iii) of the Act and addition of Rs. 5, 21, 583/- on account of disallowance on unpaid commission. Further the A. O. determined the book profit of the assessee at Rs. 205, 33, 02, 260/-. 3. The assessee challenged the assessment order before the ld. CIT(A). The ld. CIT(A) restricted the addition on account of disallowance U/ s 14 A read with Rule 8 D of the Rules to the amount claimed as exempt U/ s 10 (34) of the Act, confirmed the addition of Rs. 57, 26, 985/- U/ s 36 (1)(i i i) of the Act. Still aggrieved, the assessee is in appeal before this Tribunal. 4. The assessee has challenged the impugned order passed by the ld. CIT(A) on the following grounds: 1. a) That the worthy CIT(A)-3, Ludhiana erred in law and on facts in upholding the applicability of rule 8D in spite of fact that the appellant itself computed the disallowance on proportionate basis u/s 14A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of disallowance u/ s 14 A computed applying Rule 8D. During the course of arguments, the assessee furnished the working of the disallowance U/ s 14 A read with Rule 8 D of the Rules on proportionate basis contending that the AO has wrongly applied the Rule 8 D. The Tribunal after hearing the rival contentions of the parties, set aside the order passed by the Ld. CIT(A) confirming the addition on account of disallowance computed by the AO u/ s 14 A read with Rule 8 D and directed the AO to restrict the addition to the working given by the assessee on proportionate basis. The Ld. Counsel further submitted that since the facts of the case and the issues involved in the aforesaid case are identical to the facts and the issues involved in the present case, the findings of the Ld. CIT(A) are contrary to the decision of the jurisdictional Tribunal. Therefore, the impugned order is liable to be set aside. The Ld. Counsel invited our attention to the working of disallowance placed on record in the present case and submitted that since the working is in accordance with the directions given by the Tribunal on identical set of facts in the case of Oswal Woolen Mills Vs ACIT aforesaid, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the identical issue in case of Oswal Woolen Mills Ltd. Vs. ACIT (supra) and directed the AO to restrict the disallowance u/s 14A of the Act, to proportionate amount computed by the assessee. The findings of the coordinate Bench read as under: - "4. Being aggrieved by the above order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(A). It was pleaded before the Ld. CIT(A) that the funds from which the investments were made were mixed funds. That the assessee was possessed of sufficient own/ interest free funds to meet the investment in question. That as per law laid down by the Hon'ble jurisdictional High Court in the case of 'Bright Enterprises Ltd. vs CIT' (ITA No. 224 of 2013) dated 24. 7.2015 (supra), wherein, it has been held that if there are interest free funds available to meet the investment, a presumption would arise that investment had been made out of the interest free funds generated or available with the company, therefore, no interest disallowance was attracted. It was also pleaded that the assessee had not incurred any expenses out of the administrative expenditure for the investment yielding dividend income. That the assessee made suo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 1065 2. Operating income 6336 864325 3 % of dividend income 0.00168 4. Amount of expenses 556724538 5. Proportionate amount of disallowance of expensed to earn dividend 936183 Details of expenses a. Interest paid to others 21202161 b. Administrative expenses 130240267 c. Personal expenses and other allowances 405282110 556724538" 7. None of the lower authorities have pointed out any defect in the computation of proportionate disallowance computed by the assessee except that certain part of the administrative expenses were not taken into consideration which has been taken into consideration in the computation made above. Even the assessee has claimed that it has not incurred any administrative expenses for earning of tax-exempt income. The Assessing Officer in this respect has not recorded any dissatisfaction taking into consideration the accounts of the assessee. The Hon'ble Bombay High Court in the case of 'Godrej & Boyce Manufacturing Co.' 328 ITR 81 has held that under section 14A of the Act, resort can be made to Rule 8D of the Income Tax Rules for determining the amount of expenditure in relation to exempt income, if, the AO is not satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income has been computed at Rs. 9,36, 183/- by including the personnel expenditure and certain other expenses, as noted above. In view of this, the disallowance of administrative expenses is restricted to Rs. 9, 36, 183/-. However, the assessee will get the benefit/ set off at the suo motu disallowance offered by the assessee in the return of income at Rs. 1,33, 928/- and accordingly the addition is restricted to Rs. 8,02, 255/-." 8. In the said case assessee had raised the identical ground in its appeal before the Tribunal as the Ld. CIT(A) had confirmed the disallowance u/s 14A of the Act, computed by the AO under Rule 8D of the Rules. In respect of disallowance under Rule 8D(ii), the contention of the assessee was that it had sufficient own interest free funds to meet the investment in question. Contention of the assessee in respect of disallowance under Rule 8D(iii) was that it had not incurred any administrative expenses for earning exempt income. Since the AO had not recorded any dissatisfaction taking into consideration the accounts of the assessee, the coordinate Bench directed the AO to restrict the disallowance to the proportionate amount computed by the assessee af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of CIT vs. Reliance Ind. Ltd. 410 ITR 466 (SC) and Godrej & Boyce Manufacturing Co. Ltd vs. DCIT 394 ITR 449, Judgments of the Hon'ble Punjab and Haryana High Court in the case of Bright Enterprise (P) Ltd. vs. CIT 381 ITR 107 (Pb.), CIT vs. Kapson Associates 381 ITR 204 (Pb.), CIT vs. Max India Ltd. 398 ITR 209 (Pb.), CIT vs. Max India Ltd 388 ITR 81 (P& H) and the decisions of the Chandigarh Bench of the Tribunal in the case of Group Company M/ s Monte Carlo Fashion Ltd. ITA No. 1341/ Chd/ 2016 AY 2012 - 13. to substantiate his contention. 12. On the other hand, the Ld. DR supporting the action of the Ld. CIT(A) submitted that the assessee had made addition to f ixed assets amounting to Rs. 186. 80 Crore including plants and machinery and had capital work in progress amounting to Rs. 61. 47 Crore. Further, the assessee had capitalized interest of Rs. 226. 73 Lacs on assets capitalized. Hence, the AO disallowed the interest of Rs. 95, 44, 976/- and after applying the debt equity ratio of 60 : 40 computed interest disallowance, rightly holding that the disallowance is to be made in above ratio out of the interest paid on working capital loan. The Ld. DR further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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