TaxTMI 
TaxTMI 
2016 (7) TMI 1132
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....ls) - 18, Mumbai, ([CIT(A)] erred in confirming 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 ....
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....me which does not form part of the total income. -- -- 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 ....
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....ce u/s 14A, the A.O. has taken average total assets at Rs. 5,65,45,990/- as against Rs. 8,34,70,490/- for which no working 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 1,47,48,0....
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....onfirmed by learned CIT(A) vide appellate orders dated 27-08-2012. 6. Aggrieved by the appellate orders dated 27-08-2012 of the learned CIT(A), the assessee company filed second appeal with the Tribunal. 7. The learned Counsel for the assessee company submitted that disallowance of 0.5% of average investment as contemplated u/s 14A of the Act read with Rule 8D(2)(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 inc....