IN INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA No.585/Mds/2016 Assessment Year : 2012-13 M/s Shriram Industrial Holdings Deputy Commissioner of Pvt. Ltd., v. Income Tax, Mookambika Complex, Corporate Circle 6(1), No.4, Lady Desika Road, Chennai. Mylapore, Chennai - 600 004. PAN : AAACS 7696 D (Appellant) (Respondent) Appellant by : Shri R. Sivaraman, Advocate Respondent by : Shri A.V. Sreekanth, JCIT Date of Hearing : 27.07.2016 Date of Pronouncement : 15.09.2016 ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of assessee is directed against order of Commissioner of Income Tax (Appeals) -15, Chennai, dated 24.09.2015 and pertains to assessment year 2012-13. 2 I.T.A. No.585/Mds/16 2. Shri R. Sivaraman, Ld.counsel for assessee, submitted that only issue arises for consideration is with regard to disallowance made by Assessing Officer under Section 14A of Income-tax Act, 1961 (in short 'the Act') in respect of expenditure said to be incurred by assessee for earning exempted income. Referring to assessment order, Ld.counsel submitted that assessee itself made disallowance under Section 14A of Act in respect of income which does not form part of total income. During year under consideration, according to Ld. counsel, assessee borrowed loan from M/s Shriram City Union Finance Limited and utilised same for making investment in equity shares. assessee, in fact, paid interest of `1,50,904/-, which was disallowed by assessee while computing taxable income. assessee has also disallowed another sum of `2,12,110/- towards administrative expenses in connection with investments in equity shares. Totally, assessee disallowed sum of `3,63,014/- under Section 14A of Act, therefore, according to Ld. counsel, any further disallowance may not be called for. 3 I.T.A. No.585/Mds/16 3. Ld.counsel for assessee further submitted that assessee pleaded before CIT(Appeals) that investment in subsidiary company cannot be considered for making disallowance under Section 14A of Act. Moreover, Assessing Officer has taken entire value of investments instead of taking value of investment which earned dividend income. share application money was also taken into consideration for purpose of disallowance. According to Ld. counsel, share application money does not result in earning of exempt income, therefore, same has to be excluded while computing disallowance under Section 14A of Act. Even though same was argued before CIT(Appeals), according to Ld. counsel, CIT(Appeals) has not recorded any finding with regard to investment, which does not result in any income, and share application money. Therefore, according to Ld. counsel, same has to be disposed of. On query from Bench, whether assessee has raised specific ground before CIT(Appeals), Ld.counsel submitted that before CIT(Appeals) assessee challenged entire disallowance of `50,55,472/- which included disallowance made by Assessing Officer with regard to investment which does not result in any income and also share application money. 4 I.T.A. No.585/Mds/16 4. On contrary, Shri A.V. Sreekanth, Ld. Departmental Representative, submitted that Assessing Officer computed disallowance by applying provisions of Rule 8D of Income- tax Rules, 1962. According to Ld. D.R., Rule 8D is mandatory for assessment year under consideration. Assessing Officer, after computing expenditure under all three limbs of Rule 8D(2), disallowed average amount. CIT(Appeals), however, found that investment made in subsidiary company needs to be excluded. According to Ld. D.R., CIT(Appeals) directed Assessing Officer to exclude investment made by assessee in subsidiary company after proper verification of books of account. CIT(Appeals) also directed Assessing Officer to deduct corresponding expenditure already disallowed suo moto by assessee. Therefore, CIT(Appeals) considered claim of assessee and gave appropriate relief wherever it is possible. 5. According to Ld. D.R., now assessee claims that investment, which does not result any income, and share application money were not adjudicated by CIT(Appeals). According to Ld. D.R., for purpose of computing 5 I.T.A. No.585/Mds/16 disallowance under Rule 8D(2)(iii), Assessing Officer admittedly has taken note of investments as on last day of financial year and computed disallowance at 0.5% in respect of income which does not form part of total income. Therefore, it is not correct to say that CIT(Appeals) has not adjudicated same. When Assessing Officer computed disallowance in respect of average value of investment, which does not or shall not form part of total income, there is no need for remitting matter back to CIT(Appeals). In other words, CIT(Appeals) confirmed order of Assessing Officer. 5. We have considered rival submissions on either side and perused relevant material available on record. Admittedly, provisions of Rule 8D is applicable for purpose of computing disallowance in respect of income which does not form part of total income. Assessing Officer computed disallowance at page 3 of impugned order. In respect of direct expenditure, Assessing Officer disallowed entire interest paid by assessee to extent of `1,50,904/-. In fact, amount borrowed by assessee from Shriram City Union Finance Limited and payment of interest to extent of `1,50,904/- are not in dispute. 6 I.T.A. No.585/Mds/16 entire borrowed funds were used in investment for earning exempted income. Assessing Officer has also taken interest payment of `1,50,904/- as direct expenditure. Therefore, there is no dispute with regard to first limb of Rule 8D(2). Now coming to second limb, namely, Rule 8D(2)(ii), assessee paid interest to extent of `1,50,904/- which is directly relatable to earning of exempted income. average investment was to extent of `95,12,69,922/-. It is not known whether assessee paid any interest on borrowed funds for business. In other words, it is to be ascertained whether assessee borrowed funds for business. In respect of expenditure incurred by assessee by way of interest which is not directly attributable to any particular income or receipt, disallowance has to be computed as per second limb of Rule 8D(2). Assessing Officer has taken only total investment value between 01.04.2011 and 31.03.2012. Assessing Officer has not taken expenditure by way of interest other than direct expenditure incurred by assessee during relevant period. It is not known whether assessee has borrowed any funds for purpose of business other than for making investment. Moreover, for purpose of Rule 8D(2)(iii), amount equal to 0.5% of average value of investment income, 7 I.T.A. No.585/Mds/16 which does not or shall not form part of total income, also needs to be considered. Therefore, this Tribunal is of considered opinion that Assessing Officer has not taken into consideration expenditure incurred by assessee for purpose of computing disallowance as per Rule 8D(2)(ii) of Income-tax Rules, 1962. 6. Moreover, share application money, namely, investment made by assessee in allotment of share was also not specifically considered either by Assessing Officer or by CIT(Appeals). Therefore, this Tribunal is of considered opinion that matter needs to be reconsidered. Accordingly, orders of authorities below are set aside and entire disallowance made by Assessing Officer under Section 14A of Act is remanded back to file of Assessing Officer. Assessing Officer shall compute disallowance as per provisions of Rule 8D(2) of Income-tax Rules, 1962 and thereafter, decide same afresh in accordance with law, after giving reasonable opportunity to assessee. 7. In result, appeal filed by assessee is allowed for statistical purposes. 8 I.T.A. No.585/Mds/16 Order pronounced on 15th September, 2016 at Chennai. sd/- sd/- (D.S. Sunder Singh) (N.R.S. Ganesan) /Accountant Member Judicial Member Chennai, th /Dated, 15 September, 2016. Kri. Copy to: 1. Appellant 2. Respondent 3. CIT(A)-15, Chennai-34 4. CIT-6, Chennai 5. DR 6. GF. M/s Shriram Industrial Holdings Pvt. Ltd. v. Deputy Commissioner of Income-tax, Corporate Circle-6(1), Chennai