IN INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER I.T.A. No.2019/M/2013 (Assessment Year: 2008-2009) I.T.A. No.2020/M/2013 (Assessment Year: 2009-2010) ACIT, Circle 6(3), M/s. Mahindra Infrastructural Mumbai. Projects Pvt Ltd., (Now Vs. Merged with Andromeda Investment & Finance Pvt Ltd) 5 t h Floor, Mahindra Towers, g.M.Bhosale Marg, P.K. Kurne Chowk, Worli, Mumbai 400 018. PAN : AAACM3575B ( Appellant) .. ( Respondent) Appellant by : Shri B. Satyanarayana Raju, DR Respondent by : Shri Prasad M. Bapat Date of Hearing : 05.10.2016 Date of Pronouncement : 05 .10.2016 O R D E R PER D. KARUNAKARA RAO, AM: There are two appeals under consideration. Both appeals are filed by Revenue involving assessment years 2008-09 and 2009-2010. Since, issues raised in both appeals are identical , therefore, for sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise adjudication is given in following paras of this order. 2. Since, grounds raised in both appeals are identical, for sake of reference and adjudication purpose, we shall take up grounds raised in appeal ITA No.2019/M/2013 (AY 2008-09) and they read as under:- 1. On facts and in circumstances of case and in law, Ld CIT (A) erred in applying section 14A r.w. Rule 8D when issue at hand is whether 2 there is diversion of borrowed funds to subsidiary company or not and if yes, whether assessee has been able to prove commercial expediency or not. 2. On facts and in circumstances of case and in law, Ld CIT (A) erred in applying section 14A r.w. Rule 8D when disallowance out of expenditure on account of exempt income was not issue at hand. CIT (A) misdirected herself in applying section 14A r.w. Rule 8D to facts of case. 3. Briefly stated relevant facts of case are that assessee is engaged in business of real estate and infrastructure development . Assessee filed return of income for AY 2008-09 declaring total loss of Rs. 2,50,79,391/- which is subsequently revised declaring total loss of Rs. 2,60,10,533/-. Assessment was completed u/s 143(3) of Act and assessed income was determined at Rs. NIL. In assessment, AO disallowed interest expenditure of Rs. 2,50,74,000/- claimed by assessee u/s 36(1)(iii) of Act. Aggrieved, assessee carried matter in appeal before first appellate authority. 4. During proceedings before CIT (A) after considering submissions of assessee, CIT (A) applied provisions of section 14A read with Rule 8D for purpose of working out of disallowance of expenditure. He further held that this is case where borrowed funds are used for other than business purposes of assessee, in which case, interest on such borrowed funds is not deductible. Para 3.3 of CIT (A) s order is relevant in this regard. CIT (A) also relied on decision of AO in earlier AYs and partly allowed appeal. Aggrieved, assessee is in appeal before Tribunal by raising above mentioned grounds. 5. During proceedings before us, at outset, Ld Counsel for assessee bringing our attention to order of Tribunal in assessee s own case for AY 2005-06 in ITA No.5827/M/2013, dated 7.4.2016 and mentioned that identical issue came up for adjudication before ITAT and Tribunal granted relief vide paras 5 and 6 of said Tribunal s order (supra). It is prayed before us that considering commonality of issues raised by Revenue in present appeals as well as in said appeal decided by Tribunal for AY 2005-06, ratio laid down in said Tribunal s order is required to be followed. 6. On other hand, Ld DR for Revenue relied on order of AO. 3 7. We have heard both parties and perused orders of Revenue Authorities as well as cited decision of Tribunal (supra) in assessee s own case for AY 2005-06. only issue involved in these appeals relate to if provisions of section 14A read with Rule 8D and of section 36(1)(iii) of Act are mutually exclusive or not? In this regard, on perusal of said decision of Tribunal (supra), we find, vide paras 5 and 6 Tribunal granted relief on identical issue. Considering commonality of issues raised in appeals, we find it relevant to extract said paras for sake of completeness of this order and same read as under:- 5. We have further noticed that while deleting addition / disallowance u/s 14A, Ld CIT (A) on relying order of CIT (A) in assessee s own case for AY 2003-2004, 2004-05 and 2006-07, relied on following observation: I have considered submissions. issue of disallowance u/s 36(1)(iii) has become irrelevant after introduction of section 14A and notification of Rule 8D u/s 14A expenditure incurred in relation to exempt income is not allowable. It cannot be said that no expenditure is attributable in relation to income or potential income by way of dividends. Even if, there is some business purpose behind investment made in M/s. Corbel Estate, fact remains that income generated out of investment is in form of dividends which is not taxable. issue then is whether any expenditure has been incurred in relation to such exempt income. Rule 8D has been notified u/s 14A. This Rule applies either when assessee claims that no expenditure has been incurred or when AO and assessee disagree on amount of expenditure. This Rule provides uniform and standard method for determining amount of expenditure incurred in relation to exempt income. operation of this rule has been declared as retrospective by Special Bench of ITAT in Daga Capital Management (117 ITD 169). It has also been held in same case that expenditure has to be disallowed even if no income by way of dividend is earned during year. In view of above, Rule 8D has to be applied in case of appellant and proportionate expenditure in relation to exempt income determined. AO has followed method which is not fully consonant with method provided in Rule 8D. AO is directed to determine amount of expenditure incurred in relation to exempt income by applying method prescribed in Rule 8D. disallowance of proportionate expenditure determined in each year according to above Rule would be amount of disallowance that is confirmed. Any amount of disallowance which is higher than amount computed as per Rule 8D should be treated as deleted. 6. Ld CIT (A) (sic) perused order, on basis of principle of consistency and directed to AO determine amount of expenditure incurred in relation to exempt income. Hence, we do not find any illegality or infirmity in order of CIT (A). Hence, appeal filed by Revenue is dismissed. 8. From above, it is evident, when there is claim of interest expenditure, disallowance of same is required to be done as per provisions of section 14A read with Rule 8D and disallowance should not be done u/s 36(1)(iii) of Act. 4 Considering above settled nature of issue and respectfully following said decision of Tribunal on identical issue as well as following principle of consistency, we are of opinion, decision taken by CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by Revenue are dismissed. 9. Since, issues raised in appeal ITA No.2020/M/2013 for AY 2009-2010 are identical to that of appeal ITA No.2019/M/2013 for AY 2008-09, which is adjudicated by us in above paras of this order, our decision given for AY 2008-09 squarely applies to appeal for AY 2009-10 also. Considering same, we upheld decision of CIT (A) and consequently, grounds raised by Revenue in its appeal for AY 2009-2010 are dismissed. 9. In result, both appeals filed by Revenue are dismissed. Order pronounced in open court on 5th October, 2016. Sd/- Sd/- (AMARJIT SINGH) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; 05.10.2016 . OKK , Sr. PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai ACIT, Circle 6(3), Mumbai v. M/s. Mahindra Infrastructural Projects Pvt Ltd., (Now Merged with Andromeda Investment & Finance Pvt Ltd)