At, High Court of Judicature at Bombay
By, THE HONOURABLE MR. JUSTICE AKIL KURESHI & THE HONOURABLE MR. JUSTICE S.J. KATHAWALLA
For the Appellant: Suresh Kumar, Advocate. For the Respondent: Madhur Agarwal i/by Atul Jasani, Advocates.
Akil Kureshi, J.
These appeals involve the same assessees and involve identical issues. For convenience, we may refer facts from Income Tax Appeal No. 459 of 2017.
2. This appeal is filed by the Revenue to challenge the judgment of the Income Tax Appellate Tribunal, Mumbai ("the Tribunal" for short) dated 31.3.2016. Following question is presented for our consideration:-
"Whether on the facts and circumstances of the case and in law, the Tribunal was justified in restricting the disallowance to the extent of expenses claimed through no such restriction is prescribed under Rule 8D of the Income Tax Rules?"
3. Respondent - assessee is a Private Limited Company and is engaged in the business of making investments, earning interest income as well as earning income from investment in mutual funds. For the assessment year 2009- 10, the assessee had filed return of income in which the assessee had claimed total expenses of Rs. 24.19 Lakhs (rounded off). Out of this, the assessee voluntarily disallowed Rs. 7.79 Lakhs (rounded off) of expenditure relatable to activity of earning tax free income. The Assessing Officer rejected such a working out and applied the unamended formula of Rule 8D(ii)(3) of the Income Tax Rules and made a disallowance of Rs. 2.19 Crores (rounded off). CIT(A) restricted the disallowance to the assessee's total claim of expenditure of Rs. 24.19 Lakhs. In further appeal, the Tribunal reduced it to the assessee's original offer of Rs. 7.79 Lakhs. Thereupon, this appeal has been filed by the Revenue.
4. Mr. Suresh Kumar, the learned counsel for the Revenue submitted that once Rule 8D of the Income Tax Rules was held applicable, the formula contained in sub-rule (2) thereof had to be applied. The Tribunal erroneously restricted the disallowance to the one offered by the assessee. On the other hand, learned counsel for the assessees pointed out that the assessee had no interest expenditure, disallowance in terms of Rule 8D(2)(ii) therefore would not apply. The assessee's total expenditure claim in relation to of its business activity came to Rs. 24.19 Lakhs of which the assessee had voluntarily reduced Rs. 7.79 Lakhs. The Tribunal accepted such working out.
5. Sub-section (2) of Section 14 of the Act provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-rule (1) of Rule 8D also makes similar provision provides that where the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of expenditure made by the assessee or that the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income, the Assessing Officer would determine the amount of expenditure in terms of sub-rule (2). For applicability of subrule (2) of Rule 8D, the requirements of sub-rule (1) would have to be satisfied. Only then, the formula provided in the unamended clause would apply.
6. In the present case, as noted, the assessee's entire claim of expenditure in relation to its business activities was Rs. 24.19 Lakhs out of which, the assessee had voluntarily reduced sum of Rs. 7.79 Lakhs in
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relation to income not forming part of the total income. The Tribunal accepted such working out. Quite apart the correctness of the approach of the Tribunal, accepting stand of the Assessing Officer would lead to disallowance of expenditure far in excess of what is claimed by the assessee itself. 7. No question of law arises. 8. The Income Tax Appeals are dismissed.