HINDUSTAN CANDLE MFG CO. PVT LTD,MUMBAI V. DCIT CIRCLE 7(1)(2), MUMBAI

ITA 5970/MUM/2024

AI Insights

The case involves Hindustan Candle Manufacturing Company Pvt. Ltd., which filed appeals against the orders of the First Appellate Authority confirming disallowances made under section 14A read with rule 8D of the Income Tax Rules, 1962. The disallowances were initially computed by the assessing officer based on the total investments listed in the balance sheet, regardless of whether they yielded exempt income. The Tribunal, referencing a decision by the Delhi High Court, found this approach inappropriate and directed a reevaluation of the disallowances, focusing only on those investments that actually yielded exempt income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33736 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Other Referred Cases: Cargo Motors Private Limited vs DCIT 145 taxmann.com 641
• Laws Referred To: Income Tax Act, Income Tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: SATISH R. MODY
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 250; 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “E”, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No. 5970/Mum/2024 (A.Y. 2008-09) ITA No. 5971/Mum/2024 (A.Y. 2014-15) Hindustan Candle Manufacturing Company Pvt. Ltd. Khatau Terrace, Dr SS Rao Road, Lalbaug, Mumbai- 400012. PAN: AAACH 1534 R Vs. DCIT, Circle – 7(1)(2), Mumbai (Appellant) (Respondent) Present for: Assessee by : Shri Satish R. Mody Revenue by : Shri Hemanshu Joshi, Sr. DR Date of Hearing : 15.01.2025 Date of Pronouncement : 04.02.2025 O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER: Both these appeals filed by the assessee are directed against the different order of the First Appellate Authority passed u/s 250 of the Income Tax Act. Since similar issue on identical facts are involved in these appeals, therefore, both these appeals are adjudicated together by taking ITA 5970/M/2024 for A.Y. 2008-09 as a lead case and its finding will be applied mutatis mutandis wherever applicable. ITA No. 5970/M/2024 (A.Y. 2008-09) “1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of Rs. 15,35,446/- u/s 14A read with Rule 8D without appreciating the facts of the case. ITA Nos. 5970 & 5971/Mum/2024 Hindustan Candle Manufacturing Co. Pvt. Ltd. A.Y. 2008-09 & 2014-15 2 2. Your appellant worked out the disallowance of Rs. 5,63,317/- as contemplated u/s 14A r.w.s. 8D by taking 0.5% of investment where dividend is earned. 3. On the facts and circumstances of the case and in law the CIT(A) erred in passing the order without giving any opportunity for hearing, hence the order is bad in law as the same is in violation of principles of natural justice. 4. Your appellant craves your leave to add, alter, amend, expand and/or delete any ground or grounds before the final disposal of the appeal.” 2. Fact in brief is that return of income declaring total income of Rs. 98,74,810/- was filed on 29.09.2008. The case was subject to scrutiny assessment and assessment was completed on 27.12.2010 by making addition of Rs. 15,35,446/- u/s 14A r.w.r. 8D of the I.T. Rules, 1962. The ld. CIT(A) has sustained the addition made u/s 14A of the Act made by the assessing officer. The ITAT vide order dated 11.11.2014 has restored the matter back to the file of the assessing officer for fresh adjudication after examination of the apportionment of the expenses. Thereafter, the assessing officer has completed assessment u/s 143(3) r.w.s. 254 of the Act on 30.09.2015 and computed the same disallowance u/s 14A r.w.r. 8D(2)(iii) after taking into consideration, the average of total investment of the assessee as appearing in the balance sheet on the first day and last day of the year irrespective of the fact whether it has yielded income or not for the purpose of disallowance. 3. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the disallowance made by the assessing officer holding that for computing disallowance under Rule 8D(2)(iii), the average total investment of the assessee as appearing in the balance sheet on the first day and last day of the order irrespective of the fact whether ITA Nos. 5970 & 5971/Mum/2024 Hindustan Candle Manufacturing Co. Pvt. Ltd. A.Y. 2008-09 & 2014-15 3 it has yielded income or not can be considered for the purpose of disallowance. 4. During the course of appellate proceedings before us, the ld. Counsel submitted that for the purpose of making disallowance of expenses u/s 14A average value of investment which only yielded exempt income during the year is to be considered. In this regard, the ld. Counsel has placed reliance on the decision of Hon’ble Delhi High Court in the case of Cargo Motors Private Limited vs DCIT 145 taxmann.com 641. 4. On the other hand, ld. DR supported the order of lower authorities. 5. Heard both the sides and perused the material on record. The solitary issue in ground of appeal filed by the assessee is related to working of disallowance under Rule 8D(2)(iii) of the Income Tax Rules, 1962. The assessing officer has computed disallowance under Rule 8D(2)(iii) after taking into account, the average of the total investment of the assessee as appearing in the balance sheet on the first day and last day of the year irrespective of the fact whether it has yielded income or not. We have perused the decision of the Hon’ble High Court of Delhi in the case of Cargo Motors Private Limited vs DCIT 145 taxmann.com 641 wherein it has been held that for the purpose of making disallowance of expenses u/s 14A as per Rule 8D only those investments were to be considered for computing average value of investment which yielded exempt income during the year. Therefore, we consider that action of the assessing officer for making disallowance as per section 14A r.w.r. 8D on considering those investments which has not yielded any exempt income is not ITA Nos. 5970 & 5971/Mum/2024 Hindustan Candle Manufacturing Co. Pvt. Ltd. A.Y. 2008-09 & 2014-15 4 appropriate therefore, we direct the assessing officer to compute the disallowance only after taking into consideration the investment which yielded exempt income to the assessee. Therefore, the appeal of the assessee is allowed for statistical purposes. ITA No. 5971/M/2024 (A.Y. 2014-15) “1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the enhanced disallowance by learned AO of Rs. 51,37,565/- (Rs. 56,66,771/- disallowed by learned AO while appellant worked out disallowance at Rs. 5,29,206/- u/s 14A r.w.s. 8D). 2. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming disallowance u/s 14A by ld. AO without considering the fact that total administration expenses are Rs. 32,59,791/- out of which your appellant himself disallowed Rs. 8,36,250/- and claimed only at Rs. 24,23,541/-. 3. On the facts and circumstances of the case and in law the CIT(A) erred in passing the order without giving any opportunity for hearing, hence the order is bad in law as the same is in violation of principles of natural justice. 4. Your appellant craves your leave to add, alter, amend, expand and/or delete any ground or grounds before the final disposal of the appeal.” 6. Since on identical issue on similar fact, we have directed the assessing officer to re-compute the disallowance u/s 14A r.w.r. 8D of the I.T. Rules after taking into consideration only the investment on which the assessee has earned exempt income vide ITA No. 5970/M/2024 for A.Y. 2008-09 as above. Therefore, applying the finding of the same this appeal of the assessee is also restored to the file of the assessing officer for computing the disallowance in the similar manner after taking into account only the investment which yielded exempt income therefore applying the finding mutatis ITA Nos. 5970 & 5971/Mum/2024 Hindustan Candle Manufacturing Co. Pvt. Ltd. A.Y. 2008-09 & 2014-15 5 mutandis this appeal of the assessee is also allowed for statistical purposes. 7. In the result, the appeals of the assessee are allowed for statistical purposes. Order pronounced in the open court on 04.02.2025. Sd/- Sd/- (ANIKESH BANERJEE) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 04.02.2025 Biswajit, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent: 3. The CIT, 4. The DR //True Copy// [ By Order Assistant Registrar ITAT, Mumbai Benches, Mumbai "