Madhusudan Industries Ltd., Ahmedabad vs Assessee

ी मक ु ु ल कुमार ावत, या यक सद य एवं ी एन.एस. सैनी, लेखा सद य के सम% BEFORE SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA No. 1715/Ahd/2011 [Asstt. Year: 2007-08]

Madhusudan Industries Ltd. ITO, Ward-4(4) Madhusudan House Vs Ahmedabad. Opp: Navrangpura Tel.Exchange Navrangpura, Ahmedabad.

PAN : AABCM 0538 M

अपीलाथ'/ (Appellant) )*यथ'/ (Respondent)

Assessee(s) by : Ms.Urvashi Shodan, AR Revenue by : Shri Dinesh Singh, Sr.DR

सन ु वाई क तार ख/ Dateof Hearing : 05/02/2015 घोषणा क तार ख / Date of Pronouncement: 13/02/2015

आदे श/O R D E R

PER N.S. SAINI, ACCOUNTANT MEMBER: This is an appeal filed by

the assessee against the order of the CIT(A)-VIII, Ahmedabad dated 4.4.2011 for the Asstt.Year 2007-08.

2. The first issue involved in this appeal is that the CIT(A) erred in confirming the order of the AO in making disallowance of interest expenditure of Rs.2,27,328/- under section 14A of the Act.

The second issue involved in this appeal is that the CIT(A) erred in confirming the order of the AO in making disallowance under section 14A of the Act on account of administrative expenses at the rate of 0.5% which comes to Rs.76,566/-.

ITA No.1715/Ahd/2011 2 3. Brief facts of the case are that the AO observed that the assessee in the return of income has shown dividend income of Rs.33,446/- and claimed the same as exempt from tax. He observed that the assessee has not made any disallowance of expenditure incurred for earning of exempt dividend income, and therefore, by invoking the provisions of section 14A read with Rule 8D made disallowance of interest expenditure of Rs.2,27,328/- and administrative expenses of Rs.76,566/-. In this way, a total disallowance of Rs.3,03,894/-.

4. On appeal, the CIT(A) following his order for Asstt.Year 2000-01 directed the AO to exclude the interest on term loan, interest on partly convertible debenture and interest paid to CLFI out of the total interest expenditure incurred by the assessee during the year under consideration, and out of the balance interest expenditure, disallowance on pro-rata basis should be worked out.

5. As regards the disallowance made out of administrative expenses of Rs.76,566/-, the CIT(A) held it to be fair and reasonable and confirmed the same.

6. Before us, the only arguments of the AR of the assessee was that the disallowance under section 14A of the Act should not exceed the exempt income. On the other hand, DR supported the orders of the lower authorities.

7. We have heard rival submissions and perused the orders of lower authorities, and material available on record. The undisputed facts of the case are that the assessee earned exempt dividend income of Rs.33,445/-. The AO observed that the assessee must have made expenditure for earning the exempt income, and made disallowance of Rs.2,27,328/- out of total interest expenditure claimed by the assessee, and also made disallowance of administrative expenses of Rs.76,566/-

ITA No.1715/Ahd/2011 3 thereby making a total disallowance of Rs.3,03,894/- under section 14A of the Act. This was confirmed in appeal by the CIT(A).

8. Only contention of the assessee is that the disallowance made should not exceed the exempt dividend income of Rs.33,445/-.

9. We find force in the contention of the assessee. Recently, Mumbai Bench of the Tribunal in the case of Daga Global Chemicals P. Ltd. Vs. DCIT vide its order dated 1.1.2015 passed in ITA No.5592/Mum/2012 held that disallowance under section 14A read with Rule. 8D cannot exceed the exempt income. Respectfully following the same, we direct the AO to restrict the disallowance on account of interest and administrative expenses to Rs.33,446/-. Thus, the grounds of the appeal of the assessee are partly allowed.

10. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the Court on Friday the 13th February, 2015 at Ahmedabad.

Sd/- Sd/- (MUKUL KR. SHRAWAT) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER