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Income Tax Appellate Tribunal, CHANDIGARH
Before: SMT. DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM
ORDER आदेश आदेश PER DIVA SINGH The present appeal has been filed by the assessee assailing the correctness of the order dated 20.03.2019 passed by the CIT(A)-1, Ludhiana pertaining to 2015-16 assessment year on the following Grounds :
1. That the Order passed by the Ld.CIT(A) is contrary to law and facts of the case.
2. That the Ld.CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions/submissions of the assessee.
ITA 714 /CHD/2019 A.Y. 2015-16 Page 2 of 6
3. That the Ld. CIT(A) erred in law and on facts in applying amended provisions of Rule 8D which were effective from 02.06.2016.
That the appellant craves leave to add/alter/amend any ground of appeal
on or before the due date of hearing of appeal. Hence, the appeal
2. Mr. Gupta, appearing on behalf of the assessee submitted that the point at issue is fully covered in favour of the assessee by virtue of the order of the ITA T in assessee's own case for the earlier assessment year. Copy of the order, it was submitted, is at Paper Book page 4 to
13. Inviting attention to page 11 para 10, 11 & 12 of the aforesaid orde r dated 03.07.2019 in for 2013-14 assessment year, it was submitted that facts are similar. In the facts of the present case also, the assessee had suo-motto made a disallowance of Rs. 1 lac.
This fact is evident from the CIT(A)’s order. Inviting further attention to the written submissions filed in the Paper Book, it was his submission that in the facts of the present case, the dividend income received by the assessee was dividend received in the mutual funds which were reinvested by the said scheme and thus, there is no application of mind or specific efforts on the part of the assessee. The investments in the present year are old investments and there is no churning of the portfolio in the present year also. Hence, the suo-motto disallowance is more than adequate. Accordingly, the administrative
ITA 714 /CHD/2019 A.Y. 2015-16 Page 3 of 6 disallowance etc. made suo-motto by the assessee as in the immediately preceding assessment year would cover. For the sake of completeness, the written submissions on facts are extracted hereunder :
AO's action at Pg 2-8 - Dividend income Rs. 1,99,49,201/- - Tax Free interest income Rs. 3.54,83,666/- - Total Exempt income Rs. 5.54.32,867/- Investments as on 31.03.2015 = Rs. 262.55 Crores (Out of total investments of Rs. 262.55 crores, Rs. 65.90 crores were exempt income oriented investments).
Interest considered for disallowance - Rs. 4,56,609/- Disallowance u/s 8D(2)(iii) Rs.80,372/- u/s 8D(2)(ii) Rs. 35,84,674/- Total Rs. 36,65,046/- Less: Suo-moto Disall. Rs. 100,000/- Balance Disallowance Rs. 35,65,046/- CIT(A)'s action at Pg. 3-11
CIT(A) directed the AO to apply the amended Rule 8D by taking into into account only those investments which have yielded exempt income during the year. Assessee's Submissions:
1. 1. Amended Rule 8D not applicable.
2. No disallowance is to be made under Rule 8D(2)(ii), where there is adequate reserves and surplus/ own funds available.
3. Own Funds 31.3.14 31.3.13 Share capital 93.01 cr. 93.01cr. Reserves 228.31 cr. 208.07 cr. Dep. Reserves 172.39 Cr 165.21 Cr 493.71 Cr 466.29 Cr Relevant pages of Balance sheet are enclosed 4. Disallowed Rs. 1,00,000/- under Rule 8D(2)(iii) as related to exempt income. No satisfaction recorded by AO while rejecting assessee's claim.
5. Out of total exempt income of Rs. 5.54 crores, Rs. 3.55 crores was received on account of Tax Free interest income. The investments from which the said interest income was received were all old investments and thus no effort was made to earn such income. Further, the assessee during the year under consideration had also earned taxable long term capital gain of Rs. 3.29 crores on part sale of said investments.
6. Further, balance exempt income of Rs. 1.99 crores was received on account of dividend income from mutual funds, purchased with dividend re-investment option. Accordingly, entire dividend declared by the mutual funds were automatically invested again without any act by the assesse. Thus the company had made minimal effort in earning such exempt dividend income.
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The specific findings of the ITAT relied upon reads as under :
“10. So far as the application of the substituted provisions of Rule 8D w.e.f. 6.2.2016 by the Ld. CIT(A) is' concerned, the issue has been settled by the Hon'ble Supreme court in the case of 'CIT Vs. Essar Teleholdings Ltd., [2018] 90 taxmann.com 2 (SC),wherein, it has been held that the amended rule 8D of the I.T. Rules is applicable prospectively.
So far as the disallowance of administrative expenditure incurred for making the investment is concerned, we find that assessee during the year had made investment in four companies. The rest of the investments were old investments. There is no churning of the portfolios or to say repetitive investments. The assessee suo motu has disallowed a sum of Rs. 1 lacs in this respect. The Assessing Officer has not recorded his satisfaction that how the suo motu disallowance of Rs. 1 lac made by the assessee on account of administrative expenditure was not justified or correct vis-a-vis the accounts of the assessee and the investment made. In view of this, we do not find any justification on the part of the Assessing Officer in enhancing the suo motu disallowance made by the Assessing Officer on this issue.
In view of this, we restrict the disallowance u/s 14A of the Act in this case to the extent of suo motu disallowance made by the assessee of Rs. one lac. So far as the validly of disallowance u/s 36(l)(iii) of the Act is concerned, as discussed above, since own funds of the assessee were sufficient to meet the investment and as per proposition of law laid down by the various High Courts as well as of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd' (supra) no disallowance is attracted u/s 36(l)(iii) of the Act. The order of CIT(A) on this issue is upheld. In view of the discussion made above, the appeal of the assessee is treated as allowed, whereas, the appeal of the Revenue vis-a-vis ground No.l is treated as allowed and in respect of other grounds is treated as dismissed with the observations that the impugned disallowances / additions made by the Assessing Officer are ordered to be deleted. In the result, the appeal of the assessee is allowed, whereas, the appeal, of the Revenue is treated as partly allowed in the terms as indicated above.” 4. The ld. AR was required to show that the relevant facts as pleaded were similar from either the impugned order or for that matter from the assessment order. It is seen that as far as the issue of retrospectivity is ITA 714 /CHD/2019 A.Y. 2015-16 Page 5 of 6 concerned, the issue stands covered in favour of the assessee by virtue of the decision of the Apex Court in CIT Vs Essar Teleholdings Ltd. (2018) 90 taxmann.com 2 (S.C). however, in order to say that the issues are covered by the earlier orders, the remaining factual similarities also needed to be demonstrated. It was seen that the record was silent on the aspects: namely that there was no churning of the portfolio and that these were old investments continuing hence already considered to be sourced from assessee's own funds. These facts need to be demonstrated from the record. These facts are not coming out from any of the orders, consequently the finding that these are old funds of the assessee and thus was sufficient to meet the investment as considered in CIT Vs Reliance Industries Ltd. (2010) 410 ITR 466 (S.C) cannot be readily applied. Accordingly, the ld. AR was required to address his arguments on these issues from the record.
Mr. Gupta in reply submitted that these facts may be verified and he has no objection if the issue is restored back to AO.
The ld. Sr.DR relied upon the impugned order. No distinguishing argument was referred to for canvassing a contrary view visi-a-vis the order of the ITAT in assessee's
ITA 714 /CHD/2019 A.Y. 2015-16 Page 6 of 6 own case wherein the departmental appeal on the issue stood dismissed.
We have heard the rival submissions and perused the material available on record. In the light of the submissions of the parties before the Bench, we deem it appropriate to restore the issues back to the file of the AO for verification qua ground No. 2. As similarity of facts needs to be addressed. Ground No. 3 raised by the assessee accordingly, is allowed in terms of the decision of the Apex Court in the case of CIT Vs Essar Teleholdings Ltd. (2018) 90 taxmann.com 2 (S.C). Said order was pronounced in the presence of the parties via Webex.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 18th November, 2021.