ATC GLOBAL LOGISTICS PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE2(1)(1), MUMBAI

This appeal is against the order of Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC) dated 25.05.2023 for Assessment Year (AY) 2016-17.

During the year under consideration, the assessee has earned a dividend income of Rs. 28,32,555/-. The AO during the course of assessment noticed that the assessee has not made any disallowance under section 14A of the Act and called on the assessee to furnish details in this regard. The assessee submitted before the AO that the investments are made out of assessee's own funds and the dividend income is incidental to the purchase of shares. Accordingly, the assessee

The ld. AR submitted that the assessee has made the entire investments out of its own funds and therefore, no direct expenses are incurred towards earning such income. The ld. AR further submitted that the investments are done by the assessee in the capacity of investor and not as a day to day trader and therefore, the expenses incurred towards such investments are adjusted in the cost of investment directly. The ld. AR also submitted that the AO is not correct in invoking section 14A for the reason that separate set of books are not maintained by the assessee and that there is no requirement to maintain separate books since the transactions of purchase and sale of shares have been made through Demat A/c digitally. It is also submitted by the ld AR that the dividend income has been recorded net of taxes, brokerage and other expenses on receipt basis and therefore, no disallowance is warranted under Rule 8D(2)(iii). The ld. AR during the course of hearing drew our attention to the financial statements to submit that the expenses incurred by the assessee are towards the normal main stream business activity of the assessee and not towards investments activities. Accordingly the AR submitted that on this count also no disallowance should be made under section Rule 8D(2)(iii)

The ld. AR made a without prejudice submission that the assessee has paid tax on book profits on which the AO has made an addition towards disallowance under section 14A which is not correct in view of the decision in the case of ACIT Vs. Vireet Investments Pvt. Ltd. (2017) 165 ITD 27 (Del.

The ld. DR on the other hand, submitted that the assessee is having substantial amount of investment in equity shares and mutual funds from which the dividend income has derived. The ld. DR submitted that the assessee has not made any suo-moto disallowance towards indirect expense incurred towards the investments. Therefore, the ld DR submitted that the AO has correctly applied Rule 8D(2)(iii) and made the disallowance. With regard to the alternate submission of the ld. AR on the addition made towards books profits on account of disallowance under section 14A, the ld. DR fairly conceded that the issues covered by the decision in the case of Vireet Investments Pvt. Ltd. (supra).

We have heard the parties and perused the material on record. The assessee during the year has earned exempt income of Rs.28,32,555/-. The AO invoked the provisions of section 14A r.w.r.8D. The AO did not make any disallowance towards interest under rule 8D(2)(i) and direct expenses under rule 8D(2)(ii). The AO however applied rule 8D(2)(iii) towards indirect expenses which resulted in the disallowance of Rs. 6,21,921/-. In this regard we notice that the assessee is having substantial amount of investment i.e. Rs.14,34,23,340 as at 31.03.2016 and that that there is significant movement in the investments during the year as compared to the opening balance of investment which stood at Rs,10,53,45,185 as at 31.03.2015. We also notice that the assessee has not made any suo moto disallowance against the exempt income earned from these investments. Therefore, we see merit in the contention of the ld DR that the disallowance under rule 8D(2)(iii) towards indirect expenses is warranted in assessee's case. We are unable to appreciate the submission that the dividend

During the course of assessment proceeding the AO noticed that the assessee has sold an asset for a consideration of Rs. 40,00,000/- and that the same has not been reduced from the depreciable block of assets on which the depreciation was claimed at 10%. The assessee submitted before the AO that the deletion of asset has been omitted to be considered inadvertently by the officials of the assessee in the computation of income. The AO therefore, made an addition of Rs. 4,00,000/- towards excess depreciation claimed by not removing the assets sold from the block of asset.

The Ld. AR submitted that the AO besides adding the depreciation amount to the income computed under the normal provisions of the Act has also made the addition to the book profits computed under section 115JB of the Act. The ld. AR further submitted that depreciation as per the Income Tax Act cannot be adjusted against the book profits since the book profits

We have heard the parties and perused the material on record. On the issue of disallowance of depreciation the contention of the assessee is limited to adding the amount disallowed towards depreciation to the book profits computed under section 115JB of the Act. From the perusal of the fixed assets schedule which is part of the financial statements submitted, we noticed that the a sum of Rs.4,30,063/- is removed from the Gross Block of Building and a sum of Rs.2,82,151 is removed from the depreciation block of Building. Therefore, we see merit in the contention of the ld. AR that the depreciation as per the books of accounts already considers the deletion of the Building sold. The addition made by the AO towards depreciation is made for the reason that the asset sold is not removed from the block of assets while computing the depreciation under the Income Tax Act. In view of these facts, we are of the considered view that the AO is not correct in adding the additional depreciation as per the Income Tax Act to the book profits computed under section 115JB of the Act. This contention of the assessee is allowed and the AO is directed to delete the addition made to the book profit computed under section 115JB of the Act.

In the result, appeal filed by assessee is partly allowed.