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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
आदेश /O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi, dated 08.07.2022 and pertains to assessment year 2015-16.
:-2-: ITA. No: 703/Chny/2022 2. The assessee has raised the following grounds of appeal:
1. Details for Dividend income is as follows: SI.No Name of Company Quoted No of Shares Amount in Rs Quoted 1 State Bank of India 67 Nos 2010.00 2 Tamilnad Mercantile Bank Ltd 650 Nos 1040000.00 3 ShriramTpt Finance Corp Ltd 1080 Nos 8640.00 4 Indian Overseas Bank Share 100 Nos 50.00 5 Mahindra & Mahindra Share 12 Nos 168.00 1050868.00 Unquoted 6 Aluminium Powder Co Ltd 300 Nos 10500.00 7 Pandian Chemicals Ltd 3312 Nos 198720.00 8 The Metal Powder Co Ltd 18099 Nos 633465.00 9 MRI Diagnostic Research Ltd 2500 Nos 1250.00 10 Ayyan Fireworks Factory P Ltd 8500 Nos 340000.00 1183935.00 2234803.00 The details for Investments in shares held as investment is as follows:- Year Ended Year Ended Increase 31-03-2015 31-03-2014 Shares in Company 1,49,01,753 1,03,01,753 46,00,000 Dividend Received 22,34,803 25,50,542 Capital A/c 4,85,57,187 4,51,27 ,301 3429886 Trade Creditors 38,56,639 5,72,453 3284186 Fresh Investments in share of M/s Vindhya Spinning Mills (P) Ltd., during the year is for Rs 46,00,000/-. This is from out of his own income during the year. This can be easily verified from the fact that Capital A/c is increased by Rs 3429886/- and Trade Creditors for which no interest is payable is increased by Rs 3284186/-.So it is obvious that no barrowed fund is used for the new investment. Moreover for investing in M/s Vindhya Spinning Mills (P) Ltd., no expenditure is incurred. Above all the appellant is a director in the said company. In order to retain the control over the company he and other directors have introduced fresh capital in the said company. This investment is made by way of commercial expediency.
3. For earning this dividend income from existing hares, expenditure such as Interest, postage and telegram, telephone, printing & stationery, travelling expenses and bank charges need not be incurred. So the provision of section 14A is not applicable.
:-3-: ITA. No: 703/Chny/2022 (60 ITR (Trib)266;56 ITR (Trib) Sn 34,43;383 ITR 529;376 ITR 553 ; 352 ITR 583) 4. Not only the incurring of the expenditure but also its relationship with the exempted income must be clear and must be capable of being ascertained on the fact of it without involving any further mental exercise. The onus is on the assessing officer not only to show that some expenditure was factually incurred but also to show its relationship with the income exempt from tax (2007) 107 ITD 267 TM).
Expenses relatable to the exempted income alone can be disallowed. There must be an approximate cause for disallowance which is in relation with the Tax-exempt income. Merely because the assessee had incurred interest expenditure on funds borrowed it would not ipso facto invite the disallowance u/s 14A. Unless there was evidence to show that such interest bearing funds formed part of investment. The Assessing Officer has not proved that certain expenditure are incurred for earning exempted income. The onus is on the department to prove that some expenditure was incurred for earning tax free income. Rule 8D read with section 14A(2) can be invoked only 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 expenditure incurred in relation to the tax-free income.
Moreover there is no requirement to take a decision as where to invest and how much to invest at the highest level especially the new investment is made in a Private Limited Company in which the appellant is already a Director and in order to retain the control over the company like other directors in the said company. So the addition of < 63009- u/s. 14A is unwarranted and unjustified. It is prayed that the connected papers may kindly be looked into and justice rendered. Your appellant craves leave to add, amend, alter, withdraw any grounds of appeal at any time upto the hearing of the appeal.”
3. The brief facts of the case are that, the assessee is an individual and sole proprietor of M/s. Ayyan Traders, which is engaged in the business of fireworks. The assessee had filed :-4-: ITA. No: 703/Chny/2022 his return of income for assessment year 2015-16 on 22.07.2016, declaring total income of Rs. 1,04,14,280/-. During the course of assessment proceedings, the AO noticed that the assessee had earned dividend income of Rs. 22,34,803/- and same has been claimed as exempt income u/s. 10(34) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). However, no expenditure was disallowed u/s. 14A of the Act. The assessee was called upon to file necessary details of expenditure in relation to exempt income, for which the assessee claimed that he does not incurred any expenditure in relation to exempt income. The AO rejected arguments of the assessee and computed disallowance of Rs. 63,009/- u/s. 14A r.w.r. 8D(2)(iii) of the Income-tax Rules, 1962 (hereafter referred to as “I.T. Rules, 1962”) @ 0.5% of average investments in shares. The assessee carried the matter in appeal before the first appellant authority, but could not succeed. The CIT(A), for the reasons stated in their appellant order dated 08.07.2022 sustained addition made towards disallowance u/s. 14A of the Act.
4. None appeared for the assessee. We heard the Ld. DR and considered written submissions filed by the assessee. We :-5-: ITA. No: 703/Chny/2022 find that the assessee has earned dividend income of Rs. 22,34,803/-, but does not disallowed any expenditure relatable to exempt income. The assessee claimed that he does not incurred any expenditure in relation to exempt income. We find that the AO has disallowed expenditure relatable to exempt income u/s. 14A r.w.r. 8D(2)(iii) of the IT Rules, 1962 at Rs. 63,009/- @ 0.5% of average investments in shares. We find that the assessee has derived taxable income and non-taxable income. The assessee had also incurred various expenditures which are common in nature which cannot be identified particularly for exempt income and taxable income. Therefore, as per provisions of section 14A r.w.r. 8D(2)(iii) of the IT Rules, 1962, the AO has computed expenses relatable to exempt income @ 0.5 % of average value of investments. In our considered view, there is no error in the method followed by the AO to determine expenses relatable to exempt income, because the assessee has not maintained separate books of accounts and also apportioned expenditure which are common in nature to exempt income and taxable income. Thus, we reject arguments of the assessee and sustain addition made towards disallowance u/s. 14A r.w.r. 8D(2)(iii) of the IT Rules, 1962.
:-6-: ITA. No: 703/Chny/2022