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Income Tax Appellate Tribunal, PUNE „A‟ BENCHES :: PUNE
O R D E R
Per PARTHA SARATHI CHAUDHURY, JM:
This appeal preferred by the assessee emanates from the order of National Faceless Appeal Centre [NFAC], Delhi, dated 12.06.2023 for A.Y.2016-17 as per the following grounds of appeal:-
“1. The ld.CIT(A)-NFAC, erred in confirming disallowance u/s. 14A r.w.r.8D of Rs. 55,79,073/-. 2. The ld.CIT(A)-NFAC, erred in not appreciating that the investments which did not yield any income during the year under consideration ought to have been excluded while working out the disallowance u/s. 14A r.w.Rule 8D(iii). 3. The Appellant Company craves leave to add, alter, amend, modify and/or delete any or all of the grounds of appeal
.”
2. The relevant facts in this case are that the assessee-company is engaged in the business of manufacture and sale of PVC Resin, rigid PVC pipes and fittings, generation of power and internal consumption
Finolex Industries Ltd. thereof etc. The assessee filed its return of income for A.Y. 2016-17 on 30/11/2016 vide ack. no. 547751761301116, which was revised on 18/11/2017. The Assessing Officer (AO), vide order u/sec. 143(3), completed the assessment by making certain additions/disallowances and assessed the total income at Rs. 302,01,89,960/-. Now regarding the disallowance u/sec. 14A of the Act, which is the present grievance of the assessee in this appeal, the brief facts are that during the previous year 2015-16 relevant to the A.Y. 2016-17, investments made in shares, mutual funds etc. were Rs. 28,803.24 lakhs. Out of the said investments, an investment of Rs. 11,550.34 lakhs comprising mainly of investments in group companies yielded tax free dividend income. The assessee-company had not incurred any expenditure for earning exempt income. In spite of this, the assessee-company disallowed Rs.3.00 lakhs u/sec. 14A as a matter of abundant caution. Further, it was the case of the assessee that investments were not made from borrowed funds since it was not commercially prudent. Therefore, the assessee-company has not disallowed any interest expenses u/sec. 14A in its return of income. Accordingly, the assessee had disallowed administrative expenses to the extent of Rs. 3.00 lakhs as being incurred for earning exempt income u/sec. 14A of the Act. During the course of assessment proceedings, the AO had asked the assessee to show-cause as to why the above disallowance should not be made as per Rule 8D. Thereafter, the assessee had made submissions before the AO which are on record. However, these 2
Finolex Industries Ltd. submissions did not find favour with the AO and finally he disallowed expenses of Rs.55,79,073/- u/sec. 14A r.w.r 8D (over and above Rs. 3.00 lakhs already disallowed by the assessee u/sec. 14A) as per his findings in the assessment order.
When the matter went before the NFAC, one of the submissions raised by the assessee was that the AO had erred in not appreciating some of the investments considered for the purposes of working out the disallowance u/sec. 14A did not yield any tax free income during the relevant previous year and, hence, these investments should have been excluded while working out such disallowance @ 0.5% of value of average investments. NFAC, however, as per reasoning appearing in its order supported the findings of the AO and dismissed the appeal of the assessee.
At the time of hearing, ld.AR of the assessee reiterated the same submissions taken before the NFAC that working out the disallowance u/sec. 14A, the investments which had not yielded any tax free income during the relevant previous year should be excluded while working out such disallowance @0.5% of value of average investments. In this regard, he placed reliance on the order of this Tribunal in assessee‟s own case for A.Y.2012-13 in dated 10/11/2021 wherein the issue has been held as follows:- “4. At the outset, the ld. AR did not raise any dispute as to the confirmation of disallowance made u/s 14A of the Act. It was, however, requested that only the investments which yielded exempt income should be considered for the purpose of calculation of 3 Finolex Industries Ltd. disallowance.
The Hon'ble Delhi High Court in ACB India Ltd. vs. CIT (2015) 374 ITR 108 (Del) has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB). In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for re-computing the disallowance under Rule 8D by considering only such investments in calculating the average value of investments, which yielded exempt income during the year. The assessee will be allowed hearing opportunity in such fresh proceedings.”
5. Even before us, the ld.AR did not raise any dispute as to the confirmation of disallowance u/sec. 14A of the Act. It was, however, requested that only the investment which yielded exempt income should be considered for the purpose of calculation of disallowance and those investment which had not yielded any exempt income should be kept outside the purview of disallowance. That, on the same facts and circumstances and parity of reasoning, as held aforesaid we set aside the impugned order with the same directions as have been given in assessee‟s own case in (supra). The grounds of appeal raised by the assessee stands allowed for statistical purposes.
In the result, appeal of the assessee stands allowed for statistical purposes.
Order pronounced in open Court on 14th August, 2023.