Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH “A” DELHI
Before: SHRI CHANDRA MOHAN GARG & SHRI PRADIP KUMAR KEDIA
PER PRADIP KUMAR KEDIA, A.M.: The captioned Appeal and the Cross Objection has been filed by the Revenue and the Assessee respectively against the order of the Commissioner of Income Tax (Appeals)-XXIX, New Delhi [‘CIT(A)’ in short] dated 29.08.2017 arising from the assessment order dated 29.02.2016 passed by the Assessing Officer (AO)
under Section 153A r.w. Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.
The grounds of appeal raised by the Revenue reads as under:
“The Ld. CIT(A) has erred in deleting the addition made by the AO u/s 14A o the I.T. Act. 1961 read with 8D when the decision of Hon'ble ITAT in the case of ITO Vs. Madhav Tech. India (P) Ltd. has not attended finality and department has recommended further appeal in Hon'ble Court.”
The grounds of Cross Objection by the Assessee reads as under:
“(1) That in the absence of satisfaction as contemplated u/s 14A(2) of the Income-tax Act, 1961 (the Act), the disallowance as made by the AO is arbitrary, unjust and bad in law.
(2) That without prejudice to ground No. 1 above, the disallowance, if any, is required to be maintained u/s 14A(2) of the act, the same cannot exceed the dividend earned.
(3) That the disallowance of Rs. 1,47,940/- being the amount sustained by CIT (Appeals) in terms of Rule 8D(2)(iii) of IT Rules is against the facts and bad in law.
(4) That while computing the book profit u/s 115-JB of the Act, the disallowance as made by the AO and sustained by CIT (Appeals) is bad in law.”
Briefly stated, the assessee is a non-banking financial company registered with Reserve Bank of India and engaged in making investments and to deal in shares and securities. In the course of the search, assessment framed under Section 153A r.w.
Section 143(3) of the Act, the Assessing Officer found that the assessee has earned exempt income by way of dividend amounting to Rs.4,06,63,808/-. The Assessing Officer resorted to Rule 8D of the Income Tax Rules and disallowed Rs.7,77,65,481/- under normal provisions of the Act. Similarly, book profits under Section 115JB were enhanced with the same amount derived as per Rule 8D of the Income Tax Rules, 1963.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) has granted certain reliefs and reversed the action of the Assessing Officer. The CIT(A) dealt with the issue herein:
“6. Ground nos. 3,4,7,8 and 9 relate to the addition of Rs.7,75,24,213/~and Rs.2,32,268/-made by the AO under Rule 8D(2)(ii) and 8D(2)(iii) respectively read with section 14A of the Act, under the normal provisions as well as working of book profit under section 115JB of the Act. The appellant has earned dividend amounting to Rs.4,06,63,808/-, and no such disallowance under section 14A has been made, though the dividend income has been treated as exempt.
6.1 It is observed that AO has computed disallowance under Rule 8D(2)(ii) for Rs.7,75,24,213/- and Rs.2,32,268/- under Rules 8D(2)(iii) respectively, considering that this amount has been spent to earn such dividend income, which is disputed by the appellant.
6.2 I have considered the facts and circumstances of the case, submission of the appellant and perused the assessment order, I find from the detailed submission filed by the appellant that they have explained with the supporting documents/details that no expenditure towards interest was incurred for investments in dividend yielding shares. Therefore, it is held that proportionate addition amounting to Rs.7,77,56,481/- made towards such interest is not called for under Rule 8D2(ii) of the IT Rules as on perusal of the details filed which were also before the AO, it is found that there was no interest paid towards investments from which dividend was earned. The appellant has explained that the investments were not made out of interest bearing funds by filing the relevant details. Whereas the AO could not establish that there is nexus between the investments made in shares on which dividend was earned during the year and utilization of the loan amount on which interest was paid. Under these circumstances, the AO is directed to delete the addition made under Rule 8D(2)(ii).
6.3 Further, so far as addition under Rule 8D(2)(iii) is concerned I find that legal and professional charges towards audit fees are the statutory/necessary expenses which are to be incurred by the company towards their legal requirement/obligation to ensure the existence and continuation of the company, hence, the same are deserved to be allowed. The only expenses which are subjected to disallowance under Rule 8D(2)(iii) are other expenses of Rs.22,523/- and Demat expenses of Rs.1,25,417/- total of the same comes to Rs. 1,47,940/- therefore, the balance amount is directed to be deleted, thereby, the AO is directed to restrict the disallowance under Rule 8D(2)(iii) to Rs.1,47,940/- only, under normal provision and under 115JB.
6.4 Accordingly, looking to the facts and circumstances of this case and keeping in view of the decision of Hon'ble ITAT in the case of ITO vs. Madhev Tech (India) P. Ltd. (2011-TIOL-546-ITAT-DEL) and other case laws, it is held that in view of the above discussion, the AO is directed to reduce the disallowance to Rs. 1,47,940/- under normal provision and under 115JB.
6.5 book profit under section 115JB of the Act, it is to be mentioned that the AO has made disallowance on the basis of the decision of Hon'ble Delhi High Court in the case of CIT(Central)-2 vs. Goetze India Ltd. (ITA No.1179/2010) and in view of the specific provision of clause (f) of explanation (1) to sectionll5JB, for which the appellant has not provided any counter argument to establish that these are the expenditure not to be disallowed while working out the book profit under section 115JB of the Act. The ratio of the said judgement by Hon'ble Delhi High Court is squarely applicable in this case. Therefore, the action of AO is found to be in order for making such disallowance. The relied case law by appellant is not applicable and distinguishable on facts and ratio laid down. However, the disallowance is sustained to an amount of Rs.1,47,940/- looking to the disallowance sustained in the normal provisions. Accordingly, the appeal is partly allowed on these grounds.”
Aggrieved by the partial relief granted by the CIT(A), the Revenue as well as the assessee are in respective captioned appeal and Cross Objection. The CIT(A) has summarily deleted the additions of Rs.7,75,24,213/- towards proportionate interest computed under Rule 8D(2)(ii) by making an observation that the assessee has explained with certain documents/details that no expenditure towards interest was incurred for investments in dividend yielding shares. It was further asserted that the assessee has explained that investments were not made out of interest bearing funds by filing the relevant details. The CIT(A) has not provided any facts and figures or any process of reasoning by which it accepted and endorsed the explanation of the assessee that no expenditure towards interest was incurred for investments yielding tax free income. The CIT has granted relief on account of aforesaid disallowance in a very casual manner by way of an indescript order as reproduced above. The CIT(A) has shifted the onus on the Assessing Officer wrongly to establish the nexus between the investment the utilization of loan amount on which interest was paid.
We are unable to understand the course of action adopted by the CIT(A) while granting relief. The action of the CIT(A) is without any logic. The onus lies upon the assessee to show the proof of investment utilization for the purposes of investment in shares.
We do not find any relevant facts to support the contentions of the assessee before the CIT(A). We cannot countenance the manner in which the CIT(A) has reversed the action of the Assessing Officer without giving any reason whatsoever. The conclusion drawn by the First Appellate Authority appears to be prima facie arbitrary and bereft of any process of reasoning to come to a conclusion which is under challenge by the Revenue. In this backdrop, without expressing any opinion on merits, we set aside the summary order of CIT(A) and restore the proceedings back to the file of CIT(A) for denovo adjudication of the grievance raised by the assessee before him in accordance with law after giving reasonable opportunity of being heard. It shall be open to assessee to adduce such evidences as may be considered necessary and furnish such explanation as considered expedient. We thus set aside the action of the CIT(A) and restore the matter to the file of Assessing Officer for fresh adjudication in accordance with law.
While doing so, we also advert to the cross objection of the assessee towards absence of satisfaction as contemplated under Section 14A(2) of the Act. We do not see any merit in such contentions either. The Assessing Officer has issued specific show cause notice with reference to Section 14A of the Act observing that large chunk of income compromises of dividend income which is claimed to be exempt. The assessee has responded to the show cause notice. The Assessing Officer has made elaborate discussion on the issue and has resorted to the disallowance under Section 14A of the Act. Noticeably, the assessment was framed under Section 153A where requisite information/accounts of the assessee were called for. Needless to say, the satisfaction of the Assessing Officer is the assent of his mind. The Assessing Officer has inquired on the issue having regard to the details/information filed by the Assessee. The text and tenor of the assessment order shows that the Assessing Officer has objectively looked into the issue having regard to the details/accounts of the assessee and thus the contention of arriving at contemplated satisfaction is fulfilled. More so, opportunity was duly granted and availed by the Assessee. The facts and circumstances imply presence of satisfaction contemplated under Section 14A(2) of the Act. Noticeably, it is not a case where the assessee has offered any disallowance under Section 14A which is sought to be displaced by the Assessing Officer. Hence, Ground No. 1 of the Cross Objection of the assessee in this regard is not tenable.
As per Ground No.2 of the Cross Objection, the assessee has pleaded that the disallowance under Section 14A cannot exceed the exempt income by way of dividend we find merit in the aforesaid plea. The issue has been discussed by the Co-ordinate Bench in ACIT vs. Hindustan EPC Company Ltd., in order dated 29.07.2022 and thus no longer res integra. The CIT(A) shall accordingly restrict the disallowance to the extent of exempt income while making denovo adjudication. Hence, Ground No.2 of the Cross Objection is allowed.
Ground No.3 of the Cross Objection concerns disallowance of Rs.147940/- under Rule 8D(2)(iii) of the IT Rules. Since the issue has been restored to the file of the CIT(A), the assessee shall be at liberty to place such arguments and adduce such evidence as may be considered expedient in the course of fresh adjudication by the CIT(A). Hence, Ground No.3 of the Cross Objection is thus allowed for statistical purposes.
Ground No.4 concerns adjustment made in the book profit under Section 115JB of the Act towards disallowance under Section 14A is in issued.
While computing the book profit/loss under Section 115JB of the Act, the Assessing Officer reduced the book loss by the disallowances carried out under Section 14A amounting to Rs.7,77,56,481/-. The book loss was eventually calculated at Rs.10,54,87,749/-. We find merit in the contention of the assessee that estimated disallowances computed under Rule 8D cannot be adopted for the purposes of Section 115JB of the Act. This aspect is also restored to the file of the CIT(A) for determining the book profit/loss having regard to decision of the Special Bench in ACIT vs. Vireet Investment Pvt. Ltd., 165 ITD 27 (SB Delhi) and in accordance with law. Hence, Ground No.4 of the Cross Objection is allowed for statistical purposes.
In term of observations noted hereinabove, the impugned order passed by the CIT(A) is set aside and restore back to the file of the CIT(A) for denovo adjudication in accordance with law.
In the result, the appeal of the Revenue and the Cross Objection of the Assessee is allowed for statistical purposes.
Order pronounced in the open Court on 31/08/2022.