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Income Tax Appellate Tribunal, DELHI BENCH “E” NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI CHALLA NAGENDRA PRASAD
आदेश /O R D E R PER C.N. PRASAD, J.M.
This appeal is filed by the assessee against the order of the Ld.
Commissioner of Income Tax (Appeals)-9, New Delhi dated 07.08.2018 for the AY 2015-16. The assessee in his appeal raised the following grounds: 1. “The order of the Ld. CIT(Appeals) is bad in law and on the facts of the case. 2. That the Ld. Assessing Officer can apply rule 8D only if he is not satisfied with the claim of expenditure made by the assessee or the correctness of the claim made by assessee that no expenditure has been incurred.
That the assessee company has it own non – interest bearing funds which can be utilized for tax free investment. 1
I.T.A.No.6763/Del/2018
That the interest bearing loans of the assessee company have been utilized in various business assets of the company, other than investment in equity shares and mutual funds.
That the provisions of rule 8D cannot be applied in a mechanical way and facts of the case have to be analyzed before invoking them.
That if a very small and negligible amount of times, effort and expenditure is required to earn dividend income, disallowance of only a nominal amount is justified.
a) Jubiliant Expro Ltd. vs. CIT (2007) 12 SOT 194 Delhi. b) CIT vs. Eicher Ltd. (2007) 160 Taxman 80 (mag).
That the assessee has voluntarily disallowance Rs.2,92,220/- u/s 14A of the Income Tax Act, 1961 @ 0.50% on the average investment in the AY 2015-16 on the following investments. Particulars 31.03.2015 31.03.2014
Equity shares (Quoted) 2,55,470 2,55,314
Mutual Fund 9,56,54,816 2,07,22,377 9,59,10,286 2,09,77,691
That no dividend was received on the unquoted following equity shares and the same should not have been considered for disallowance of expenditure u/s 14A of the Income Tax Act, 1961. 31.03.2015 31.03.2014 Unquoted Equity shares 8,35,72,163 8,35,72,163 9. That where assessee declared tax exempted income and voluntarily disallowed certain expenditures under section 14A, in absence of reason why assessee claim for disallowance under section 14A had to be rejected, Assessing Officer was not justified in re-computing disallowance. As such the additional disallowance of Rs.5,20,671/- is unjust and uncalled for.
The assessee craves leave to add, amend or withdraw any ground of appeal at the time or before the hearing of appeal.”
I.T.A.No.6763/Del/2018
The Ld. Counsel for the assessee submits that the assessee has
sufficient interest free funds more than the investments made at the
beginning of the year as well as at the end of the year and, therefore, no
disallowance is warranted under Rule 8D(2)(ii). Reliance was placed on
the decision of the Hon’ble Supreme Court in the case of South Indian
Bank Limited Vs. CIT (Civil Appeal No. 9606 of 2011 dated 09.09.2021)
reported in 410 ITR 50. Referring to para 20 of the judgment the Ld.
Counsel submits that the Hon’ble Supreme Court held that if investments
in securities are made out of common funds and if non-interest bearing
funds available with the assessee are more than the investments made in
tax free securities disallowance under section 14A cannot be made. Ld.
Counsel for the assessee referring to page 49 of the paper book which is
the balance sheet of the assessee as on 31.03.2015 submits that assessee
has opening capital of Rs.31.11 crores and the closing balance in capital
account at 33.24 crores and the total investments at the beginning of the
year stood at Rs.11.06 crores and at the end of the year at Rs.19.09
crores. Therefore, it is submitted that since the assessee has sufficient
interest free funds for making investments no interest disallowance is
warranted.
The Ld. Counsel further submits that the assessee has voluntarily
disallowed Rs.2,92,220/- being 0.5% of average investments as
expenditure attributable for earning dividend income of Rs.22,09,778/-.
I.T.A.No.6763/Del/2018
On the other hand, the Ld. DR submitted that the investments
were made over a period of time and the assessee has not provided the
details of surplus funds and the investments made in earlier years.
Heard rival submissions, perused the orders of the authorities
below and the balance sheet furnished before us. On perusal of the
assessment order it is noticed that the assessee has earned dividend
income of Rs.22,09,778/- and offered suo moto disallowance of
Rs.2,92,220/- being 0.5% of average value of investments of
Rs.5,84,43,989/-. It is noticed that the assessee has not considered
investment in equity shares (un-quoted) for the purpose of computing the
average value of investments while computing the disallowance at 0.5%
thereon. The assessee has considered only the average value of
investments in equity shares (quoted) and mutual funds for the purpose
of computing the average value of investments and disallowance at 0.5%
thereon under Rule 8D(2)(iii). Not convinced with the submissions of the
assessee the Assessing Officer computed the disallowance u/s 14A read
with rule 8D at Rs.8,12,891/- comprising of interest disallowance under
rule 8D(2)(ii) of Rs.71,770/- and disallowance under rule 8D(2)(iii) being
0.5% of average investments at Rs.7,41,121/-. However, since the
assessee himself disallowed Rs.2,92,220/- towards administrative
expenses under rule 8D(2)(iii) the Assessing Officer restricted the
disallowance to Rs.5,20,671/-.
I.T.A.No.6763/Del/2018
On appeal the Ld. CIT(A) sustained the disallowance made by the
Assessing Officer.
In so far as the interest disallowance of Rs.71,770/- is concerned
we observe from the balance sheet of the assessee that the assessee has
opening capital and closing capital of Rs.31.11 crores and Rs.33.24 crores
respectively which is far more than the investments of Rs.11.62 crores at
the beginning of the year and Rs.19.09 crores at the end of the year.
Ratio of the decision the Hon’ble Supreme Court in the case of South
Indian Bank Limited Vs. CIT (supra) squarely applies to the facts of the
assessee’s case. Thus, respectfully following the said decision, we delete
the disallowance of Rs.71,770/- made under rule 8D(2)(ii) towards
interest.
Coming to disallowance under rule 8D(2)(iii) being 0.5% of average
value of investment towards administrative expenses is concerned we
observe that the assessee contended that no dividend was received on
the unquoted equity shares of Rs.8,35,72,163/- which stood at the
beginning as well as at the end of the year and, therefore, these
unquoted shares should not have been considered as part of average
value of investments for disallowance at 0.5%. We find force in the
contention of the assessee. The Special Bench of ITAT Delhi in the case
of ACIT vs. Vireet Investment Pvt. Limited (165 ITD 27) held that only
those investments which yielded exempt income during the year are to
I.T.A.No.6763/Del/2018
be considered for computing the average value of investments for the
purpose of disallowance under rule 8D(2)(iii). Respectfully following the
said decision, we direct the Assessing Officer to exclude the unquoted
equity shares of Rs.8,35,72,163/- for the purpose of considering average
value of investments and the consequential disallowance at 0.5% of such
average investments.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 10/06/2022
Sd/- Sd/- (G.S. PANNU) (C.N. PRASAD) PRESIDENT JUDICIAL MEMBER Dated: 10.06.2022 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT.
By order
Assistant Registrar, ITAT: Delhi Benches-Delhi