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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: SH. ANIL CHATURVEDI & SH. YOGESH KUMAR US
This appeal filed by the assessee is directed against the order dated 06.07.2018 of the Commissioner of Income Tax (Appeals)-9, New Delhi relating to Assessment Year 2015-16.
Brief facts of the case as culled out from the material on record are as under:-
Assessee is a company stated to be engaged in the business of sale and purchase of shares on behalf of its customers and for the assessee itself. Assessee electronically filed its return of income for A.Y. 2015-16, on 30.09.2015 declaring total income at Rs.35,29,810/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 13.12.2017 and the total income at Rs.54,82,920/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 06.07.2018 in Appeal No.9/10341/17-18 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal and has raised the following grounds:
The Ld. AO had erred in law and facts by making an addition amounting to Rs. 19,53,108/- on account of disallowance of expenses in accordance with section 14A r.w.r. 8D.
2. That the Assessing officer erred in law and on facts in disregarding the fact that there was no exempt income received from shares held as investment, being unquoted shares. 3. That the assessing officer erred in law and on facts in concluding that the shares held as inventory and on which the assessee undertook regular trading and on which a sale turnover of Rs. 4.43 crores were done by assessee and a profit of Rs. 30,66,215/- was earned during the previous year, were the shares in relation to which no income was earned by the assessee. 4. That in the instant case although assessee received certain dividend of Rs 2,39,499/- on shares being traded but a profit of Rs. 30,66,215/- was also offered to taxation as trading income. The section 14A does not envisage cases where income may be partially not includible in total income. 5. That section 14A has no application in the case of assessee as there was no expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Income Tax Act, 1961. 6. That without prejudice to the above, the dividend income cannot be the subject matter of section 14A as tax is leviable on the distributing company as dividend distribution tax and also in certain circumstances even directly assessee is subject to tax thereon. 7. The Ld. AO was unjustified in making aforementioned addition as assessee company had not incurred any expense related to exempt income directly or indirectly as the assessee company had duly explained the source of investment made in alleged unquoted equity shares of group companies. 8. Without prejudice to abovementioned grounds of appeal
s, the Ld. AO had erred in law while considering bank guarantee commission amounting to Rs. 7,10,271/- as interest expense not directly attributable to any income or receipt while calculating disallowance u/r 8D(2)(ii) and 8D(2)(iii). The aforesaid bank guarantee commission was paid to HDFC Bank against bank guarantee issued by them against fixed deposits amounting to Rs.94.375 Lakh for the purpose of depositing it with IL&FS and other stock exchanges as margin money to be maintained for enabling trading of securities under various segments on their platform and to provide share broking services as a member of National Stock Exchange.
9. Without prejudice to abovementioned grounds of appeals, the Ld. AO had erred in law while considering the value of inventory held by the assesse company at the beginning and at the end of the year amounting to Rs. 3,25,81,151/- and Rs. 4,38,60,056/- respectively while calculating average value of investments, income from which doesn’t forms part of the total income in addition to value of investment made in unquoted equity shares of group companies, inspite of the fact that the assessee earned sizable profit of Rs. 30,66,215/- from the buying and selling of shares contained in the inventory.
10. Without prejudice the above, the dividend earned by the assessee is not covered by section 14A being an income on which tax has been paid by the companies distributing dividend.
11. The Ld. AO had erred in law and facts of the case by initiating penalty proceedings u/s 271(1)(c) of the act as assessee company had duly disclosed each and every facts correctly in the income tax return as well as duly filed all necessary documentary evidence and explanation with the Ld. AO during the course of assessment proceedings.
12. The CIT (A) had erred in law and facts by sustaining an addition partly amounting to Rs.759,499/- on account of disallowance of expenses in accordance with section 14A r.w.rule 8D.
The CIT (A) has erred in making addition w.r.t agricultural income in terms of Section 14A, which was not disallowed by AO while passing its assessment order . This has lead to enhancement of the subject matter of addition & no opportunity of being heard in this respect was given to assessee before passing assessment order. 14. We crave to add, delete, modify and alter any of the aforementioned grounds of appeal during the course of appellate proceedings before your goodself. Relief Claimed
1. The addition amounting to Rs. 759,499/- made on account of disallowance of expense incurred in relation to exempt income in terms of order of CIT(A) being calculated in accordance with section 14A r.w.r. 8D should be deleted.” 4. Assessee thereafter has also raised the additional grounds:
1. The CIT (A) has erred in making addition w.r.t agricultural income which was not disallowed by AO while passing its assessment order. This has lead to enhancement of the subject matter of addition & no opportunity of being heard in this respect was given to assessee before passing assessment order.
We humbly request your Honour to allow these additional ground of appeals set forth vide memorandum of ground of appeals filed alongwith abovementioned Form No. 36 as all of the above mentioned ground of appeal are question of law are arising from facts on record in the assessment proceedings or which arose during the appellate proceedings before Ld. CIT (Appeals). We place our reliance on decision made by Hon'ble Supreme Court in case of National Thermal Power Company v. CITJ1998] 229 ITR 383 (SC) wherein it was stated that;
"Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. The reframed question therefore, is answered in the affirmative i.e the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below & having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on merits." (Copy of judgement is enclosed for your kind perusal on page no.)
We respectfully request your honour to kindly admit the abovementioned additional ground of appeals being raised in appellate proceedings for the first time and oblige.”
At the time of hearing on perusing the grounds of appeal raised by assessee, it was pointed to the Learned AR that the grounds raised by the assessee appear to be argumentative in nature and are not as per the Income Tax Appellate Tribunal Rules to which Learned AR fairly submitted that assessee does not wish to press the additional grounds and the other grounds and only Ground No.13 with respect to disallowance u/s 14A of the Act be adjudicated and the other grounds and additional grounds raised be treated as not pressed. In view of the aforesaid submissions, we proceed to dispose of the appeal.
During the course of assessment proceedings, AO on perusing the financial statement of the assessee noticed that assessee had non-current investments on which income received would be exempt income. The assessee was asked to justify as to why the expenses not be disallowed u/s 14A r.w Rule 8D. The submissions made by the assessee was not found acceptable to AO. AO was of the view that even though the expenses may not have been directly incurred for earning exempt income but they have been incurred indirectly. According to AO, had the assessee not made the investments, the requirement of borrowed funds and payment of interest would have been lesser and thus according to AO, assessee indirectly incurred interest expenses. He thereafter by following the methodology prescribed Rule 8D worked out the total disallowance u/s 14A of the Act at Rs.21,44,211/- and after giving a credit of the suo moto disallowance of Rs.1,91,103/- disallowed the balance amount of Rs.19,53,108/- u/s 14A of the Act.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 06.07.2018 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now before us.
Before us, Learned AR reiterated the submissions made before AO and CIT(A) and further submitted that assessee had earned total exempt income of Rs.7,59,499/- which comprises of net agricultural income amounting to Rs.5,20,000/- and dividend income of Rs.2,39,499/-. With respect to the investments made in unquoted shares, he submitted that those investments have been made in the year 2005, 2009-10, 2008-09 & 2012-13 and are out of own funds and no borrowed funds has been used for the purpose of making investments. He submitted that no expenses have been incurred in respect of those investments and the borrowings made have no relationship with the investments made in unquoted shares. Learned AR thereafter submitted that assessee had also earned net agricultural income of Rs.5,20,000/- as exempt income which is earned from the free hold land owned by the assessee. To support his contention about the availability of freehold land, he pointed to page 23 of the paper book which is schedule of fixed assets and from their he pointed to the freehold land of Rs.27,29,560/- which is reflected in the assets. He thereafter submitted that CIT(A) while granting relief to the extent of the disallowance of exempt income has given relief of Rs.11,93,609/- which is out of the net disallowance of Rs.19,53,108/- as reduced by the exempt income. He submitted that since assessee had suo moto disallowed Rs.1,91,103/-, the same also should have been considered while granting relief by CIT(A) and by not granting the relief to the extent of suo moto disallowance, has resulted into double disallowance to that extent. In support of his aforesaid contention, he pointed to para 3.5 of the assessment order which shows the total disallowance made by AO vis-à-vis para 5.5 of CIT(A)’s order wherein he has granted partial relief of Rs.11,93,609/-. He therefore submitted that the necessary directions be given to delete the double disallowance made.
Learned DR on the other hand supported the order of AO and CIT(A) and as far as the contention of double disallowance resulting from the order of CIT(A), he submitted that the matter be remitted to AO for factual verification.
We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the disallowance upheld by CIT(A) u/s 14A r.w.r 8D of the Income Tax Rules which according to the Learned AR has resulted into double disallowance of the expenditure. We find that CIT(A) vide para 5.5 and after relying on the various decisions cited in his order has directed the AO to restrict the disallowance to the extent of exempt income of Rs. 7,59,499/- earned by the assessee and thus granted partial relief to the extent of Rs. 11,93,609/- (19,53,108 – 7,59,499). We find that the partial relief worked out by CIT(A) is on the basis of the net disallowance of Rs.19,53,108/- that has been worked out by the AO which was after suo moto disallowance of Rs. 1,91,103/- made by the assessee. We thus find force in the argument of Learned AR that the relief should have been granted to the assessee on the basis of the gross disallowance of Rs.21,44,211/- as worked out by AO. We therefore direct the AO to grant relief on the basis of the gross disallowance of Rs.21,44,211/- as reduced by the exempt income. We thus direct accordingly. Thus the ground of assessee is allowed.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 31.05.2022