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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: SH. ANIL CHATURVEDI & SH. NARENDER KUMAR CHOUDHARY
This appeal filed by the assessee is directed against the order dated 22.03.2019 of the Commissioner of Income Tax (Appeals)-33, New Delhi relating to Assessment Year 2014-15.
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 dealing in share/securities. Assessee electronically filed its return of income for A.Y. 2014-15 on 29.11.2014 declaring total income of Rs.27,86,283/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 13.12.2016 and the total income was determined at Rs.72,21,667/-.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 22.03.2019 in Appeal No.470/17-18 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal before Tribunal and has raised the following grounds (modified grounds) of appeal:
“That on the facts of the case and under the law, no disallowance u/s 14A read with rule 8D is called for. Without prejudice, the disallowance u/s 14A, which was confirmed by the Ld CIT(A) to the extent of Rs.32,55,500/-, is highly excessive, primarily because the ‘net’ interest expenditure is required to be considered for working out the disallowance u/s 14A.”
During the course of assessment proceedings and on perusing the Balance Sheet, AO noticed that during the year under consideration, assessee had taken loans aggregating to Rs. 6.97 crores (rounded off) and had incurred total interest expenditure of Rs. 1.65 crores (rounded off). He also noted that assessee earned exempt income of Rs. 32,55,500/-. Assessee was therefore asked to furnish details of expenditure incurred for the purpose of earning exempt income and show-cause as to why no disallowance u/s 14A r.w. Rule 8D be made to which assessee made the submissions which are not found acceptable to AO. AO thereafter by invoking the provision of Rule 8D worked out the total disallowance u/s 14A at Rs. 44,35,384/- and made its disallowance. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who by relying on the order of Delhi High Court in the case of Cheminvest Ltd. vs. CIT reported in 378 ITR 33 (Del) restricted the disallowance to Rs.32,55,500/-, being the exempt income. Aggrieved by the order of CIT(A). assessee is now in appeal before us.
Before us, Learned AR submitted that he has no grievance as far as the disallowance under Rule 8D(2)(iii), being administrative expenses, at one-half percent of average value of investment is concerned. The only grievance is with respect to the calculation of disallowance of interest under Rule 8D (2)(ii). He submitted that during the year under consideration assessee had earned interest income aggregating to Rs.1,43,14,662/- as reflected in Note No.16 & 17 of the financial statements which is placed at page 12 of the paper book and had incurred interest expenditure to the extent of Rs.1,65,42,226/- meaning thereby that the net interest expenditure incurred by assessee is to the extent of Rs. 22,27,564/-. He therefore submitted that the disallowance under Rule 8D (2)(ii) be worked out on the basis of net interest expenditure and for the aforesaid proposition, he placed reliance on the decision of Hon’ble Gujarat High Court in the case of PCIT vs. Nirma Credit and Capital Pvt. Ltd. reported in Tax Appeal No.409 of 2017 order dated 31.08.2017 and other decisions. He therefore submitted that the AO be directed to work out the disallowance of interest under Rule 8D(2)(ii) on net interest expenditure.
Learned DR on the other hand did not controvert the aforesaid submissions made by Learned AR but however submitted that the necessary directions be given to Learned AO to work out the disallowance.
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 u/s 14A r.w.r 8D. The assessee is aggrieved by disallowance made u/s 14A r.w.r 8D with respect to the working made under Rule 8D(2)(ii) i.e. with respect to the interest disallowance which has been worked out on the basis of gross interest expenses. Before us, Learned AR has pointed out from the audited Profit and Loss account for the year ended 31st March 2014 that during the year assessee had incurred interest expenditure of Rs.1,65,42,226/- and has earned interest income aggregating to Rs.1,43,14,662/- and thus the net interest expenditure incurred by assessee is to the extent of Rs. 22,27,564/-. We find that Hon’ble Gujarat High Court in the case of Nirma Credit and Capital Pvt. Ltd. (supra) has held that for the purpose of working out disallowance under Rule 8D (2)(ii) of the Act, the expenditure by way of interest paid by assessee would be after reducing the taxable income earned during the financial year. Before us, Revenue has not placed any contrary binding decision in this case. We therefore in view of the aforesaid decision of Hon’ble Gujarat High Court direct the AO to working out the disallowance under Section 14A r.w. Rule 8D of the Income Tax Rules on the basis of the net interest under Rule 8D (2)(ii) of the Act. We thus direct accordingly. Thus the ground of assessee is partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 16.06.2022