Loading judgment…
No AI summary yet for this case.
आदेश/Order
PER N.K. SAINI, VICE PRESIDENT This is an appeal by the Assessee against the order dt. 04/07/2018 of the Ld. CIT(A)-4, Ludhiana.
Following grounds have been raised in this appeal:
That the order passed by the Hon'ble CIT(A) under provisions of Section 250(6) of the Income Tax Act 1961 is against law and facts on the file.
2. That the Assessing Officer is erred in law for not recoding his proper satisfaction while disallowing the proportionate expenses on exempt income under section 14A. The AO has ignored the findings of Hon'ble Supreme Court in case of MAXOPP INVESTMENT LTD Vs. CIT New Delhi. The court has observed that before applying the theory of apportionment, the AO needs to record satisfaction, suo moto disallowance under section 14A was not correct. 3. Whether the AO and CIT(Appeais) are right in making addition / disallowance of Rs.237125446/- under section 14A , where there is no exempt income on account of Dividend earned by the assessee during the year under consideration. 4. Whether the CT(A) was right in law by confirming the disallowance of Rs.237125446/- when the assessee has received a dividend income of Rs.2451907-only during the year under consideration and the same has been taxed as Income from Other Sources The same has been offered for taxation and has been assessed to tax under section 56.
Whether the CIT (A)and AO was right in law for not restricting the disallowance u/s 14A to the extent of exempt income , as held by ITAT Chandigarh in assessee !s own appeals OF 2014 vide orders dated 10-11-2016.
6. Whether the CIT (A) is right in law in disallowing the amount of Rs.22,57,03,986/- under Rule 8D(2)(ii) when the assessee is an NBFC and engaged in the business of providing finances and not deducting the amount of Interest Income earned by the assessee . 7. Whether the ClT(A) and AO were right in disallowing interest by taking the interest at Rs.49,35,43,611/-when the assessee had disallowed an amount of Rs 15,81,32,188/- u/s 43B of Income Tax Act in the Computation Chart filed with the ITR..
8. That the appellant carves leave to add or amend any ground of appeal during the course of appellant proceedings.
3. From the aforesaid grounds it is gathered that the grievance of the assessee relates to the sustenance of disallowance of Rs. 23,71,25,446/- made by the A.O. under section 14A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) when the assessee had received the dividend income of Rs. 2,45,190/- only.
Facts of the case in brief are that the assessee filed its return of income on 29/11/2014 declaring a loss of Rs. 30,64,53,658/-, later on the case was selected for scrutiny. During the course of assessment proceedings the A.O. noted that the assessee had investment of Rs. 2,28,42,92,090/- in shares of different companies as on 31/03/2013 and had earned a dividend of Rs. 2,45,190/- which was claimed to be exempt under section 10(34) of the Act. The A.O. asked the assessee to explain as to why the corresponding interest expenses claimed by it be not disallowed. In response, the assessee submitted as under:
The assessee has earned a dividend income of Rs. 2,45,190/- during the year under consideration and the same has been shown as income from other sources and forms part of the taxable income of the assessee. Hence, no disallowance under the provisions of section 14A is liable to be made in the case of the assessee.
The A.O. however did not find merit in the submissions of the assessee and made the disallowance of Rs. 23,71,25,446/- by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962.
5. Being aggrieved the assessee carried the matter to the Ld. CIT(A) who sustained the disallowance made by the A.O.
Now the assessee is in appeal.
Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the disallowance cannot exceed the amount of exempt income. It was also stated that this issue is squarely covered in favour of the assessee by the decision dt. 10/11/2016 of the ITAT, Chandigarh Bench in to 994/Chd/2014 for the A.Y’s 2007-08 to 2010-11 in assessee’s own case, copy of the said order was furnished which is placed on the record.
In his rival submissions the Ld. CIT DR strongly supported the orders of the authorities below but could not controvert the aforesaid contention of the Ld. Counsel for the Assessee.
We have considered the submissions of both the parties and perused the material available on the record. It is noticed that an identical issue having similar fact was a subject matter of the assessee’s appeal for the A.Y. 2007-08 to 2010-11 in to 994/Chd/2014 wherein the relevant findings has been given in para 8 to 9 which read as under:
8. We have heard the rival submissions and perused the relevant material on record. There is no doubt about the recording of satisfaction by the Assessing Officer in terms of section 14A(2). Insofar as the quantum of disallowance is concerned, Rule 8D is admittedly applicable from the assessment year 2008-09, which is the year under consideration. In that view of the matter, no fault can be found with the Assessing Office/CIT(A) resorting to Rule 8D for the purpose of making disallowance. This disallowance has been made in two parts. The first is under clause (iii) of Rule 8D(2) towards administrative expenses at the rate of one half per cent of the average of the value of investments, income from which does not form part of the total income. The addition to this extent is upheld as the same is in accordance with the statutory mandate.
9. As regards the disallowance under clause (ii) of Rule 8D(2), we find that the assessee contended before the Id. CIT(A) that such disallowance was not called for. In this regard we find that the Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2009) 313 LTR 340 (Bom) has held that if there are interest free funds available with the assessee sufficient to meet its investment and, at the same time, loan has been raised, it can be presumed that the investments were from interest free funds and, resultantly, no disallowance of interest can be made. In deleting the disallowance of interest, the Hon'ble Bombay High Court relied on the judgment of Hon'ble Supreme Court in East India Pharmaceutical Works VS CIT (1997) 224 ITR 627 (SC). It is further noticed that the Hon'ble Bombay High Court in CIT vs. HDFC Bank Ltd. (2014) 366ITR 505 (Bom), has held that where assessee's capital, profit, and reserves etc. were higher than the investment in tax free securities, it would have to be presumed that the investment made by the assessee would be out of interest free funds available with the assessee and, consequently, no disallowance could be made u/s 14A of the Act. Similar view has been taken in several cases including Principal CIT VS. India Gelatine & Chemicals Ltd. (2015) 376 ITR 353 (Guj). It, ergo, becomes manifest that the disallowance of interest as per clause (ii) cannot be made straight way without examining the important aspect as has been discussed in the above decisions, which the Id. CIT(A) failed to take note of. As necessary information about the availability of shareholders' fund vis-a-vis the amount invested in shares and other securities yielding exempt income is not available on record, we set aside the impugned order and remit the matter to the file of Assessing Officer for computing the disallowance under clause (i) Rule 8D(2), if any, in consonance with view taken in Reliance Utilities (supra) etc. It is however made clear that in no case, the total amount of disallowance u/s 14A should exceed the amount of exempt income as has been held by the Hon'ble Delhi High Court in Cheminvest Ltd. Vs CIT (2015) 378 ITR 33 (Del) and CIT vs. Holcim India P. Ltd (2014) 90 CCH081 Del HC.
So respectfully following the aforesaid referred to order dt. 10/11/2016 in assessee’s own case, we set aside this matter to the file of the A.O. and direct him to make the disallowance to the extent of exempt income earned by the assessee.
In the result, appeal of the assessee is allowed for statistical purposes.
(Order pronounced in the open Court on 06/05/2020 )