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Income Tax Appellate Tribunal, DELHI BENCH : C : NEW DELHI
Before: SHRI R.K. PANDA & MS SUCHITRA KAMBLE
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER Assessment Year: 2015-16 Jindal Dyechem Industries Pvt. Ltd., Vs Addl. CIT, 110, Babar Road, Special Range-5, New Delhi. New Delhi. PAN: AAACJ0719Q (Appellant) (Respondent) Assessee by : Shri Madhur Aggarwal, Advocate Revenue by : Shri Kumar Padmapani Bora, Sr. DR Date of Hearing : 18.11.2021 Date of Pronouncement : .02.2022 ORDER PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 30th July, 2018 of the CIT(A)-36, New Delhi, relating to AY 2015-16.
Facts of the case, in brief, are that the assessee is a company and engaged in the business of trading in precious metals. It is also a member of NCDEX and MCX. It filed its return of income on 30th September, 2015 declaring the total income at Rs.1,14,72,950/-. During the course of assessment proceedings, the AO noted that the assessee company has shown investment to the tune of Rs.88.5 crores and has received dividend income of Rs.5,70,99,418/-. He, therefore, asked the assessee to explain as to why the disallowance u/s 14A r.w. Rule 8D should not be made. It was explained by the assessee that it has not incurred any expenditure for the current year in relation to the exempt income and, therefore, provisions of section 14A(1) is not applicable in view of the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles. However, the AO was not satisfied with the arguments advanced by the assessee. Applying the provisions of section 14A r.w. Rule 8D, the AO computed the disallowance at Rs.40,35,192/- and added the same to the total income of the assessee.
Before the CIT(A), it was argued that the AO had made the disallowance u/s 14A r.w.r 8D of Rs.40,35,192/- on account of the following:-
Sr. No. Particulars Assessee (Rs.) i) Rule 8D(2)(i) -- ii) Rule 8D(2)(ii) 31,27,619 iii) Rule 8D(2)(iii) 9,07,573 Total 40,35,192
It was argued that the assessee has not received dividend on certain shares and, therefore, no disallowance could be made u/s 14A in those shares on which no dividend has been received. It was further argued that the share capital and free reserves of the assessee far exceeded the investment made, the income of which is exempt and, therefore, no disallowance can be made u/s 14A of the Act. Further, it was argued that in absence of any identical or specific expenditure pointed out by the AO, disallowance is untenable. Relying on various decisions, the assessee argued before the CIT(A) that the disallowance made by the AO should be deleted.
4.1 However, the CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the action of the AO by observing as under:-
“4.2.3. The appellant has claimed exempt income of Rs. 5,70,99,418/-. In the assessment order, the AO has added Rs. 40,35,192/- u/s. 14A r.w. Rule 8D, after discussing in detail the reasons for attracting the provisions of section 14A In the instant case. Therefore, the AO held that Rule 8D of I.T. Rule 1962 is squarely applicable in this case. Since, the Appellant Company had not disallowed any expense for earning the exempt income, it failed to justify the method adopted by it for determination of disallowance u/s. 14A, therefore, the AO correctly held that the method provided under Rule 8D of I.T. Rule, 1962 is applicable in this case. The submissions filed by the appellant have been considered and not found to be tenable. In view of the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, New Delhi (civil Appeal nos. 104-109 of 2015) dated 12.02.2018, the addition of Rs. 40,35,192/- u/s. 14A r.w. Rule 8D is upheld. The working of disallowance u/s. 14A rw Rule 8D at Rs. 40,35,192/- is upheld. I find no reason to interfere with the AO's order on* this issue. Therefore, this Ground of appeal is dismissed.
5. In the result, the appeal is Dismissed. The A.O. is directed to take consequential action at the time of giving effect within one month of receipt of order accordingly.”
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-
“1. That the learned Commissioner of Income Tax (Appeals)-36, New Delhi has erred both in law and on facts in upholding the disallowance of 3 sum of Rs. 40,35,192/- by incorrectly invoking section 14A of the Act read with Rule 8D of the Income Tax Rules’ 1962. 1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that in absence of satisfaction of statutory precondition provided in section 14A(1) of the Act, no disallowance could be validly upheld by mechanically applying Rule 8D of the Income Tax Rules ‘1962. 1.2 That without prejudice computation of disallowance under Rule 8D of Income Tax Rules’ 1962 is not in accordance with law and in any case, excessive. 1.3. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the submission furnished by the appellant and evidence placed on record and, therefore the disallowance upheld is not in accordance with law. It is therefore, prayed that disallowance made and upheld by the learned Commissioner of Income Tax (Appeals) may kindly be deleted and appeal of the appellant company be allowed.”
The ld. Counsel for the assessee submitted that the AO has not recorded satisfaction for disallowance u/s 14A r.w.r. 8D and, therefore, the disallowance made by the AO and sustained by the ld.CIT(A) should be deleted in view of the decision of Hon’ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT, reported in 402 ITR 640. He submitted that the assessee has shown investment of Rs.88.5 crores and has not received dividend income in respect of some of the investments. He submitted that out of 26 investments, the assessee has received dividend only on 6 investments. Referring to the decision of the Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Co. Ltd., reported in 394 ITR 449, he submitted that the provisions of section 14A would apply to dividend income on which tax is payable u/s 115O of the IT Act. Referring to the decision of the Hon’ble Supreme Court in the case of South Indian Bank vs. CIT, 4 reported in 130 taxmann.com 178, he submitted that the Hon’ble Supreme Court in the said decision has held that where interest free own funds are available with the assessee exceeded their investment in tax free securities, investment would be presumed to be made out of assessee’s own funds and proportionate disallowance was not warranted u/s 14A on the ground that separate accounts were not maintained by the assessee for investments and other expenditure incurred for earning tax free income.
6.1 Referring to the decision of the Hon’ble Gujarat High Court in the case of PCIT vs. Syntex Industries Ltd., reported in 82 taxmann.com 171, he submitted that the Hon’ble High Court in the said decision has held that where the assessee was already having its own surplus funds against which small investment was made, there is no question of making any disallowance of expenditure in respect of interest and administrative expenses u/s 14A of the IT Act.
6.2 The ld. Counsel for the assessee, referring to the decision of the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. (Delhi SB) and the decision of Hon’ble Delhi High Court in the case of ACB India Ltd. vs. ACIT, reported in 374 ITR 108, submitted that for computing the average value of investments, only those investments which had yielded dividend income during the year has to be considered.
6.3 He submitted that after considering all these decisions and considering the investments on which the assessee has received dividend income, the average investment comes to Rs.16,55,49,405/- and 0.5% of such investment comes to Rs.8,26,747/-. Which at best can be disallowed u/s 14A r.w. Rule 8D. He accordingly submitted that the computation made by the AO for disallowance u/s 14A r.w.r. 8D has to be modified if at all any addition/disallowance is called for.
The ld. DR, on the other hand, heavily relied on the order of the AO and the CIT(A).
We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has claimed exempt income of Rs.5,70,99,418/- and has shown investment of Rs.88.5 crores. We find, the AO rejecting the explanations given by the assessee that no expenditure has been incurred for earning the exempt income, computed the disallowance u/s 14A r.w.r 8D at Rs.40,35,192/- which he added to the total income of the assessee. We find, the ld.CIT(A) sustained the disallowance made by the AO, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that the computation made by the AO under Rule 8D(2)(ii) and 8D(2)(iii) are not correct especially when the assessee has not earned dividend income on all the shares. It is his submission that the assessee has received dividend income in respect of only six investments and the average investment comes to Rs.16,55,49,405/- and 0.5% of such investment comes to Rs.8,26,747/-. It is also his submission that the own capital and free reserves of the assessee company far exceeded the amount of investment shown by the assessee in the balance sheet. It has been held in various decisions that for the purpose of computing disallowance u/s 14A r.w.r. 8D, the investments which has yielded dividend income are only to be considered. Since it is the submission of the ld. Counsel that it has received dividend income only in respect of six investments, the average investment of which comes to Rs.16,55,49,405/-, therefore, we deem it proper to restore the issue to the file of the AO with a direction to recompute the disallowance u/s 14A r.w. Rule 8D by considering the investment which has actually yielded dividend income and exclude the investments on which the assessee has not received any dividend income in view of the decision of the Delhi Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd., 165 ITD 27 and the decision of the Hon’ble Delhi High Court in the case of ACB India Ltd. vs. ACIT, reported in 374 ITR 108. Needless to say, the AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.