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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
dated 17.02.2017 which is arising out of the order u/s 143(3) r.w.s. 263 of the Income Tax Act 1961(In short the ‘Act’) dated 20.03.2014 framed by ACIT-2(1), Ujjain.
Trapti Trading & Investment Pvt. Ltd
Revenue has raised following grounds of appeal;
1. Whether on the facts and in the circumstances of the case, Ld.CIT(A) erred in deleting the addition of Rs. 2,23,40,745/- on account of disallowance ix]« 14A of the IT Act read with Rule 8D, ignoring the fact that correctness of claim of disallowance in return of income was not proved by the assessee.
2. Whether on the facts and in the circumstances of the case, Ld,CIT(A) has erred in deleting the addition of Rs.2,23,40, 745/ - on account of disallowance si]« 14A of the IT Act read with Rule 8D, ignoring the fact that assessee failed to prove direct nexus between interest expenditure with taxable income and non- taxable income. The Matter is covered under the exception as mentioned in para 8© of circular 2112015.
Briefly stated facts as culled out from the records are that the assessee is a private limited company engaged in business of finance as a Non banking financial company. Income of Rs.7259/- declared in the return of income submitted on 30.09.2008 for Assessment Year 2008-09.
Assessment u/s 143(3) r.w.s. 263 of the Act was completed on 14.12.2010 at income of Rs. 2,80,495/-. Subsequently the order u/s 263 of the Act was passed by Ld. CIT, Ujjain on 28.3.2013 setting aside the assessment order dated 14.12.2010 and directing the Assessing Officer to examine the issue and reframe the assessment in the light of the observation made in the order u/s 263 of the Act. In pursuance to same 2 Trapti Trading & Investment Pvt. Ltd Ld. A.O initiated the assessment proceedings u/s 143(3) r.w.s. 263 of the Act. The only issue for examination was disallowance u/s 14A of the Act.
It was submitted by the assessee that net interest paid has already been disallowed in the computation of income and only a sum of Rs.9,97,017/- has been claimed as administrative and other expenses for running of the business. Ld. A.O however after considering the submissions of the assessee did not find merit therein and computed disallowance u/s 14A at Rs.2,23,40,745/- and assessed the income at Rs.2,23,48,004/-.
Aggrieved assessee preferred appeal before Ld. CIT(A) and succeed in getting relief as the disallowance u/s 14A of the Act of Rs.2,23,40,745/- was deleted by Ld. CIT(A).
Now revenue is in appeal before the Tribunal.
At the outset Ld. Counsel for the assessee submitted that the issue raised in this appeal is squarely covered by the decision of the Co- ordinate Bench in the case of M/s. Turquoise Investment & Finance Pvt. Ltd vide & 333/Ind/2017 order dated 06.02.2019 wherein the case of one of the group concern has been dealt and the Hon’ble Tribunal has sustained the disallowance only towards administrative expenses at Rs. 7,50,000/-. 3 Trapti Trading & Investment Pvt. Ltd
Ld. Departmental Representative supported the orders of Ld. A.O but could not controvert the fact that the issue is squarely covered by the decision of the Co-ordinate Bench in the case of M/s. Turquoise Investment & Finance Pvt. Ltd (supra).
We have heard rival contentions and perused the records placed before us. The revenue’s sole grievance is against the finding of Ld. CIT(A) deleting the disallowance u/s 14A of the Act at Rs.2,23,40,745/- made by the Ld. A.O by applying rule 8D of I.T. rules r.w.r.t. Section 14A of the Act. We find that Ld. CIT(A) deleted the impugned disallowance of Rs.2,23,40,745/- u/s 14A of the Act observing as follows;
“Ground No.1, 2, 3, 4 & 5:-Through these grounds of appeal the appellant has challenged the addition of Rs.2,23,40,745/-on account of disallowance u/s 14A of the LT. Act. The AO made the addition of Rs.2,23,40,745/- u/s 14A of the I.T. Act r.w.r. 8D. The appellant Company is a NBFC registered with RBI and engaged in the activities of granting of Inter corporate loans and investment in shares/securities so for the purpose of carrying on financing and investments activities, the Appellant had borrowed funds from time to time and deployed the same for granting loans as well as in purchases of investments. During the year under consideration, the Appellant had incurred interest expenditure and Finance Charges aggregating to Rs.13,90,34,745/-. At the same time, the Appellant Company has earned interest income of Rs.3,72,56,740/- on Inter Corporate loans including income tax refund granted. The Appellant has received Rs.15,78,172/- as dividend on long term investments which is exempt u/s. 10(34) of the Act and it did not form part of total Trapti Trading & Investment Pvt. Ltd income. The appellant himself made the disallowance u/s 14A amounting to Rs.l 0, 17,78,678/- as under:-
A.= Gross interest and finance charges = Rs.13,90,34,745/-
B= Interest income on inter-corporate loans granted= Rs.3,72,56,740/-
The disallowance on account of interest charges equal to A - B= Rs.10,17,78.005/-
The appellant has also considered the demat charges expenses at Rs.673/-. Thereby making the total disallowance of Rs.l0,17,78,678/(Rs.1 0, 17,78,005/- + Rs.673/-). The above action of the appellant of making disallowance of net interest has been upheld by following judicial authorities:-
> Morgan Stanley India Securities Private Limited Vs ACIT, Circle 1 (2), Mumbai NO. 5072/ Mu m/ 2005 dated 13.04.2011)(ASSESSMENT YEAR [ITA 2004-05)
> DCIT Vs Trade Apartment Ltd. ITAT, Kolkata [ITANO.1277/Kol/2011dated 0.03.2012 (ASSESSMENT YEAR 2008-09)
> ACIT Vs KESHA V SHARES & STOCKS LTD, ITAT, Delhi [ITA NO. 4394/ Del/2011 dated 26.04.2013 (ASSESSMENT YEAR 2008-09)
> ITO Vs KARNAVATI PERTOCHEM PRIVATE LIMITED, ITAT, Ahmedabad [ITA NO. 2228/ Ahd/2012 dated 05.07.2013 (ASSESSMENT YEAR 2008-09)
» SAFAL REALITY PVT LTD. Vs ACIT, ITAT, Ahmedabad [ITA NO. 2334 & 1842/Ahdl/2012 dated 29.11.2013 (ASSESSMENT YEAR 2009-10 & 2010- 11)
In the case of M/s. Turquoise Investment & Pvt. Ltd. the AO while completing the assessment pertaining to the assessment year 2004-05, the AO made the disallowance of net interest as adopted by the appellant. The CIT(A), Ujjain while 5 Trapti Trading & Investment Pvt. Ltd M/s Turquoise Investment & Finance Pvt. Ltd. pertaining to the assessment year 2004-05 upheld this method while deciding the appeal no. U-734/ 2006-07, dated 20-03-2007. The same has also been upheld by Hon’ble ITAT while deciding the appeal of the appellant vide dated 25.06.2013.
In the case of Sister concern M/s Turquoise Investment & Finance Pvt. Ltd
Assessment Year 2001-02
In this year. the CIT(A), Ujjain vide order dated 16.05.2008 in appeal No.733/06-07 sustained the addition of interest u/s 14A on net interest basis. (Para 2.2, Page 10 & 11).
Assessment Year 2002-03
In this year, the CIT(A), Ujjain vide order u/s 250 dated 27.08.2009 and u IS 154 dated 10.02.2009 in appeal No. U-555/07 -08 made the disallowance of interest u./s 14A on a net basis i.e interest paid (-) interest received. (Para 5.3 & 5.4, Page 13 & 14)
Assessment Year 2005-06
In this year, the CIT(A), Ujjain vide order dated 22.03.2010 in appeal No.U-398/08-09 made the disallowance of interest u/s 14A on a net basis i.e interest paid (-) interest received. (Para :.3. Page 3).
In view of the above, the AO is not justified in applying Rule 8D and rejecting the claim of the Appellant without showing non-satisfaction is not as per the law and therefore, the action of the AO in applying Rule 8D is to be trated as justifiable and the disallowance u/s 14A is to be restricted to Rs. l0,17,78,678/- as made by the appellant while filing the return of income. Therefore, the addition made by the AO amounting to Rs.2,23,40,745/- is deleted. Therefore, the appeal on these grounds is allowed”.
Trapti Trading & Investment Pvt. Ltd
From perusal of the above finding as well as considering the facts of the instant appeal we observe that the similar issue came up before us in one of the group concern of the assessee M/s. Turquoise Investment & Finance Pvt. Ltd in ITANo.332 & 333/Ind/2017 order dated 06.02.2019.
The Co-ordinate Bench while adjudicating the similar issue in the case of M/s. Turquoise Investment & Finance Pvt. Ltd (supra) observed as follows;
”14. Now coming to the issue of disallowance of administrative expenses we find that while framing the assessment u/s 143(3) of the Act. Ld. AO made disallowance for administrative expenses @ 0.5% of the average investment calculating at Rs.4,01,69,821/-. Subsequently, assessee filed an application u/s 154 of the Act on 10.03.2014 which was disposed of by assessing officer vide order dated 25.03.2014 u/s 154 of the Act thereby recertifying the order and amending the amount of disallowance for administrative expenses under Rule 8D(2)(iii) of IT, Rules at Rs.10,42,786/-. This disallowance of Rs.10,42,786/- has been deleted by the Ld. CIT(A).We, however, taking consistent view as taken for A.Y. 2008-09 observe that for A.Y. 2011-12 against the administrative expenses of Rs.8,51,156/-, assessee has contended that disallowance if any to be made for administrative expenses should be restricted to Rs.7,22,648/-. We find that for A.Y. 2008-09 average investments fetching exempt income stood at Rs.421.98 cr. which has grown to Rs.803.40 cr. for A.Y. 2011-112. We, therefore, being fair to both the parties and taking consistent approach, are of the view that disallowance of Rs.7,50,000/- shall be justified towards the disallowance of administrative expenses which may have been incurred for administrating the investments fetching exempt income. We accordingly order so and direct the 7 Trapti Trading & Investment Pvt. Ltd 14A of the Act at Rs.7,50,000/- under Rule 8D(2)(iii) of the IT, Rules. 15. In the result, against total disallowance of Rs.65,73,689/- made by the Ld. AO u/s 14A of the Act, we sustained the disallowance at Rs.7,50,000/- and partly allow the revenue’s appeal”.
As the issues and facts before us are squarely covered by our own decision referred above in the case of M/s. Turquoise Investment & Finance Pvt. Ltd in & 333/Ind/2017 order dated 06.02.2019, on examination of facts we find that in the instant appeal the net interest expenses of Rs. 10,17,78,005/- (interest paid at Rs.13,90,34,745/- less interest income of Rs.3,72,56,740/-) has already been disallowed by the assessee suomoto while computing the total income. Therefore no disallowance u/s 14A was called for, for the interest expenditure and the Ld. CIT(A) has rightly deleted the disallowance u/s 14A of the Act computed for the interest expenditure. However as regards the administrative expenses, only an amount of Rs.9,97,017/- has been claimed as expenses during the year as the remaining amount of expenditure debited to Profit & Loss Account has already been added back to the income by the assessee while computing the total income.
Therefore against the expenses of Rs.9,97,017/- claimed by the assessee we apply the decision of group concern in the case of M/s. Turquoise 8 Trapti Trading & Investment Pvt. Ltd Investment & Finance Pvt. Ltd (supra) sustaining the disallowance of Rs.7,50,000/- towards the expenses claimed by the assessee which may have been incurred directly or indirectly for maintaining the investments fetching tax free income. We accordingly partly allow the revenue’s appeal and sustain the disallowance u/s 14A of the Act at Rs.7,50,000/-.
In the result appeal of the revenue is partly allowed.
The order pronounced in the open Court on 29.04.2019.