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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI RAJPAL YADAV & SHRI PRADIPKUMAR KEDIA
आदेश/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee is in appeal before the Tribunal against order of ld.CIT(A)-5, Ahmedabad dated 14.7.2017 passed for the asstt.Year 2013-14.
2. The assessee has taken five grounds of appeal. However, its grievance revolves around a single issue viz. the ld.CIT(A) has erred in upholding addition of Rs.3,06,737/- which was added by 2 the AO under section 14A of the Income Tax Act 14A r.w. Rule 8D of the Income Tax Rules.
3. Brief facts of the case are that the assessee is an AOP engaged in the business of manufacturing of soft drink and fruit grain drink mix etc. under the brand name “Rasna”. It has filed its return of income on 29.9.2013 declaring total income at Rs.3,19,10,958/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, according to the AO, the assessee has shown dividend income of Rs.2,46,246/- which was claimed as exempt. The ld.AO thereafter invited explanation of the assessee to show the expenses which were relatable to earning of exempt income, and how those expenditure have been added back by the assessee while filing the return. The assessee has filed written submissions which has been reproduced by the AO, and thereafter he disallowed a sum of Rs.13,88,959/-. The discussion made by the AO reads as under: “5.3 I have duly considered the above reply of the assessee. The main emphasis of the assessee is on the fact that he has invested surplus fund and no borrowed fund was utilized for the investment. Here it will be better to refer to the balance sheet of the assessee which shows that the assessee has total funds of Rs.6,48,82,007/- as on 31.03.2013 which is its own capital. Further, total investment as on 31.03.2013 has been shown at Rs.8,01,09,664/- against an amount of Rs.4,25,85,391 /-. The two figures i.e. the funds available with the assessee and the investment made themselves speaks volumes about the availability of surplus funds with the assessee as the amount of investment made for earning exempt income itself exceeds the amount of total fund available with the assessee by an amount of Rs. 1,52,27,657/-, In light of this fact, the case laws relied upon by the assessee do not in any manner help him. Apart from 3 above, the assessee has also paid interest amounting to Rs. 13,88,023/- during the year under consideration. Further- more, from the details submitted by the assessee it is found that fresh investment of Rs. 3,75,24,273/- has been made by the assessee during the. year under consideration itself. The volume of the above investment also indicate that certain administrative expenses must have been involved therein. In light of these facts, the reply of the assessee cannot be accepted. Disallowance of expenses attributable to exempt income has been considered in view of followingcase laws:
(i) Dhanuka Sons vs. C1T339ITR 0319 Calcutta (2011), wherein the Hon'ble High Court held that disallowance of in expenditure in relating to exempt income u/s 10(34) is justified u/s 14A. (ii) CIT vs. Smt Leena Ramchandran 339 ITR 0296 (2011), wherein Hon'ble Kerala High Court held that expenditure in relation to income not forming part of total income is justifiably disallowed. (iii) Punjab State Cooperation Federation Ltd. vs. CIT 336 ITR 0495 (2011), in this case Hon'ble Punjab and Haryana High Court held that expense incurred by the assesses for earning income which does not form part of total income under the Act shall not be allowable expenditure.
Disallowance required to be made u/s 14A read with Rule 8D is also examined in view of following case laws: CIT vs. Popular Vehicle Service Ltd. 325 ITR 0523 (2010 Kerala) Pradeep Kar vs. Asstt. Commissioner of Income Tax 319 ITR 0416 (2009) Karnataka.
5.4 Provisions of Rule 8D specifically make a mention, in respect of formula given for computing indirect expenses attributable to income claimed as exempt under section 14A of the Act. Therefore, following the provisions laid down, a disallowance on account of expenses is computed in the following manner:
4 Particulars Amount Amount 1 . Direct expenses - -
Proportionate interest 1388023 1074222 cost(A*B/C A. Interest expenses 42585391 B. Average value of investment 80109664 Opening balance Closing balance 122695055 Total Average Investment 61347528 C. Average assets in balance 93654580 sheet Opening assets Closing 64882007 assets Total 158536587 Average Assets 79268294
0.5% of average investments 306737 Total 1380959
Dissatisfied with the disallowance, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) has scaled down this disallowance to Rs.3,06,737/- on the ground that 0.5% of average investment with regard to administrative expenses is required to be made. The ld.counsel for the assessee while impugning the order of the ld.revenue authorities took us through bifurcation of alleged dividend of mutual fund which reads as under: Dividend on Mutual Fund:
1. 1. Dividend on SBI SDFS: 2,03,248 2. Dividend on SBI Short Horizon 24,011 Fund Ultra Short Term Fund: 3. Dividend on Tata Flater Fund 8,629 Daily Div.
4. Dividend on Reliance Money 10,358 Manager Fund-Daily Div. Total 2,46,246/-
He thereafter made reference to page no.39 of the paper book where details of investment in Schedule-B are being placed on record. He pointed out that the investment in FMP Debt Mutual Funds where it does not require much administrative look-after. According to the ld.counsel for the assessee in the past no disallowance was made nor in the subsequent year. On the other hand, the ld.DR relied upon the order of the ld.CIT(A).
We have duly considered rival submissions and gone through the record carefully. A perusal of the order of the ld.CIT(A) would reveal that the assessee has net interest income. It has shown interest income of Rs.58,38,817/-therefore interest is not required to be computed for making disallowance. For buttressing our view point, we rely upon judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Nirma Capital & Credit P.Ltd., 85 taxmann.com 72 = Tax Appeal No.409 and 409 and 514 of 2017. As far as administrative expenses are concerned, it is pertinent to observe that sub-section (2) of section 14A contemplates that the AO has to record a finding as to how accounting entries maintained by the assessee showing interest expenditure are not acceptable. He has to record his satisfaction before applying computation under Rule 8D. The assessee has demonstrated that it has not incurred any expenditure for making investment in mutual fund. These are old investments though certain changes are there, but for that purpose it is not required to incur expenditure as computed by the AO.
6 7. The ld.AR during the course of hearing also pointed out that if the calculation is being made on the basis of 0.5% of average value of the investment, which has yielded dividend, then total expenditure could be worked at Rs.548/- only. Therefore, considering the details submitted by the assessee as well as the fact that on similar investment no expenditure was disallowed in earlier years or in the subsequent year, we are of the view that no disallowance is required under section 14A in the present year also. This ground of appeal is allowed.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 3rd July, 2019.