M/S.THE MALAYALA MANORAMA CO. LTD,KOTTAYAM vs. THE DCIT, KOTTAYAM

Per CHANDRA POOJARI, AM:

This appeal filed by the assessee is directed against the order of the CIT(A),

Kottayam dated 01/10/2018 and pertain to the assessment year 2010-11.

I.T.A. No.564/Coch/2018 expenditure was incurred for earning exempt income as contemplated in sub section (2) of section 14A.

“At the time of hearing, it was observed by the Hon. Bench that ground No. 4 was not before the Commissioner of Income-tax(Appeals) and accordingly, was directed to be conceded as not pressed. In obedience to the direction from the Hon. Bench it was accordingly submitted.

However, the said ground is one arising from the assessment order and since it has a legal implication, by virtue of the judgment of the Hon.

I.T.A. No.564/Coch/2018 Supreme Court in the case of National Thermal Co. Ltd. vs. CIT (229 ITR 383), it is submitted that the said ground is admissible.

Accordingly it is respectfully submitted that ground No. 4 noted as not pressed, may be revived and considered for adjudication.

3.1 The additional ground of appeal reads as follows:

“The Ld. Commissioner of Income Tax(Appeals) ought to have found tat the Assessing Officer had himself entered into a categoric finding that the borrowed funds were not used for the purpose of investment and as such there is no expenditure in the form of interest incurred for earning exempt income.”

3.2 We have heard the rival submissions and perused the record. We find

bona fide reasons in the act of the assessee in not raising the additional ground on

an earlier occasion. We place reliance on the judgment of the Supreme Court in

the case of National Thermal Power Corporation Ltd. vs. CIT (229 ITR 383)

wherein it was held that Tribunal has the discretion to allow or not to allow

additional ground to be raised for the first time before the Tribunal. Accordingly,

we admit the additional ground for adjudication.

assessment proceedings, the Assessing Officer observed that the assessee had

received during FY 2009-10 dividend income of Rs.10,49,358/- and at the same

time made interest payment of Rs.10,03,98,769/- on the borrowed funds. The

assessee had disallowed 2% of the dividend income as expenditure attributable to

earning dividend income. The Assessing Officer rejected the said method adopted

by the assessee and computed the disallowance u/s. 14A of the Act by applying

I.T.A. No.564/Coch/2018 Rule 8D of I.T. Rules, 1962. The total disallowance made by the Assessing Officer

u/s. 14A of the Act was Rs.1,23,89,765/-.

4.1 Before the CIT(A) , the Ld. AR submitted that there was no fresh investment

during the F.Y. 2009-10. Further, it was submitted that substantial investment

was made in the subsidiaries of the assessee and the said investments were made

only on account of commercial expediency. It was submitted that the assessee

had substantial reserves and surplus many times over the value of investments

and there can be no case as assumed by the authorities that any loan was utilized

for investment.

4.2 The CIT(A) rejected the argument of the assessee that investments in

subsidiaries would amount to commercial expediency. According to the CIT(A),

the commercial expediency flows from the business relationship and the assessee

had to show how the said investment protected or improved the business of the

assessee. The CIT(A) observed that the assessee had paid interest on borrowed

funds and the assessee had earned exempt income during the F.Y. 2010-11.

Therefore, the CIT(A) held that disallowance had to be made. However, regarding

the question whether the said allowance can be more than the exempt income

earned, the CIT(A) relied on the order of the CIT(A), Trivandrum dated

15/12/2017 wherein it was held as under:

“2.5 by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that much more than the exempted income earned against 4

I.T.A. No.564/Coch/2018 which the expenditure is to be disallowed. Disallowance u/s. 14A therefore, cannot exceed the exempted income earned. Reliance is placed here to the decision of Hon’ble Mumbai Bench of the ITAT in the case of Nimbus Communications Ltd. vs. ACIT reported in 47 ITR (Trib.) 496 wherein it was held that disallowance could not be made u/s. 14A more than the exempted income. As a result, if any disallowance could be made that can be restricted only to the dividend income earned of Rs.55,80,741/- but not to Rs.88,68,993/- disallowed by the Assessing Officer by invoking the provisions of section 14A of the Act. In view of this, the disallowance is hereby restricted to Rs.55,80,741/- to the extent the exempted income was earned and thereby, the balance amount of Rs.32,88,252/- is hereby deleted. As a result the appeal is partly allowed.”

4.3 Following the decision in the case of Muthoot Bankers, the CIT(A) held that

the interest disallowance should be limited to the amount of exempt income

earned by the assessee i.e., Rs.10,49,358/- and the balance disallowance of

Rs.1,13,40,407/- was deleted.

raised for the first time before the Tribunal and it was not raised before the lower

authorities. As seen from the order of the CIT(A), the CIT(A) has not considered

the ground with regard to recording of satisfaction before invoking the provisions

of Rule 8D r.w.s. 14A of the Act. This being a legal ground and which goes to the

root of the issue, in the interest of justice, we remit Ground No. 4 of this appeal to

the file of the CIT(A) for fresh consideration.

5.1 Since we have remitted this ground of appeal raised by the assessee to the

file of the CIT(A), we refrain from going into other grounds of appeal including the

I.T.A. No.564/Coch/2018 additional ground of appeal raised by the assessee at this stage. Thus, this

ground of appeal of the assessee is partly allowed for statistical purposes.

purposes. Order pronounced in the open Court on this 1st August, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 1st August, 2019 GJ Copy to: 1. M/s. The Malayala Manorama Co. Ltd., Manorama Building, K.K. Road, Kottayam-686 001. 2. The Assistant Commissioner of Income-tax, Circle-1, Kottayam. 3. The Commissioner of Income-tax(Appeals), Kottayam. 4. The Pr. Commissioner of Income-tax, Kottayam. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin

I.T.A. No.564/Coch/2018