M/S RELIGARE FINVEST LTD.,NEW DELHI vs. DCIT, NEW DELHI

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ITA 5266/DEL/2016Status: DisposedITAT Delhi10 February 2022AY 2011-1214 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the appeal, directing the AO to delete the disallowance made under Section 14A, finding parity with a previous decision. It also directed the deletion of the addition on account of SAR expenses, following a coordinate bench's ruling.

What were the facts?

The assessee claimed dividend income as exempt and suo motu disallowed a portion under Section 14A. The AO, however, computed a higher disallowance under Rule 8D. The assessee also claimed a deduction for SAR expenses written back.

What were the issues?

Whether the disallowance under Section 14A was correctly computed by the AO, and whether SAR expenses written back are deductible.

Which sections of the Income-tax Act were involved?

Section 14A,Section 10(34),Section 10(35)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI

Before: SH. N. K. BILLAIYA & SH. AMIT SHUKLA

For Appellant: Ms. Somya Jain, CA
Hearing: 10/02/2022Pronounced: 10/02/2022

This appeal filed by the assessee is preferred against the order of the CIT(A)-7, New Delhi dated 20.07.2016 for A.Y. 2011- 12. 2. The first grievance of the assessee relates to the disallowance made u/s.14A of the Act.

3.

Briefly stated the facts of the case are that during the year under consideration the assessee earned dividend income of Rs.84942157/- which was claimed as exempt u/s. 10 (34) / 10 (35) of the Act. In the revised return of income the assessee suo- moto disallowed Rs. 4286933/- u/s. 14A of the Act.

4.

During the course of the scrutiny assessment proceedings the AO asked the assessee why disallowance should not be made u/s. 14A read with rule 8D. The assessee explained that it has suo-moto disallowed Rs.42,86,933/- and, therefore, no further disallowances need to be made. The AO was not convinced with the reply of the assessee and proceeded by computing the disallowance in accordance with rule 8D. The relevant findings of the AO read as under :-

2.3. Detailed working for calculation of disallowance U/s 14A of the Act' and in accordance with Rule 8D of the Income tax rules, 1962 Particulars Rs. 31.03.2010 Rs. Rs. Average 31.03.2011 6417953705 Interest and finance charges Investments 365716571 1349056730 857386651 Total Assets 60,58,50,35,555/- 110384992608 85485014082 2.4. Therefore the revised computation of the expense related to exempt income is as follows - 1) Interest directly attributable to investments made for earning exempt income is Rs. Nil - Rule 8D (i). 2) Interest indirectly attributable to investments made for earning exempt income is Rs.641,79,53,705/- Rule 8D (ii). Therefore disallowance under rule 8D (ii) has been calculated as follows - Interest Cost divided by Average Total Assets multiply by Average Investments- [Rs.641,79,53,705/- divided by Rs.85,48,50,14,082/- multiply by Rs.85,73,86,651/-] = Rs.6,43,69,970/- 3) Disallowance under Rule 8D(iii) has been calculated as follows - 0.5% of Average Investments [(0.50% of Rs.85,73,86,651/- equal to Rs.42,86,933/- on account of administrative and other expenses indirectly attributable to any exempt income or receipt. 2.5. Therefore total disallowance U/s 14A of the Income Tax Act, 1961 r.w. Rule 8D of the I. T. Rules, 1962 is Rs.6,86,56,904/- (Rs.6,43,69,970/y plus Rs.42,86,933/-)

2.6 Assessee Company has added back Rs.42,86,933/- suo moto disallowed in COJ in revised computation income. Therefore the balance amount of Rs.6,43,69,971/- (Rs.6,86,56,904/- less Rs.42,86,933/-)is made and added to the total income of the assessee company.

5.

Assessee carried the matter before the CIT(A) but without any success.

6.

Before us the counsel for the assessee stated that dividend was received only from investment held in shares of Karnataka Bank Limited and, therefore, only those investments which actually yielded tax exempt income during the year have to be taken into consideration. Strong reliance was placed upon the decision of the Hon’ble Jurisdictional High Court of Delhi in the case of ACB India 374 ITR 108.

7.

The Counsel further stated that in so far as investment in the shares of Karnataka Bank Limited is concerned the same was invested in A.Y.2007-08. It is the say of the Counsel that on identical set of facts this Tribunal in A.Y.2010-11 has deleted the disallowances made u/s. 14A of the Act.

8.

Per contra the DR strongly placed reliance on the findings of the lower authorities.

9.

We have carefully perused the orders of the authorities below. We find force in the contention of the counsel. This Tribunal in A.Y.2010-11 in order dated 10.12.2021 has considered a similar disallowance. The relevant findings of the coordinate Bench read as under :-

10.

Finding parity of facts, respectfully following the findings of the coordinate Bench we direct the AO delete the addition of Rs.6,43,69,971/-. Ground No.2 to 2.6 are allowed.

11.

The second grievance relates to the disallowance of SAR expenses.

12.

The underlying facts of this issue are that the holding company of Religare Finvest Limited introduced the Religare Enterprises Ltd. Employees Stock Appreciation Rights Scheme 2007 (the Scheme) to motivate, reward and retain key employees including employees of the subsidiaries of REL.

13.

As per the said scheme stock appreciation rights (SARs) are contractual rights that entitled it to receive the appreciation from a corresponding number of company shares after the grant date. During the year under consideration on closer of the scheme assessee company claimed residuary amount of Rs.11,89,114/- written back in the books.

14.

The AO was not convinced with the claim and disallowed the deduction on account of excess of SAR expenses written back in the current year and made the addition and further added advances written off Rs.3,40,868/-.

15.

The assessee carried the matter before the CIT(A) but without any success.

16.

Before us the Counsel for the assessee drew our attention to the decision of the Coordinate Bench in 2364/Del/2018 for A.Y. 2007-08 and ITA No.6474/Del/2016 and 5872/Del/2016 for A.Y. 2009-10 order dated 24.08.2020 and pointed out that a similar issue was considered by the Tribunal and has decided the issue in favour of the assessee.

17.

The DR fairly conceded to this. We have carefully perused the orders of the authorities below and have considered the decision of the coordinate Bench (supra). We find force in the contention of the counsel. This issue was considered by the Tribunal in ITA No.6474/Del/2016. Similar facts were considered by the Tribunal at para-9 of its order and gave the following findings :-

18.

Respectfully following the decision of the coordinate Bench we direct the AO to delete the addition of Rs.15,29,982/-. Ground No. 3 and 4 are allowed.

19.

In the result, the appeal filed by the assessee is allowed. 20. The order is pronounced in the open court on 10.02.2022 in the presence of both the rival representatives.

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