AXIS CAPITAL LTD.,,MUMBAI-400025 vs. DY COMMISSIONER OF INCOME TAX -CIRCLE-3(1)(1), MUMBMAI-400020

The facts relating to the assessee are stated in brief. The assessee- company is engaged in the business of marketing of financial products of its holding company M/s. Axis Bank Ltd., marking of life insurance products, online share broking etc. During the year under consideration, the assessee filed its original return of income declaring net loss of Rs. 9.75 crores. The assessee was a party to a scheme of arrangement under the Companies Act, 1956 entered between the assessee company, M/s Enam Securities P Ltd and M/s Axis Bank Ltd. The Scheme of arrangement of was approved by 2 M/s. Axis Capital Ltd.

The issue under consideration relates to disallowance made under section 14A of the Act. The assessee had earned dividend income of Rs. 1.70 crores during the year under consideration and claimed the same as exempt under section 10 of the Act. In the revised return of income, the assessee disallowed a sum of Rs. 10,99,726 under section 14A of the Act, which consisted of interest disallowance of Rs. 1,53,367/- and expenditure disallowance of Rs. 9,46,359/-. Before the Assessing Officer the assessee furnished the details of computation relating to disallowance made by the assessee. It was also submitted that the dividend income consisted of dividend received from the companies amounting to Rs. 75,100/- and dividend received from the mutual funds amounting to Rs. 1,69,26,054/-. It was submitted that the dividend income has been received from the companies out of devolved shares on account of merger. The Assessing Officer took the view that the disallowance should be computed as per Rule 8D of the I.T. Rules. Accordingly he computed the disallowance at Rs.61,79,403/-, which consisted of interest disallowance of Rs. 9,12,921/- and expenditure disallowance of Rs. 52,66,482/-. After setting off of disallowance computed by the assessee, the Assessing Officer added the difference amount of Rs.50,79,677/- to the total income of the assessee. The learned CIT(A) also confirmed the same.

We have heard the parties and perused the record. From the order passed by the learned CIT(A), we noticed that the learned CIT(A) has confirmed the disallowance only on the reasoning that the disallowance computed by the Assessing Officer is less than the dividend income received by the assessee. In our view, the said view of Ld CIT(A) does not appear to be correct view. We notice that the Ld CIT(A) has referred to the decisions rendered in the cases of PCIT vs. State Bank of Patiala (2018)(99 taxmann.com 286)(SC) and PCIT vs. Caraf Builders & Constructions (P) Ltd (2019)(112 taxmann.com 322)(SC). The Ld CIT(A) has stated that, in the above said cases, it has been held that the disallowance u/s 14A cannot exceed dividend income. Accordingly, the Ld CIT(A) has taken the view that the disallowance can be restricted only if the dividend income is lesser than the amount of disallowance computed u/r 8D of I T Rules and conversely, if the dividend income is more than the disallowance, the same is required to be sustained. In our view, the Ld CIT(A) has misdirected himself.

We notice that the assessee has raised many contentions before learned CIT(A), but none of those contentions has been addressed by Ld CIT(A). In effect, the AO has not examined sufficiency or otherwise of the disallowance made by the assessee, the applicability of Rule 8D to the facts and circumstances of the case and various other contentions raised by the assessee. In effect, we are of the view that the Ld CIT(A) has not passed any reasoned order.

Accordingly, we are of the view that the learned CIT(A) should address all the contentions raised by the assessee with regard to the disallowance computed by the Assessing Officer. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to this file for examining the issue afresh in accordance with the law by duly addressing all the contentions raised by the assessee opposing the disallowance made by the Assessing Officer. After affording opportunity of adequate opportunity of 4 M/s. Axis Capital Ltd.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.