INDIAMART INTERMESH LTD.,NEW DELHI vs. ADDL.CIT, RANGE-4, NEW DELHI

This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income Tax (Appeals)–35, New Delhi, dated 7.09.2017 for Assessment Year 2014-15 where the solitary issue is contested with respect to disallowance of expenditure relating to exempt income under Section 14A of the Income Tax Act, 1961 (the Act) of Rs.22,57,000/-.

Briefly stated the facts show that assessee is a company engaged in the business of e-market place. 3. It filed its return of income on 30.09.2014, which was revised on 2.03.2015 at a loss of Rs.6,50,78,083/-. 4. The case was selected for the scrutiny. During the course of assessment proceedings the Assessing Officer noted that assessee has earned exempt income amounting to Rs.1,52,37,029/-. The assessee has disallowed a sum of Rs.7,490/- under Section 14A of the Act.

In response to querry by ld AO, Assessee did not give any basis for arriving at this disallowance nor any explanation was furnished as to why disallowance under Section 14A of the Act should not be made according to Rule 8D.

The Assessing Officer noted that assessee has a huge investment made in the mutual fund, which results into exempt income. Accordingly, he applied the provisions of Rule 8D and disallowed Rs.89,546/-as indirect interest expenditure under Rule 8D(2)(ii) of Rs.89,546/- and administrative expenditure at the rate of 0.5% of the average value of investment under Rule 8D(2)(iii) of Rs.21,74,094/-. Accordingly total disallowance was worked out at Rs.2,64,490/-. Assessee has itself disallowed Rs.7,490/- and, therefore, net disallowance of Rs.22,57,000/- was made. 7. Accordingly, total income was assessed at Rs.6,20,60,130/-. Assessee preferred appeal before the ld. CIT (Appeals) who confirmed the disallowance and, therefore, the assessee has preferred the appeal. 8. We have heard the ld. AR, who has also submitted a synopsis of the case and ultimately agreed that for making the disallowance at administrative expenditure only the investments from which exempt income had been earned during the year deserves to be considered. He referred to page No. 12 of the order of the ld. CIT (Appeals) and stated that 0.5% of such investment is only Rs.2,89,754/-.For this proposition he relied upon the decision of the Hon’ble Delhi High Court in ACB India Ltd. [TS–176–HC– Delhi–2015]. With respect to the interest expenditure he submitted that the indirect interest expenditure considered by the ld. Assessing Officer is only for vehicle loans and, therefore, it is directly attributable to such vehicle and cannot be considered to be the indirect interest expenditure for earning exempt income u/r 8D (2)(ii). 9. The ld. DR supported the orders of the lower authorities. 10. We have carefully considered the rival contentions and perused the orders of the lower authorities. Undoubtedly the assessee has earned exempt income of Rs.1,52,37,029/- and has made suo moto disallowance of Rs.7,490/- under Section 14A of the Act. The interest expenditure is clearly with respect to the vehicle loan obtained by the assessee. For this proposition he referred to the balance sheet and submitted that only long term borrowings which are stated in Schedule No. 5 of the annual accounts clearly shows that these are vehicle loans. Therefore, it is apparent that such vehicle loan is not an indirect interest expenditure, which could be considered for making disallowance under Section 14A of the Act under Rule 8D(2)(ii). Further it is the mandate of the Hon’ble Delhi High Court that for the purpose of making disallowance under Rule 8D(2)(iii) the average value of investment should be considered only of those investments which yielded exempt income during the year. The Hon’ble Delhi High Court in ACB India Ltd. (supra) has held so. The disallowance, therefore, considering such investment is only Rs.2,89,754/-. This working has not been disputed by the Revenue and the ld. AR stated that it is the disallowance worked out in accordance with the decision of the Hon’ble Delhi High Court. Accordingly, we direct the ld. Assessing Officer to delete the indirect interest expenditure of Rs.89,546/- considered for disallowance with respect to the disallowance under Rule 8D(2)(iii). We direct the ld. Assessing Officer to restrict it to only Rs.2, 89,754/-. Consequently, the total disallowance under Section 14A read with Rule 8D should be only Rs.2,89,754/- out of which the assessee has already disallowed Rs.7,490/-. Therefore, the disallowance to the extent of Rs.2,82,264/- under Section 14A of the Act is confirmed. Accordingly, ground No. 2 of the appeal of the assessee is partly allowed.

Other grounds were neither pressed nor argued and, therefore, those are dismissed.

In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on : 13/09/2021.