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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI AMARJIT SINGH
O R D E R
PER PAVAN KUMAR GADALE JM:
The revenue has filed the appeal against the order of the Commissioner of Income Tax (Appeals) – 54, Mumbai passed u/s 143(3) and 250. The revenue has raised the following revised grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of Rs.57,500/- against amounting to Rs.2,45,94,876/- u/s.14A read with Rule 8D, thereby holding that only those
Reynold Shirting Ltd., Mumbai. - 2 - investments which yielded dividend income are to be considered for computation of disallowance u/s.14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962"
2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance u/s. 14A to the extent of exempt income ignoring the Circular No.5/2014 dated 11.02.2014 which clarifies that even if exempt income has not been earned during the year, Section 14A r.w. Rule 8D provides for disallowance of expenditure on the investments capable of earning exempt income"
3 "The appellant Prays that the order of Commissioner of Income Tax (Appeal) on the above ground be set aside and the order of the Deputy Commissioner of Income Tax be restored.
"The appellant craves, leaves to amend or alter any grounds or add a new ground, which may be necessary"
The brief facts of the case are that the assessee company is engaged in the business of manufacturing and trading of textiles. The assessee has filed the return of income for the A.Y 2017-18 on 31.10.2017 disclosing a total income of Rs.2,13,41,030/-. Subsequently, the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act along with the questionnaire were issued. In compliance to the notice, the Ld. AR of the assessee
Reynold Shirting Ltd., Mumbai. - 3 - appeared from time to time and furnished the details and the case was discussed. The Assessing Officer ( A.O.) on perusal of the financial statements, found that the assessee has disclosed various non-current investments in his balance sheet and the assessee has earned the dividend income of Rs. 57,500/- and claimed exempt U/sec10(34) of the Act. The assessee was called to explain for non disallowance of any expenditure incurred for investments in the equity shares.
3. The assessee has filed the detailed submissions on 18.12.2019 referred at page 2 of the assessment order explaining the facts and relying on the judicial decisions and mentioned that the provisions of Sec. 14A of the Act r.w.r 8D are not applicable to the assessee. Whereas, the A.O was not satisfied with the explanations and observed that the disallowance u/s 14A r.w.r 8D are to be invoked irrespective of whether dividend is earned or not and computed disallowance u/s 14A r.w.r 8D(2)(iii) of the I T Rules which worked out to of Rs.2,45,94,876/- and assessed the total income of Rs.2,52,68,022/- and similarly the A.O. has made addition of disallowance in computing the book
Reynold Shirting Ltd., Mumbai. - 4 - profits and assessed Rs.5,09,92,866/- and passed the order u/s 143(3) of the Act dated 24.12.2019.
4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A).Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the scrutiny assessment. The CIT(A) relied on information filed in the course of hearing supporting the claim of the assessee in respect of disallowance u/s 14A r.w.r8D2 of the I T rules and supportive judicial decisions and directed the A.O. to restrict the disallowance u/s 14A of the Act to the extent of exempt income earned Rs. 57,500/- and also the A.O. was directed to exclude disallowance u/s 14A of the Act while computing book profits u/s 115JB of the Act and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the revenue has filed an appeal before the Hon’ble Tribunal.
5. At the time of hearing, the Ld. DR submitted that the CIT(A) has erred in granting relief to the assessee irrespective of the fact that the investments which yield dividend income are considered in computation
Reynold Shirting Ltd., Mumbai. - 5 - of disallowance u/s 14A of the Act and CIT(A) has erred in restricting the disallowance u/s 14A r.w.r8D2(iii) of the I T Rules to the extent of dividend income and supported the order of the Assessing Officer and prayed for allowing the appeal.
Contra, the Ld. AR submitted that the assessee has not incurred any expenditure and accepted disallowance u/s 14A r.w.r 8D2(iii) of the I T Rules restricted to Rs. 57,500/- and the decisions relied by the revenue are distinguishable on facts. The Ld. AR substantiated the submissions with the judicial decisions and factual paper book and relied on the order of the CIT(A) and prayed for dismissal of revenue appeal.
We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue as envisaged by the Ld. DR that the CIT(A) has erred in restricting the disallowance u/s 14A r.w.r 8D(2)(iii) to the extent of dividend income irrespective of the fact that the AO has made computation based on the average value of investments. Whereas,the
Reynold Shirting Ltd., Mumbai. - 6 - contentions of the Ld.DR are that the CIT(A) has not considered the facts with respect to transactions of dividend income and over looked the material dealt by the assessing officer. At this juncture, we consider it appropriate to refer to the findings of the CIT(A) on the disputed issue and granting relief dealt at Page 11 Para 6.3 of the order read as under:
6.3 The facts recorded and the finding of AO in the assessment order and the submission of the appellant is considered.
The appellant has submitted that it has not incurred any direct expenditure to earn the dividend income of Rs. 57,500/-. During the year the company has earned exempt income in the form of dividend only of Rs.57,500/-, therefore, the disallowance u/s 14A r.w.r 8D has to be restricted to the dividend earned during the year of Rs.57,500/-. For this the appellant has relied on the judicial precedents in the case of Bombay High Court in the case of HSBC Invest Direct India Ltd. (421 ITR 125), Delhi High Court in the case of Joint Investments P. Ltd. (372 ITR 295), Punjab & Haryana High Court in the case of Pr.CIT vs. Empire Package Pvt. Ltd. (286 CTR 457), the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (402 ITR 640).
It is also submitted that total Investments as at 31/3/2013 Rs.251,44,04,281/- (P.Y. Rs.252,44,04,281/-) and dividend was earned only on one investment i.e.
Reynold Shirting Ltd., Mumbai. - 7 -
Jankalyan Sahakari Bank Rs. 11,50,000/-. Therefore, no disallowance should be made on theThe grounds No. 4 is related to not granting TDS Credit amounting to Rs.3,77,109/ and TCS Credit amounting to Rs.29,74,213/
The third ground of appeal is against the short credit of TDS. The AO is directed to verify from records and give correct credit of TDS as per law. This ground of appeal is ALLOWED for statistical purposes.
The Ld.AR relied on the judicial decisions are as under: 1. PCIT Vs. State Bank of Patiala, [99 taxmann.com 286] (SC).
2. PCIT Vs. Ajit Ramakant Phatarpekar and Anr. [429 ITR 319], (BOM).
DCIT Vs. Macrotech Developers Ltd, ITA No. 2336/Mum/2019.
We find that the CIT(A) has considered the facts, circumstances and Judicial decisions and passed a reasoned and conclusive order in restricting the disallowance u/sec14A r.w.r8D2(iii) of the I T Rules. To the extent of exempt income. The Ld. DR could not controvert the observations of the CIT(A) with any new cogent material or evidence to take a different view. Accordingly, we do not find any infirmity in the order
Reynold Shirting Ltd., Mumbai. - 8 - of the CIT(A) and uphold the same and dismiss the ground of appeal of the revenue. 9. In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 08.08.2022.