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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI PRASHANT MAHARISHI & SHRI K.N.CHARY
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the cross appeals filed by the assessee as well as the ld AO for assessment year 2009-10 against order of the CIT(A)-6, Delhi dated 27/02/2015. 2. In the revenue has raised following grounds:- “
1. Whether on the facts and circumstances of the case and in law the ld CIT(A) erred in restricting the disallowance u/s 14A read with Rule 8D of the Act to Rs. 13,20,000/- by ruling that the assessee has not utilized borrowed funds for making investments in securities.
2. That the order of the ld CIT(A) is erroneous and is not tenable on facts and in law.”
In assessee has raised the following grounds of appeal :- “1. That the order dated 27/02/2015 passed by Learned CIT(A)-6, New Delhi u/s 250/143(3) of the Act is bad in law and wrong on facts.
2. That on facts, in the circumstances of the case and in law, the Learned C1T(A) erred in upholding disallowance of Rs. 13,20,000/- u/s 14A read with Rule 8D(2)(iii) worked out @ 0.5% of average value of investments in UT1 Bonds yielding tax free income.
3. That on facts, in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the disallowance of Rs.9,99,158/- incurred towards Corporate Social Responsibility admissible as business expenditure.
4. That on facts, in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the disallowance of Rs.6,00,000/- claimed u/s 35 AC incurred towards CSR claimed as business expenditure. 4.1 Without prejudice the deduction u/s 80G was also not allowed purported in the absence of receipt evidencing the payment ignoring the fact the payment was made through account payee cheque.
5. That on facts, in the circumstances of the case and in law, the Learned CIT(A) erred in Chairman and Managing Director ignoring the fact that the claim for TDS of Rs.3,65,51,193/- made in the return of income was based upon, amongst others, the TDS certificates filed before AO and AO should have also been directed to consider those TDS certificates in view of Delhi High Court judgment 352 ITR 273.”
The brief fact of the case shows that the assessee is a government of India public sector enterprises functioning under Ministry of Commerce. It is a trading organization involved in import and export of various bulk commodities such as metals/ minerals, non-ferrous metals, fertilizers, agro products etc. It is also involved in import of gold and silver under OGL and manufacturing of gold and silver items.
It filed its return of income on 25/09/2009 declaring total income of Rs. 2377377871/- which was subsequently revised on 29/03.2011 for Rs. 2375350630/-. Assessment under section 143(3) read with section 92CA of the Act was made on 20.03.2013 made by the ld Additional CIT, Range-5, New Delhi (the learned AO) wherein following additions were made determining total income of the assessee of Rs. 2,55,09,50,210/- against the return income of Rs. 2375350630/-. a. Disallowances u/s 14A of Rs. 1745 lacs b. Disallowances u/s 80G of Rs. 4,99,579/-. Page | 2 c. Disallowances of Rs. 6 lakh u/s 35AC.
The assessee aggrieved with assessment order preferred an appeal before the CIT(A). The learned CIT(A) as per order dated 27/02/2015 restricted the disallowances under section 14A of the Act from Rs. 1745 lakhs to Rs. 13,20,000/-. He deleted the disallowance of interest expenditure under section 14A applying Rule 8D but confirmed the disallowance under Rule 8D(2)(iii) of Rs. 13,20,000/-with respect to administrative expenditure. The disallowances of Rs. 4,99,579/- u/s 80G on donation of Rs. 9,99,158/- was confirmed holding that the above expenditure is neither allowable u/s 35AC nor u/s 80G of the Act. With respect to the disallowances of Rs. 6 lakhs u/s 35AC of the Act paid to the Himalayan School Society, he held that assessee failed to furnish the copy of the CA certificate u/s 35AC (2)(b) and therefore the above disallowances was confirmed. Before ld CIT (A), the assessee also raised a ground that the AO has not given the credit of TDS in full to the extent of Rs. 36551193/- as claimed by the assessee in the revised return of income. The ld AO restricted the credit of TDS to Rs. 17664053/-. The learned CIT – A directed the LD AO to verify the claim of the TDS made by the assessee and allow TDS credit as demonstrated in 26AS. Thus, AO and the assessee both our aggrieved and hence they have filed these cross appeals.
We first take up the appeal of the learned assessing officer where the solitary issue is with respect to the deletion of the disallowance u/s 14 A of the act of interest expenditure. The learned assessing officer worked out the disallowance u/s 14 A of the act of Rs 1 74 7 lakhs whereas the learned and CIT – A confirmed the disallowance only to the extent of Rs 1,320,000. Therefore, the AO is in appeal before us.
During the year, assessee has earned exempt income of Rs. 5940911/-as interest on tax-free bonds of Unit Trust of India. The assessee in the return of income has suo moto disallowed ₹ 2 lakhs u/s 14 A of the act. The AO questioned why disallowances should not be made u/s 14A of the Act. The assessee submitted that it has not incurred any expenditure in relation to above-mentioned exempt income. The assessee submitted that it has huge interest free fund available to make investment in the above bonds. It was further stated that the investment were made in past years i.e. Financial Year 2002-03 and therefore there is no interest expenditure incurred by the assessee as the total investment is out of interest free funds available with assessee. Assessee also explained that the above facts by showing the availability of interest free funds. The assessee also stated that the dividend warrants are directly credited to the assessee’s bank account, which hardly required any manpower. There are no other expenditure involved in earning those exempt income. Therefore, no disallowance should be made u/s 14 A of the act. Before the assessing officer, the assessee relied on the earlier appellate orders in its own case. After considering the detailed reply of the assessee wherein the assessee relied on the appellate order for assessment year 2001 –02 and also for assessment year 2003–04, The ld AO noted 5 different reasons in assessment order and thereafter rejecting the contention of the assessee held that disallowances u/s 14A read with Rule 8D in assesses case is established. He worked out such disallowances at Rs. 1747 lacs. The assessee itself has made disallowances of Rs. 2 lakhs and therefore a balance of Rs. 1745 lakhs disallowed u/s 14A of the act. On appeal before the learned CIT (A), he held that there cannot be any disallowances on account of interest expenditure as on the perusal of the balance sheet he noted that assessee has sufficient interest free funds in the form of share capital and reserves and surplus amounting to Rs. 1123.38 crores against the investment made by the assessee only of Rs. 240.11 crore. He further noted that the assessee has shown net interest income of Rs. 116.53 crores after setting off interest expenditure. He therefore held that in view of excess interest free fund available and net interest income no disallowance of interest is required u/s 14A of the Act. However, he noted that no basis of suo motto disallowances of Rs. 2 lakhs is furnished by the assessee and when the investment in tax free bonds of UTI is to the magnitude of Rs. 52.82 cross the administrative managerial expenditure attributable to the exempt income is required to be disallowed Under Rule 8D(2)(iii which was worked out at Rs. 13.20 lakh. Therefore, he retained the addition to that extent and deleted the balance disallowances.
The AO is in appeal on the solitary ground and assessee is in appeal against the confirmation of the disallowances of Rs. 13.20 lakhs as per ground No. 2 of the appeal.
The ld DR supported the order of the LD AO with respect to the addition on account of interest whereas he supported that the ld CIT (A) has at least correctly upheld the disallowance of administrative expenditure of Rs. 13.20 lakhs. He further stated that the AO has given detailed reason for invoking Rule 8D after recording proper satisfactions and failure of the assessee to give details of suo motto disallowances of Rs. 2 lakhs. 11. The AR firstly stated that the assessee has disallowed Rs. 2 lakhs suo motto u/s 14A but the ld AO failed to record any satisfaction as to the correctness of the claim of the assessee. He submitted that the assessee has categorically stated before the ld AO that it has not incurred any expenditure on account of interest as well as other administrative expenses. In absence of any such satisfaction it is mandatorily u/s 14A(2) of the Act confirmed the disallowances by the ld CIT(A) also do not stand. He relied upon the decision of the Hon’ble Delhi High Court in 370 ITR 338, Hon’ble Gujarat High Court in 300 CTR 286 and the order of the coordinate bench in in DCIT vs DLF Private Limited. He also submitted that the decision of the co-ordinate bench in assessee’s own case for assessment year 2005-06 wherein, the adhoc disallowance of Rs. 2 lakhs made by the assessee was considered, so there cannot be any further disallowances. On the other respects, alternatively he submitted that there cannot be any disallowances of interest expenditure in view of the interest free funds available with the assessee and net interest income. For this he extensively relied on the order of the ld CIT (A). On the disallowances of Rs. 13.20 lacks confirmed by the CIT (A) he submitted that it is excessive, as the assessee has not incurred any expenditure in earning the exempt income. 12. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that assessee has earned exempt income of only Rs. 59,40,911/- from tax free bonds of UTI. The fact is not denied that during the course of assessment proceedings the AO asked the assessee to explain that why disallowances cannot be made u/s 14A of the act. After considering the complete reply of the assessee as well as considering the appellate orders in assessee’s own case he held that the assessee has stated that no disallowances can be made u/s 14A, however assessee has suo motto disallowed a sum of Rs. 2 lakhs on its own. On the fact recorded by the ld CIT (A) it is also evident that there is no break up or the basis of the disallowances made by the assessee. The learned AO has categorically recorded the satisfaction that the suo Moto disallowances on ad hoc basis clearly shows that the assessee has incurred expenditure for earning of the exempt income. The details reasons given of the ld AO at page 7 and 8 of the assessment order clearly shows that AO has recorded proper satisfaction as provided u/s 14A(2) of the act. However, when the assessee was questioned about the suo motto disallowance of Rs. 2 lacks, its basis and its working the assessee failed to provide the same to the ld AO. The ld AO also held that this itself shows that the assessee is contradicting its own stand that it has not incurred any expenditure for earning of the exempt income. In view of this, we do not find any infirmity so far as the recording of the satisfaction u/s 14A(2) of the AO is concerned for invoking provision of Rule 8D of the Income tax Rules.
Coming to the order of the ld CIT(A) we find that when the assessee has huge interest free funds available with it which is mentioned in para 4.1.2 of the order that the assessee has higher capital and reserve and surplus of Rs. 1123.30 against investment of only Rs. 240 crores. Therefore, we do not find any infirmity in the order of the ld CIT (A) in deleting the disallowances on account of interest as per clause No. 8D(2)(i) and (ii).
Coming to the issue of administrative and managerial expenditure attributable to the exempt income @0.5% of the average of investment we do not find any infirmity in the confirming the disallowance of Rs. 13.20 lakhs because the assessee itself has disallowed a sum of Rs. 2 lakhs for which no bifurcation is available. Therefore, only alternative is left is to apply the percentage prescribed under that Rule. The stand of the assessee that it has not incurred any expenditure is devoid of any merit as assessee itself has disallowed a sum of Rs 2 Lakhs. In view of this, solitary ground of appeal of ld AO and ground No. 2 of the appeal of the assessee are dismissed.
15. Ground No. 3 of the appeal of the assessee is against the confirmation of disallowance of Rs. 9,99,158/- incurred towards corporate social responsibility expenditure and the assessee claimed the same to be allowable.
16. The brief facts shows that the assessee has donated Rs. 999158/- and claimed deduction of Rs. 4,99,579/- u/s 80G of the Act. The assessee stated that it has incurred this expenditure towards education, health awareness, construction of toilets and fans in classroom. The assessee submitted that it has incurred these expenditures in promoting the name of the company to bring goodwill and therefore, it is allowable as business expenditure. The ld AO disallowed the same and disallowance was confirmed by the ld CIT(A). 17. The ld AR submitted that these are corporate social responsibility expenditure and therefore, 37(1) of the Income Tax Act, 1961 and alternatively u/s 80G of the Act. However, the ld DR stated that the donation made by the assessee to the various NGOs does not have requisite certificate u/s 80G(5) of the Act and therefore, deduction u/s 80G was denied to the assessee. Alternatively, assessee says that this expenditure is allowable to the assessee u/s 37(1) of the Act. He submitted that not all these expenditure qualify the necessary condition laid down under the Act. 18. We have carefully considered the rival contentions and perused the orders of the lower authorities. It is apparent that the assessee has given donation to various trust, however, all those trust are not recognized u/s 80G(5) of the Act and therefore such donation was not allowable as a deduction under that section. Alternatively, assessee submitted that all these expenditure are incurred for the purpose of the business and therefore it should be allowed u/s 37(1) of the Act. On examination of the above expenditure, we find that for allowable of expenditure u/s 37(1) of the Act the expenditure should have incurred by the assessee wholly and exclusively for the purpose of the business. In the present case no evidence are adduced before us to show that these expenditure are wholly and exclusively incurred for the purpose of the business of the assessee. However, it was merely an statement of the assessee it will increase the goodwill of the assessee, however, no evidence were produced that why such expenditure not related to the business of the assessee could have fallen into allowability domain of section 37(1) of the Act. In view of this we do not find any infirmity in the order of the lower authorities in deleting the above sum u/s 80G (5) of the Act as well as also not allowing the same as an expenditure u/s 37(1) of the Act.
19. Ground No. 4 is with respect to the disallowance of Rs. 6 lakhs claimed u/s 35AC of the Act.
20. The brief fact shows that the assessee has donated Rs. 6 lakhs to Himalaya School Society. According to the assessee, it is allowable as deduction u/s 35AC of the Act. However, the assessee failed to furnish the certificate required under that section and therefore, deduction were denied. Naturally when the assessee does not have a requisite certificate u/s 35AC2(b) in the prescribed format, deduction u/s 35AC is correctly disallowed. Alternatively, assessee submitted that Himalaya School Society has been granted relief u/s 80G of the Act and therefore, such deduction should be allowed to the assessee after deduction u/s 35AC is not allowed. This contention was also negated in view of the fact necessary details could not be produced before the lower authorities. However, before us the assessee has submitted that all the receipt of donation of Himalaya School Society wherein, donation of Rs. 6 lakhs is given and it was acknowledged vide receipt No. 142 dated 22.09.2008. The assessee has also submitted certificate issued to the above society u/s 80G(5) dated 12.09.2008 which is applicable for the period of 01.04.2008 to 31.03.2010. In view of this, we direct the ld AO to allow the deduction u/s 80G of the Act on the donation of Rs. 6 lakhs which has been correctly disallowed by him u/s 35AC of the Act. Accordingly, ground No. 4 of the appeal is partly allowed.
21. Ground No. 5 of the appeal is that the claim of TDS of Rs. 3,65,51,193/- made in the return of income based on the TDS certificate available was not allowed as tax credit. On appeal before the ld CIT (A) it was noted that the assessee has not been allowed full credit of tax deduction at source at Rs. 3,65,51,193/- as claimed by the assessee in its revised return of income. The ld AO granted the credit only to the extent of Rs. 1,76,64,053/-. The grievance of the assessee is that credit towards TDS is reflected in Form No. 26AS Rs. 2,87,25,997/- was not allowed. The ld CIT (A) directed the ld AO