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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the Revenue against order dated 21/09/2017 passed by CIT(A)-38, Delhi for assessment year 2012-13.
The grounds of appeal are as under:-
1. “On the facts and under the circumstances of the case, the Ld.CIT(A) has erred in restricting the disallowance u/s 14A r.w.r. 8D from Rs. 14,61,04,401/- to Rs. 81,79,623/- by accepting the assessee’s revised computation of income based on afterthought, whereas the AO had made the addition u/s 14A on the basis of disallowance u/s 14A r.w.r 8D as arrived by the Tax Auditor of the assessee as reflected in Tax Audit Report submitted by the assessee along with its return of income.
2. On facts and under the circumstances of the case, the Ld.CIT(A) has erred in allowing the expenditure of Rs. 31,57,85,891/- u/s 37 of I.T. Act ignoring that the assessee had itself disallowed all the expenses which are not related to its existing business for the A.Y. 2013-14.
3. Religare Enterprises Ltd. filed its return of income for the Assessment Year 2012-13 on November 29, 2012 declaring a total taxable loss of Rs. 36,381,599/- and credit of tax deducted at source of Rs. 128,710,100/-. The Assessing Officer passed an assessment order dated March 28, 2016 under section 143(3) of the Income Tax Act 1961. As per the said order, the Assessing Officer has assessed the total taxable income of the assessee at Rs 359,215,830 after making the following additions/ disallowances:
Sr. No. Nature of Disallowance Amount (Rs.) 1 Disallowance u/s 14A read with Rule 8D 3,750,000/- 2 Disallowances of expenses u/s 37 315,785,891/-
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT (A) partly allowed the appeal of the assessee.
The Ld. DR submitted that as regards Ground No. 1 relating to addition u/s 14A read with Rule 8D, the assessee in the revised return of income has excluded 0.5% of average value of investments amounting to Rs.134,546,381/-. The Assessing Officer rightly observed that the assessee company invested in equity and preference shares as well as in trade investments and mutual funds. One income from trade investments and mutual funds has been offered as business income and taxed under the head PGBP. Besides interest expenses, the assessee company is incurring various expenses which also have a bearing on the investments made by the assessee company. Therefore, Assessing Officer rightly rejected the claim of revising the computation of 14A disallowance read with Rule 8D is therefore, rejected. The assessee has not revised its income tax return. The claim was filed during the course of assessment proceedings. The tax auditor worked out the disallowance at Rs. 14,61,04,401/- and the same was not controverted by the assessee company. Thus, the Assessing Officer made an addition of Rs. 37,50,000/- (14,61,04,401/- 14,23,54,401/-) under Rule 8D read with Section 14A of the Act.
The Ld. AR submitted that the CIT(A) has taken proper cognizance of the investment and thereafter partly disallowed the deduction claimed u/s 14A. Thus, the order of the CIT(A) should be sustained on this point. The Ld. AR also made further submissions that the disallowing should not exceed exempt income.
We have heard both the parties and perused the material available on record. It is pertinent to note that Section 14A disallowance was rightly claimed by the assessee and the CIT(A) has properly made a partial allowance of the said claim. As per Section 14A read with Rule 8D(2), those investments which have actually yielded exempt income during the relevant year, shall alone be taken into consideration and thus was rightly excluded while determining average value of investments under Rule 8D(2). The CIT(A) observed that the assessee claimed deduction of Rs. 3,71,603/- on interest paid for taking IT equipment on Finance lease for period of 36 months. The CIT(A) held that in view of decisions of Hon’ble Delhi High Court in case of ACB India Ltd. Vs. ACIT (ITA No. 615/2014) and CIT(A) vs. Holcim India 272 ITR 282, claim of deduction under Rule 8D(2) (ii) of Rs. 78,08,020/- was upheld. However, the CIT(A) further observed that claim of deduction of Rs. 3,71,603/- u/s 37(1) on interest paid to HP Financial Services (India) Pvt. Ltd. for taking IT equipment on financial lease for period of 36 months being specific purpose borrowings as treated under Rule 14A read with Rule 8D(2)(ii). Thus, CIT(A) made total disallowance u/s 14A read with Rule 8D at Rs. 78,08,020+ Rs. 3,71,603/-= 81, 79,623/-. These were the contentions before CIT(A). The CIT(A) has verified all the observations. Thus, Ground No. 1 of Revenue’s appeal is dismissed.
As regards Ground No. 2, the Ld. DR submitted that in respect of the expenses in connection with new line of business, the assessee debited the said expenses to the Profit and Loss account. The Assessing Officer observed that on one hand the business of support system to subsidiaries/group companies was discontinued by the assessee company and on the other hand there is sharp increase in various expenditure such as rent, electricity, water, repair and maintenance etc. The Ld. DR further submitted that the Assessing Officer after going through the details furnished by the assessee company has rightly held that new premises taken on rent/ lease, but the purpose and justification for the increase in expenses was not given by the assessee. The Ld. DR submitted that the Assessing Officer has rightly made an addition of Rs. 31,57,85,891/- u/s 37. Thus, the Ld. DR submitted that the CIT(A) has not taken cognizance of all these material facts and the addition should be confirmed.
As regards Ground No. 2, the Ld. AR submitted that from the books of accounts and the balance-sheet it was clearly mentioned that from October 2011, the assessee has sought the transaction related to borrowing to the subsidiary companies and, therefore, the expenditure was rightly claimed u/s 37(1) of the Act. The Ld. AR relied upon the order of the CIT(A).
We have heard both the parties and perused the material available on record. It is pertinent to note that the assessee company is a NBFC and being the holding company of Religare group, was providing support functions i.e. central leadership, Finance and accounts, Human resources, Back office operations, Treasury, corporate and secretarial affairs to its subsidiary companies upto 30th September, 2011. The said services were ceased to render by the assessee company w.e.f. 30.09.2011 because the assessee company sought banking license in October, 2011 and the pre-condition for applying for banking license is that the applicant should be a non-operating company. The fact remains undisputed that out of total lease rental expense of Rs. 52,79,02,826/- which was incurred during the present assessment year was recovered by the assessee company from the subsidiary company amounting to Rs. 47,59,99,859/- and balance amount was incurred by the assessee towards rendering support service to subsidiaries companies. Further, the assessee company also incurred rental expenses of Rs. 18,26,575 towards providing leased accommodation to its employees and the copies of agreements entered between the landlord and the assessee company was examined by the CIT(A) which was totally overlooked by the Assessing Officer. As regards electricity and water expenses along with repair and maintenance expenditure, the same were also demonstrated by the assessee company with the details before the CIT(A) and the Assessing Officer that these are allowable expenses under Section 37(1) of the Act. The CIT(A) has given a detailed finding. Thus, there is no interference of the finding of the CIT(A). Hence, Ground No. 2 is dismissed.