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Income Tax Appellate Tribunal, Camp Bench at Jalandhar
Before: Shri. N.K. Saini, Honble & Shri. Ravish Sood
IN THE INCOME TAX APPELLATE TRIBUNAL Camp Bench at Jalandhar Before Shri. N.K. Saini, Hon'ble Vice President and Shri. Ravish Sood, Judicial Member
ITA Nos. 398 & 225/Asr/2018 A.Ys. 2013-14 & 2012-13
The DCIT, Circle-4, Sh Rakesh Kumar Gupta, बनाम H.No. 30, Mohalla No. 9, Jalandhar Jalandhar Cantt. Jalandhar
�थायीलेखासं./PAN NO:AENPG1409G अपीलाथ�/Appellant ��यथ�/Respondent
Assessee by: Shri Sudhir Sehgal Revenue by: Sh Lalit Mohan Jindal, D.R
Date of Hearing: 15.01.2019 Date of Pronouncement: 17.01.2019
O R D E R Per N.K. Saini, Vice President: These two appeals by the assessee are directed against the
separate orders dated 03.5.2018 & 09.3.2018 for Assessment Years
2013-14 and 2012-13 respectively of the Commissioner of Income Tax-
2, Jalandhar [hereinafter referred to as CIT(A)].
At the first instance, we will deal with the appeal in ITA No.
398/Asr/2018 for the Assessment Year 2013-14. The following grounds
have been raised in this appeal:-
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That the Ld. CIT(A) has erred in dismissing the appeal filed by the appellant.
That the Ld. CIT(A) has erred in confirming the addition on account of disallowance u/s 14A amounting to Rs. 8,94,496/- without any basis.
That the Ld. CIT(A) has erred in not considering and ignoring the submissions and facts as filed before him as well as before the Assessing Officer.
That the Ld. CIT(A) has applied a judgement of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd reported in [2018] 91 taxman.com 154 which is not applicable upon the appellant.
That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
From the above grounds, it is gathered that the only grievance of
the assessee relates to the confirmation of addition amounting to Rs.
8,94,496/- made by the Assessing Officer on account of disallowance
u/s 14A of the Income Tax Act, 1961 (for short 'the Act').
The facts of the case in brief are that the assessee filed the return
of income declaring an income of Rs. 1,01,18,670/- which was originally
assessed on 13.7.2015 u/s 143(3) of the I.T. Act at an income of Rs.
1,13,43,103/-. However, the said assessment was set aside by the
Principal Commissioner of Income Tax-2, Jalandhar vide order dated
5.5.2017 u/s 263 of the Act and Assessing Officer was directed to pass
the fresh order. In pursuance of the said directions, the Assessing
Officer asked the assessee to explain as to why disallowance u/s 14A of
the Act be not made as per Rule 8D considering the investment of Rs.
P a g e | 3 ITA Nos. 398 & 225/Asr/2018 Sh Rakesh Kumar Gupta, Jalandhar
1,76,85,898/- in the shares of the companies. The assessee submitted
that no disallowance was called for as the investments were old which
were made out of own funds and there was no exempt income received
for such investments. However, the Assessing Officer did not find merit
in the submissions of the assessee and made the disallowance of Rs.
8,94,496/-.
Being aggrieved, the assessee carried the matter to the Ld. CIT(A)
and reiterated the submissions made before the Assessing Officer.
Reliance was also placed on the judgement of the Hon'ble Supreme
Court in the case of Maxopp investment Ltd reported at 91 taxman com
It was also stated that the total exempt income earned on account
of dividend was only Rs. 25,520/- in this year. The Ld. CIT(A), however,
did not find merit in the submissions of the assessee and sustained the
disallowance made by the Assessing Officer. Now, the assessee is in
appeal before us.
The Ld. Counsel for the assessee reiterated the submissions made
before the authorities below and submitted that this issue is now
squarely covered by the following judgements / case laws:-
Commissioner of Income Tax vs Kapsons Associates 381 ITR 204 (P&H)
M/s Empire Packages (P) Ltd vs DCIT – ITA No. 1186/Chd/2013, ITAT, Chandigarh
CIT vs M/s Lakhani Marketing Incl. 272 CTR 265 (P&H)
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M/s BCL Industries & Infrastructure Ltd vs DCIT, ITA No. 1002/Chd/2013, ITAT, Chandigarh
M/s Cosmas Infrastructure Engineering (India) Ltd vs DCIT, ITA No. 486/Chd/2015, ITAT Chandigarh
CIT vs Max India Ltd – ITA No. 219 of 2013 (P&H)
Joint Investments (P) Ltd vs CIT – ITA No. 117 of 2015, Delhi High Court
M/s Trident Ltd vs ACIT, ITA No. 173/Chd/2016, ITAT, Chandigarh
M/s Punjab State Industrial Corporation Ltd vs ACIT, ITA No. 889/Chd/2017, ITAT, Chandigarh
In his rival submissions, the Ld. Departmental Representative (for
short 'D.R') supported the orders of the authorities below.
We have considered the submissions of both the parties and
perused the material available on record. In the present case, the Ld.
CIT(A) himself admitted that the assessee earned exempt income of Rs.
25,520/- on account of dividend.
On a similar issue, the Hon'ble jurisdictional High Court in the
case of CIT vs Lakhani Marketing Inc. (supra) held that unless and until
there is a receipt of exempt income, section 14A of the Act cannot be
invoked.
A similar issue has also decided by the ITAT Bench ‘B’
Chandigarh in ITA No. 889/Chd/2017 for Assessment Year 2012-13 in
the case of Punjab State Industrial Corporation Ltd., Chandigarh vs
P a g e | 5 ITA Nos. 398 & 225/Asr/2018 Sh Rakesh Kumar Gupta, Jalandhar
ACIT, Circle 2(1), Chandigarh vide order 21.9.2017, wherein, it has
been held as under:-
“8. But at the same time we find that the CIT(A) has misunderstood the order of the ITAT. The ITAT had after dealing with both the disallowances made u/r 8D 2(ii) &(iii) concluded by holding that the disallowance u/s 14A should in no case exceed the amount of exempt income and had relied upon the decision of the Delhi High Court in the case of Cheminvest Ltd. vs CIT(2015) 378 ITR and CIT vs Holcim 5 India Pvt. Ltd.(2014) 90 CCH 81 (Del). The relevant findings of the ITAT are as under, as reproduced in the order of the CIT(A) also:
“We have heard the rival submissions and perused the relevant material on record. There is no doubt about the recording of satisfaction by the AO in terms of section 14A(2). In so far as the quantum of disallowance is concerned, Rule 8D is admittedly applicable from the assessment year 2008-09, which is the year under consideration. In that view of the matter, no fault can be found with the AO/CIT(A) resorting to Rule 8D for the purpose of making disallowance. This disallowance has been made in two parts. The first is under clause (iii) of Rule 8D(2) towards administrative expenses at the rate of one half percent of the average of the value of investments, income from which does not form part of the total income. The addition to this extent is upheld as the same is in accordance with the statutory mandate.
As regards, the disallowance under clause (ii) of Rule 8D(2), we find that the assessee contended before the Ld. CIT(A) that such disallowance was not called for. IN this regard we find that the Hon'ble Bombay High Court in CIT V/s Reliance Utilities and Power Ltd. (209) 313 ITR 340 (Bom) has held that if there are interest free funds available with the assessee sufficient to meet its investment and, at the same time, loan has been raised, it can be presumed that the investments were from interest free funds and, resultantly, no disallowance of interest can be made. In deleting the disallowance of interest, the Hon'ble Bombay High Court relied on the judgment of Hon 'ble Supreme Court in East India Pharmaceutical Works V/s CIT (1997) 224 ITR 627 (SC). It is further notices that the Hon'ble Bombay High Court in CIT V/s HDFC Bank Ltd. (2014) 366 ITR
P a g e | 6 ITA Nos. 398 & 225/Asr/2018 Sh Rakesh Kumar Gupta, Jalandhar
505 (Bom), has held that where assessee's capital, profit, and reserves etc. were higher than the investment in tax free securities, it would have to be presumed that the investment made by the assessee would be out of interest free funds available with the assessee and, consequently, no disallowance could be made u/s 14A of the Act. Similar view has been taken in several cases including Principal CIT V/s India Gelatine & Chemicals Ltd. (2015) 376 ITR 353 (Guj). It, ergo, becomes manifest that the disallowance of interest as per clause (ii) cannot be made straight way without examining the important aspect as has 6 been discussed in the above decision, which the Ld. CIT(A) failed to take note of. As necessary information about the availability of shareholders' fund vis-a-vis the amount invested in shares and other securities yielding exempt income is not available on record, we set aside the impugned order and remit the matter to file of AO for computing the disallowance under clause (i) Rule 8D(2), if any, in consonance with view taken in Reliance Utilities (supra) etc. It is however made clear that in no case, the total amount of disallowance u/s 14A should exceed the amount of exempt income as has been held by the Hon 'ble Delhi High Court in Cheminvest Ltd. V/s CIT(2015) 378 ITR (Del) and CIT V/s Holcim India Pvt. Ltd. (2014) 90 CCH 081 Del. HC.
Both sides are in agreement that the facts and circumstances of the following two years in appeal are mutatis mutandis similar to those of the assessment yeaf 2008-09. Following the view taken hereinabove, we set aside the impugned orders for these two years as well and remit the matter to the file of the AO for computing the disallowance u/s 14A as directed above in relation to the assessment year 2008-09. "
The Ld.CIT(A) has following the aforesaid order, applied the restriction of disallowance to the extent of exempt income earned, only to the disallowance made u/r 8D2(ii) while upholding the disallowance made u/r 8D2(iii) completely. This, we find has resulted in the disallowance made u/s 14A exceeding the exempt income earned by the assessee, which without any doubt, we hold is not in consonance with the order by the ITAT in the case of the assessee in the preceding year and also the proposition laid down
P a g e | 7 ITA Nos. 398 & 225/Asr/2018 Sh Rakesh Kumar Gupta, Jalandhar
by the various decisions of the High Court cited by the ITAT in its order.”
So respectfully following the aforesaid referred to order dated
21.9.2017, we direct the Assessing Officer to restrict the disallowance
u/s 14A of the Act to the extent of exempt income claimed by the
assessee.
In ITA No. 225/Asr/2018, the facts are similar as were in ITA
No. 398/Asr/2018 (supra). The only difference is in the amount of
disallowance. Therefore, our findings given in the former part of this
order shall apply mutatis-mutandis to this appeal also.
In the result, the appeals of the assessee are partly allowed.
Order pronounced in the open court on 17.01.2019
Sd/- Sd/- (Ravish Sood) (N.K. Saini) Judicial Member Vice President Place : Jalandhar; Dated 17.01.2019 rkk आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- 4. आयकर आयु�त / CIT 5. DR, ITAT, Camp Bench, Jalandhar 6. गाड� फाईल / Guard file.
स�या�पत � त //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण,/ITAT, Camp Bench, Jalandhar
P a g e | 8 ITA Nos. 398 & 225/Asr/2018 Sh Rakesh Kumar Gupta, Jalandhar
Sr.No. Details Date Initials Designatio n 1 Draft dictated on 15.1.19 Sr.PS/PS 2 Draft Placed before author 16.1.19 Sr.PS/PS 3 Draft proposed & placed before the JM/AM Second Member 4 Draft discussed/approved by Second JM/AM Member 5 Approved Draft comes to the Sr.PS/PS Sr.PS/PS 17.1.19 6 Kept for pronouncement on 17.1.19 Sr.PS/PS 7 File sent to the Bench Clerk 17.1.19 Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date on which file goes to the AR 10 Date of Dispatch of order