OPG SECURITIES PVT. LTD.,NEW DELHI vs. DCIT, CIRCLE- 19(1), NEW DELHI

The assessee is aggrieved by two additions first disallowance u/s.14A and second disallowance of interest u/s. 36 (1) (iii) of the Act.

Briefly stated the appellant is a member of Bombay Stock exchange and national stock exchange and is indulge in the business of share trading. During the course of the scrutiny assessment proceedings the AO noticed that the assessee has earned dividend income of Rs.364490/-. The AO noticed that the assessee has not disallowed any expenses for earning the exempt income u/s. 14A of the Act.

The AO was of the firm belief that disallowances u/s.14A r.w rule 8D has to be made and accordingly computed the disallowance at Rs.13.59 lacs.

Assessee strongly agitated the matter before the CIT(A) and vehemently contended that no expenditure was incurred for earning the exempt income. It was contended that the appellant is doing share trading business and earning of dividend income is incidental.

After considering the facts and the submissions the CIT(A) was of the opinion that the disallowance made by the AO is excess and drawing support from the decision of Hon’ble Delhi High Court in the case of Joint Investment Private Limited 2015, 3 TMI 155 restricted the disallowance to the extent of the exempt income amounting to Rs.364690/-.

Before us the counsel for the assessee vehemently stated that no satisfaction was recorded by the AO before invoking the provisions of section 14A of the Act. The counsel further drew our attention to the decision of the Tribunal in assesee’s own case for earlier assessment year and pointed out that the Tribunal has, on identical set of facts, deleted the disallowance u/s. 14A of the Act.

Per contra the DR strongly supported the findings of the AO and stated that by not accepting the contention of the assessee the AO has impliedly recorded his satisfaction. The DR further stated that there is no error in the findings of the CIT(A).

We have given a thoughtful consideration to the orders of the authorities below. In so far as considering the interest part in the disallowance made by the AO u/s.14A read with rule 8 D is concerned, in our considered opinion since the assessee had sufficient own interest free funds no disallowance should have been made considering the interest. In so far as the disallowance of administrative expenses is concerned we find that the CIT(A) has restricted disallowance to the extent of the exempt income relying upon the decision of the Hon’ble Jurisdictional High Court of Delhi. We are of the opinion that such disallowance is reasonable and need no interference. Ground No.1 is accordingly dismissed.

During the assessment proceedings the AO noticed that the assessee has given interest free advances to its sister concern. The AO was of the firm belief that the interest incurred by the assessee on the loans borrowed by it need to be proportionately disallowed and accordingly disallowed Rs.3315127/-.

Assessee carried the matter before the CIT(A) but without any success.

Before the counsel for the assessee vehemently stated that on identical set of facts the Tribunal in earlier assessment year has deleted the addition.

We have carefully considered the orders of the authorities below. Facts emanating from the assessment order show that on the first day of the accounting year the loans and advances were Rs.15.70 crores and in the last day of the accounting year loans and advances have been reduced to Rs.9.55 crores. This means that no fresh loans / advances were given during the year under consideration. Further the interest free funds available with the assessee is around Rs.38 crores, therefore, it can be safely concluded that the loans and advances given to the sister concern have been given out of own interest free funds. On these facts no disallowance need to be made, we accordingly direct the AO to delete the addition of Rs.33,15,127/-. Ground No.2 is accordingly allowed.

In the result, the appeal filed by the assessee is partly allowed.