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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR & SHRI RAJPAL YADAV
PER RAJPAL YADAV, JUDICIAL MEMBER:
The assessee is in appeal before the Tribunal against the order of ld. CIT(A) dated 29th January, 2014 passed for A.Y. 2002-03.
The first ground of appeal taken by the assessee is general which does not call for recoding of any finding, hence rejected.
In the next ground of appeal, grievance of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of interest expenditure of Rs.25,14,914/- which was made by the Assessing Officer with the aid of section 14A of the Income Tax Act, 1961 (‘the Act’ hereinafter).
The brief facts of the case are that Assessment Order under section 143(3) of the Act was passed on 23.03.2005. The dispute travelled upto the Tribunal and the Tribunal vide order dated 30.04.2010 passed in ITA No.1242/Ahd/2006 has set aside the issue with regard to verification and disallowance of any amount required to be made under section 14A of the Act. In pursuance of the Tribunal’s order, learned Assessing Officer issued notice under section 142(1)/143(2) of the Act. The Ld. Assessing Officer has observed that the assessee has shown dividend income of
ITA No.1106/Ahd/2014 A.Y. 2002-03 Page 2 of 4 Rs.1,21,87,750/- which it had claimed as exempt under section 10(33) of the Act. The assessee has debited interest expenses of Rs.25,14,914/- and shown interest income of Rs.2,15,790/-. He further observed that though Rule 8D of the Income Tax Rules is not applicable in this year, but expenses attributable to exempt income are required to be disallowed under section 14A on an estimate basis. Accordingly he disallowed interest expenditure debited by the assessee in the account and made addition of Rs.25,14,914/-.
Appeal to the ld. CIT(A) did not bring any relief to the assessee.
While impugning the orders of the Revenue authorities, ld. counsel for the assessee took us to the details of investment in shares, debenture & bonds which has been placed at page no.4 of the Paper Book. Such details read as under :-
Investment in Shares, Debenture & Bonds
Share of Mirza Tanner Limited 154 2. Share of Nirma Limited 34,790,831 3. OFCPN of Nirma Industries Limited 439,500,000 4. OFCPN of Adesh Finstock Pvt. Ltd. 30,000,000 504,290,985
He further contended that the assessee is holding certain investments in the names of Optionally Fully Convertible Premium Notes (OFCPN) and Deep Discount Bonds (DDB). Income from these OFCPN/DDB are taxable income and not exempt income. The ld. Assessing Officer made an addition of Rs.5,21,423/- on account of accrual of interest income. The Tribunal deleted the additions in the current assessment year on the ground that the income did not accrue during the year. Nevertheless, these are taxable income and not exempt income. He further contended that there is no dispute with regard to this position that if any expenditure is being incurred for earning exempt income then such expenditure is to be disallowed under section 14A of the Act. The disallowance assumed by the Assessing Officer is on the basis of investment made in shares of Mirza Tanner Limited and Nirma Industries Limited. Both these shares were acquired in earlier years and not during
ITA No.1106/Ahd/2014 A.Y. 2002-03 Page 3 of 4 the year. No expense was incurred for acquiring these shares. Therefore, the Assessing Officer has erred in assuming interest expenditure for acquiring these shares. The Assessing Officer nowhere pointed out as to which interest expenditure is attributable for making investment in these shares. He further pointed out that in assessment years 2004-05 & 2005-06 investment in these shares was remitted back for verification to the Assessing Officer and the Assessing Officer did not make any addition by observing that the assessee has not incurred expenditure in acquiring these shares. He drew our attention to page no.64 and 66 where Assessment Orders passed under section 143(3) in A.Ys. 2004-05 & 2005-06 are being placed on record.
Ld. Departmental Representative, on the other hand, relied upon the orders of the Revenue authorities.
We have duly considered the rival contentions and gone through the records carefully. The findings of the Assessing Officer in A.Y. 2004-05 & 2005-06 deserve to be taken note of which read as under :-
A.Y. 2004-05 “With respect to the claim of interest expense of Rs.25,37,280/-, the assessee in its reply dated 06.03.2013 submitted that the assessee is following Cash method of accounting. The claim of interest expense is Rs.15,40,101/- and not Rs.25,37,280/- and disallowance u/s.14A of the I.T. Act on account of investment in securities should not be made as during the year under consideration, no security having dividend income acquired. The shares of Mirza Tanners Limited and Nirma Limited were acquired during earlier years. Hence, this does not attract disallowance u/s. 14A of the I.T. Act.” A.Y. 2005-06 “With respect to the claim of interest expense of Rs.3,57,848/-, the assessee in its reply dated 06.03.2013 submitted that the assessee is following Cash method of accounting. The disallowance u/s.14A of the Income Tax Act on account of investment in securities should not be made as during the year under consideration, no security having dividend income acquired. The shares of Mirza Tanners Limited and Nirma Limited were acquired during earlier years. Hence, this not attract disallowance u/s. 14A of the Income Tax Act.” 10. In A.Y. 2004-05 the assessee has debited interest expenditure of Rs.25,37,200/- which was disallowed by the Assessing Officer in the original Assessment Order. However, after remand from the ITAT, learned Assessing Officer did not make any addition under section 14A of the Act. He was considering
ITA No.1106/Ahd/2014 A.Y. 2002-03 Page 4 of 4 acquisition of same shares of Mirza Tanner Limited and Nirma Industries Limited. It is also pertinent to observe that the assessee has Rs. 48 Crores surplus fund out of which it was stated that investment was made. The Assessing Officer has not rebutted this contention of the assessee. Therefore, taking into consideration the stand of the Assessing Officer in subsequent year on identical issue, we are of the view that this addition is not sustainable
In ground no.3, the assessee has pleaded that the ld. CIT(A) has erred in not directing the Assessing Officer to grant interest under section 244A of the Act.
This ground was not pressed at the time of hearing because claim of the assessee has been allowed by the ld. CIT(A) vide order dated 29.01.2014 passed under section 154 of the Act. In other words, the ld. CIT(A) rectified its order. Hence, this ground of appeal becomes infructuous and rejected.
In the next ground of appeal, grievance of the assessee is that the ld. CIT(A) erred in confirming the interest leviable upon the assessee under section 234B of the Act.
Ld. Counsel for the assessee submitted that it is consequential in nature. Hence, this ground of appeal is rejected.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on this 6th day of June, 2018.
Sd/- Sd/- PRAMOD KUMAR RAJPAL YADAV (Accountant Member) (Judicial Member) Ahmedabad, the 6th day of June, 2018
PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad