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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश / O R D E R
Per V. Durga Rao, Judicial Member:
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals)-1, Chennai in dated 22.02.2019 relevant to the Assessment Year 2014-15.
The assessee has raised the following grounds of appeal:
1. The decision of Commissioner of Income Tax (Appeals) in upholding the conclusion of the Assessing Officer and holding that a sum of Rs. 14,70,9837- was incurred to earn the exempt Dividend Income u/s.!4A of the Income-tax Act, 1961 is contrary to law and facts of the case.
2. The Commissioner of Income Tax (Appeals) erred in concluding that the investments were made out of borrowed funds and not from own funds.
3. The Commissioner of Income Tax (Appeals) failed to note that there have been no investments during the year. Your appellant submits that all the investments were made long back and were only out of own funds.
4. The Commissioner of Income Tax (Appeals) ought to have appreciated the contention of your appellant that no expenditure was incurred to earn the exempt dividend income.
5. The Commissioner of Income Tax (Appeals) ought to have appreciated that the company had enough reserves and surplus which were far more than the investments.
The Commissioner of Income Tax (Appeals) should not have concurred with the conclusion of the Assessing Officer that some amount of expenses would have been incurred and its possibility could not be ruled out.
7. The Commissioner of Income Tax (Appeals) should not have sustained the conclusion of the Assessing Officer who proceeded to disallow expenditure under section 14A of the Income Tax Act, 1961 without adducing any reason for the disallowance andwithout proving that expenditure was actually incurred to earn exempt dividend income.
8. The Commissioner of Income Tax (Appeals) is unjust and unfair in followingthe decision of the ITAT, Amritsar and in not followingthe decision of the Apex Court in [2018] 93 taxmann.com 24 (SC) in the case of PCIT Vs Sintex Industries Limited which case is squarely applicable to the instant case.
9. The Commissioner of Income Tax (Appeals) erred in concluding that disallowance under section 14A of the Income Tax Act, 1961 is to be adjusted while computing book profit under Section 115JB of the Income Tax Act, 1961.
3 -: 10. The Commissioner of Income Tax (Appeals) ought to have appreciated that only those adjustments which are contemplated in section 115JB of the Income Tax Act, 1961 should be adjusted to the book profit.
11. The Commissioner of Income Tax (Appeals) failed to appreciate that disallowance under section 14A of Income Tax Act, 1961 r.w.r 8D does not fall within the ambit of Section 115JB of the Income Tax Act, 1961.”
In the assessment order, the Assessing Officer (A.O) has noted as under:
“1) On verifying the balance sheet, it is seen that Non -current investments are to the tune of Rs. 2,701.06 lakhs and Current investments are nil during the previous year 2013-14, But, Dividend income is shown as Rs,22,35,66,295/- in the computation of income from Business or Profession. 2) The mandate of section 14A requires the assessee to maintain proper books of accounts in regard to the investment made from which the income can arise which is tax-exempt and such books of accounts to be produced before the Assessing Officer to ascertain the expenditure incurred in. relation to income not inciudibte in the total income of the assessee. In the instant case, the assessee has not maintained any separate books of accounts in this regard. This proves that assessee's claim of not incurring any expenditure in relation to the tax free income to be earned from its investments is not supported by documentary evidence as mandate in section 14A(2)/(3) of the Act. In other words, under the given facts and circumstances of the case, the assessee has not discharged the onus cast upon it. 3) In the absence of accounts maintained by the assessee in regard to its investments, the Assessing Officer cannot be expected to consider the claim of the assessee having regard to its accounts, However, I am coming to a conclusion that certain common expenses were ipso facto incurred by the assessee while managing its investments and earning the tax free income.
IT CAN BE SEEN THAT LANGUAGE OF THE ACT AND RULES IN CRYSTAL CLEAR AND WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OR A CLAIM IS MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN MADE THEN THE AO SHALL DETERMINE THE EXPENDITURE AS PER THE FORMULA PRESCRIBED. 4) It is that subsection (1) of Section 14A provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to exempt income and subsection (2) lays down that the mechanism for 4 -: determining such amount of expenditure incurred in relation to the exempt income in accordance with the method prescribed under rule 80 if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form, part of total income.”
In view of the above, the A.O has worked out the disallowance u/s. 14A of the Income Tax Act, 1961 (hereinafter "the Act") r/w Rule 8D of the Income Tax Rules, 1962 (hereinafter "the Rules") of Rs. 14,70, 983/- and also tax calculated u/s. 115-JB of the Act.
On being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and the Ld. CIT(A) confirmed the order of the AO.
6. In respect of ground Nos. 1 to 8, the learned counsel for the assessee has submitted that the Act not mandated to maintain separate books of accounts and submitted that the A.O as well as Ld. CIT(A) came to a wrong conclusion that the assessee has to maintain separate books of accounts and also submitted that the calculation made by the AO in respect of s. 14A of the Act r/w Rule 8D of the Rules is not correct.
So far as computation of book profits u/s. 115-JB of the Act is concerned, the ld. counsel for the assessee has submitted that as per the disallowance u/s. 14A of the Act r/w. Rule 8D of the Rules could not 5 -: be added while computing book profit as per s. 115 JB of the Act, as the explanation to that section did not specifically mentions s. 14A of the Act and submitted that entire issue may be remitted back to the file of A.O for fresh consideration.
On the other hand, the Ld. D.R has not raised any objection to the submission of the Ld. counsel for the assessee.
We have heard both the sides, perused the materials available on record and gone through the orders of the authorities below. The law does not mandate maintenance of separate books of accounts for determining disallowance u/s. 14-A of the Act. However, in case the assessee maintains composite books of accounts for investment activity and business activity then, the assessee should be able to identify expenditure incurred for investment activity. In this case, the assessee neither maintained separate books of accounts nor identified expenditure incurred towards exempt income from composite books maintained for the year. Therefore, the A.O has applied Rule 8D of the Rules to determine the disallowance u/s. 14A of the Act. Before us, the assessee has submitted that the appeal may be set aside to the file of A.O to give another opportunity to the assessee to file details of expenditure incurred for exempt income. For which, the ld. D.R has not 6 -: raised any objection therefore, we have considered the request of the assessee to set aside the issue and remit the matter back to the file of A.O to give another opportunity to the assessee. Hence, we set aside the order passed by the A.O and remit the matter back to the file of A.O and direct him to re-consider the issue of s. 14A of the disallowance in accordance with law after giving reasonable opportunity of hearing to the assessee. It is needless to say that the assessee shall file necessary details to enable the A.O to compute the disallowance u/s. 14A of the Act.
As regards, re-computation of book profit u/s. 115JB of the Act by adding disallowances made u/s. 14A of the Act. It is a well settled principle of law by the decision of Special Bench of ITAT, Delhi in the case of ACIT vs. Vireet Investment Pvt. Ltd., wherein it was held that disallowance u/s. 14A of the Act r/w. Rule 8D of the Rules could not be added while computing book profits as per s. 115-JB of the Act as explanation to that section did not specifically mentions s. 14A of the Act. In view of the above, the A.O is directed to consider the entire issue de novo in accordance with law. Thus, the appeal filed by assessee is allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.