M/S GUJRAL DESIGN PLUS OVERSEAS PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals] – 35, New Delhi dated 23.11.2016 pertaining to assessment year 2012-13.

The solitary grievance of the assessee is that the ld. CIT(A) erred in confirming the disallowance of Rs. 40,23,974/- made u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] read with Rule 8D of the Income tax Rules, 1962.

Briefly stated, the facts of the case are that the appellant company is engaged in the business of NBFC – non banking financial company, investments, trading in securities, etc.

During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the appellant has made investment of Rs. 96.70 crores and has received exempt income in the form of dividend amounting to Rs. 5.04 crores. The Assessing Officer was of the strong belief that the provisions of section 14A r.w.r 8D squarely apply on the facts of the case and accordingly, the assessee was issued a show cause notice to explain why the disallowance should not be made as per Rule 8D of the Rules.

In its reply, the assessee stated that it has no expenses on account of interest which is evident from the profit and loss account itself and only 0.5% of average investment as given in Rule 8D may be considered for disallowance. It was further explained that the investment amounting to Rs. 10.76 lakhs is not to yield tax exempt income. The assessee prayed that the disallowance of Rs. 8,11,262/- may be accepted.

The contention of the assessee did not find any favour with the Assessing Officer who proceeded by computing the disallowance u/s 14A as per Rule 8D and added a sum of Rs. 40,23,974/-.

The assessee carried the matter before the ld. CIT(A) but without any success.

Before us, the ld. counsel for the assessee drew our attention to page 18 of the paper book which is Schedule of investments and pointed out that major investments are coming from earlier years and further furnished a chart of dividend income received during the year and pointed out dividend income of Rs. 5 cores. Rs. 4.62 crores has been received from DLF Ltd, which investment is coming from earlier years. The ld. counsel for the assessee further pointed out the computation of disallowance which is placed at pages 34 to 36 of the paper book and stated that if at all disallowance has to be made, the sum should be Rs. 5,57,206/-.

Per contra, the ld. DR strongly supported the findings of the Assessing Officer. It is the say of the ld. DR that details now furnished by the ld. counsel for the assessee appear to be not examined by the Assessing Officer.

We have given thoughtful consideration to the orders of the authorities below. A careful perusal of the balance sheet and, in particular, Note 11, which is exhibited at page 18 of the paper book shows that major investments are coming from earlier years. Further, dividend income details are as under: Particulars Amount-Rs

A perusal of the above clearly shows that major amount of dividend has been received from DLF Ltd. We have also carefully perused the working allocation of expenses for section 14A of the Act which is exhibited at pages 34 to 36 of the paper book. In our considered opinion, verification of the working vis-a-vis investments, vis-a-vis dividend income chart needs to be examined/verified by the Assessing Officer. We, accordingly, restore this issue to the file of the Assessing Officer. The assessee is directed to furnish working of allocable expenses before the Assessing Officer and explain in detail the old investments. The Assessing Officer is directed to examine/verify the details to be furnished by the assessee and decide the issue afresh after affording reasonable opportunity of being heard to the assessee.

In the result, the appeal of the assessee in is allowed for statistical purposes.