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Income Tax Appellate Tribunal, DELHI BENCH : F : NEW DELHI
Before: SHRI R.K. PANDA & SHRI N.K. CHOUDHRY
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI N.K. CHOUDHRY, JUDICIAL MEMBER Assessment Year: 2013-14 Pragati Vanijaya Ltd., Vs ACIT, 129, Transport Centre, Circle 20(1), Rohtak Road, Punjabi Bagh, New Delhi. New Delhi. PAN: AAACP1685P (Appellant) (Respondent) Assessee by : Shri Sanat Kapoor, Advocate Revenue by : Shri Gayasuddhin Ansari, Sr. DR Date of Hearing : 28.01.2020 Date of Pronouncement : 31.01.2020 ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 7th December, 2016 of the CIT(A)-12, New Delhi, relating to assessment year 2013- 14.
Although a number of grounds have been raised by the assessee, these all relate to the order of the CIT(A) in confirming the disallowance of Rs.21,16,750/- u/s 14A of the IT Act, 1961.
The facts of the case, in brief, are that the assessee is a company engaged in the business of making investments in quoted and unquoted shares of other companies and providing loans and advances. It filed its return of income on 29th September, 2013 declaring an income of Rs.67,16,286/-. During the course of assessment proceedings, the AO noted that the assessee has shown investment of Rs.42,33,46,096/- in investment in shares to earn dividend income u/s 10(34) of the IT Act. He further noted that in the computation of income and tax liability chart, the assessee has not disallowed any sum on account of disallowance u/s 14A of the IT Act. He, therefore, asked the assessee to explain as to why disallowance u/s 14A r.w.r. 8D should not be made. It was submitted by the assessee that the assessee during the year has earned dividend income of Rs.35,31,292 out of which Rs.35,02,927/- has been earned from M/s ACB (India) ltd. and Rs.28,380/- from ING Investment Management (India) Pvt. Ltd. It was submitted that the assessee company has claimed no disallowance of expenses against the exempt income since no expenditure has been incurred for earning the exempt income. The assessee submitted that it has incurred no expenditure on interest since its own funds are much more than the investment. The assessee, further submitted that the shares from which dividend income has been earned are forming part of the investments which were acquired with an intent to gain over a long period of time and the assessee has not acquired any shares during the year. Further, the assessee has earned interest income. Relying on various decisions, it was argued that no disallowance u/s 14A r.w.r. 8D is called for. However, the AO was not satisfied 2 with the arguments advanced by the assessee. Applying the provisions of section 14A r.w.r. 8D, the AO made disallowance of Rs.21,16,730/-.
In appeal, the ld.CIT(A) upheld the addition made by the AO by observing as under:- “9. Decision 9.1 Appellant company is engaged in the business of making investments and providing loans and advances. It had filed its 1TR for A.Y. 2013-14 on 29.09.2013 declaring an income of Rs.67,16,286/-. During the course of assessment proceedings, Assessing Officer observed that Assessee had shown investment of Rs.42,33,46,096/- in investment in shares to earn dividend income and Assessee had not disallowed any expenditure u/s 14A for earning dividend income. Assessing Officer disallowed the amount of Rs.21,16,730/- u/s 14A in view of Circular No. 5/2014 in which it has been stated that the disallowance will have to be made even if no exempt income had actually been earned during the year. 9.2 During the course of appellate proceedings, Appellant has stated that CBDT Circular has no application in its case as it is applicable to a case where no dividend income has been earned. Further, it has been submitted that it has earned dividend from its sister concerns M/s ACB (India) Limited and from M/s ING Investment Management (India) Pvt. Ltd. It has also been submitted that no expenditure was incurred by Appellant to earn the exempt income and it had sufficient funds of its own to make the investment. In alternate submissions, Appellant has stated that the disallowance can be restricted to Rs.5,96,211/-. 9.3 I have considered the Observations of the Assessing Officer and Submissions of the Appellant. From the perusal of the Balance Sheet, it is seen that Appellant has received dividend of Rs.35,02,912/- from M/s ACB (India) Limited and Rs.28,380/- from M's ING Investment Management (India) Pvt. Ltd. and the funds on account of share capital and reserve and surplus is Rs.51.18 Crores. However, as against short-term loans and advances of Rs. 16.51 Crores, Appellant has short-term borrowing of Rs.9.82 Crores, therefore, the entire share capital and reserve and surplus fund cannot be said to be utilized for investment in non-current investment only. Further, it is seen that investment in M/s ACB (India) Limited is Rs.40,02,97,096/-. However, it is seen that Appellant has earned dividend of Rs.35,02,912/-from M/s ACB (India) Limited. The judgments of Hon’ble Delhi High Court in the case of CIT vs. Holcim India Ltd. and Cheminvest Ltd. is not applicable as Appellant has received dividend from its sister concerns M/s ACB (India) Limited and, 3 therefore, it is not the case of Appellant that investment has not been made for the purpose of earning dividend. The investment may be of strategic value but it is also for earning dividend. It is also seen that Assessing Officer has determined the disallowance under Rule 8D(2)(iii) and not under Rule 8D(2)(ii). Therefore, the claim of Appellant that interest of Rs.40,89,213/- is directly relatable to taxable interest income is not relevant in the facts of the case. Appellant is not correct in stating that dividend attributable investment are only Rs.40.02,97,096/- as Appellant is also received dividend from M/s ING Investment Management (India) Pvt. Ltd. and it is also holding shares of Yes Bank Limited of Rs. 1,00,00,000/-. Accordingly, Assessing Officer is directed to compute the disallowance u/s 14A on the dividend attributable investment.
In the result, the appeal is partly allowed.”
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the AO has not recorded correct satisfaction while disallowing the expenses u/s 14A r.w.r. 8D which is a prerequisite. Referring to the decision of the Tribunal in assessee’s own case for A.Y. 2008-09, vide order dated 22.11.2017, he submitted that the Tribunal has deleted the disallowance made by the AO and upheld by the CIT(A) u/s 14A r.w.r. 8D. He submitted that since, in the instant case also the AO has not recorded proper satisfaction as to whether the assessee has incurred the expenditure or not and merely coming to the conclusion that the Revenue is not satisfied with the assessee’s claim that no expenditure was incurred for earning the dividend income, the same cannot suffice the purpose of the invocation of Rule 8D of the IT Rules, 1962. In his alternate contention, the ld. Counsel for the assessee submitted that the disallowance can be restricted to Rs.5,96,211/- as requested before the lower authorities. 7. The ld. DR, on the other hand, heavily relied on the order of the AO and CIT(A).
We have considered the arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We find the AO, in the instant case, applying the provisions of section 14A r.w.r. 8D made disallowance of Rs.21,16,730/- on the ground that the assessee has shown investment of Rs.42.33 crores in shares to earn dividend income and the assessee has not suo motu disallowed any expenditure u/s 14A for earning dividend income. We find the ld.CIT(A) upheld the action of the AO, the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. Counsel that no expenditure was incurred to earn the exempt income and it had sufficient funds of its own to make the investment. Further, the lower authorities have wrongly relied on a decision which is applicable to a case in which the assessee has not earned any dividend income whereas in the instant case, the assessee has earned dividend income of Rs.35,02,912/- from ACB (India) Ltd. and Rs.28,380/- from M/s ING Investment Management (India) Pvt. Ltd. It is also his submission that the own capital and reserves of the assessee was Rs.51.18 crores whereas the total investment in shares is Rs.42.33 crores. Thus, own capital and free reserves is much more than the investment in shares.
Therefore, when no interest expenditure has been incurred and the assessee has not incurred any other administrative expenses, no disallowance u/s 14A is called for especially when the AO has not recorded proper satisfaction. It is also the alternate contention of the ld. Counsel that disallowance, if any should be restricted to Rs.5,96,211/ and, in any case, the computation adopted by the AO cannot be accepted. We find some force in the above argument of the ld. Counsel. There is nothing on record to show that the investments made by the assessee in shares, the dividend income on which is exempt from tax, has been made out of borrowed funds especially when own capital and free reserves of the assessee is much more than the investment in shares. Since the assessee has not incurred any interest expenditure for investment in shares and incurring of some administrative expenses cannot be ruled out, therefore, the argument of the ld. Counsel that no disallowance u/s 14A can be made cannot be accepted. However, since the assessee before the lower authorities have given a computation to restrict the disallowance to Rs.5,96,211/-, therefore, considering the totality of the facts of the case and considering the fact that no interest expenditure has been incurred for making the investment, we restrict the disallowance u/s 14A to Rs.5,96,211/- in the facts and circumstances of the instant case being the administrative expenditure incurred for earning such exempt dividend income. The grounds raised by the assessee are accordingly partly allowed.