M/S. APOLLO FINANCE LTD.,NEW DELHI vs. DCIT, NEW DELHI

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ITA 340/DEL/2015Status: DisposedITAT Delhi22 July 2019AY 2011-125 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal confirmed the disallowance made by the Assessing Officer, relying on the Supreme Court decision in Maxopp Investment Ltd. The disallowance under Section 14A is applicable even if shares are held for controlling stake, based on the principle of apportionment.

What were the facts?

The assessee company earned dividend income which was claimed as exempt. The Assessing Officer disallowed a portion of expenses related to earning this exempt income by applying Section 14A read with Rule 8D.

What were the issues?

Whether disallowance under Section 14A is applicable to expenses incurred for earning exempt dividend income, and whether the dominant purpose test is relevant.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,

Before: SHRI N.K. BILLAIYA, & SHRI LALIET KUMAR

For Appellant: Shri Manu K. Giri, Adv
Hearing: 22.07.2019

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

1.

This appeal filed by the assessee is directed against the order of the CIT(A)- V, New Delhi dated 31.10.2014 pertaining to A.Y 2011-12.

2.

The solitary grievance of the assessee is that the CIT(A) erred in confirming the disallowance of Rs. 97,08,477/- made by the Assessing Officer u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] r.w.r 8D of the Rules

3.

Briefly stated, the facts of the case are that during the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee company has earned dividend income of Rs. 4.78 crores claimed as exempt from tax.

5.

The assessee was asked to explain why provisions of section 14A r.w.r 8D be not made applicable.

6.

In its reply, the assessee explained that it has not made any expenditure directly relating to earning dividend income u/s 14A of the Act except Rs. 21,658/- towards demat charges. It was further explained that the assessee has suo moto disallowed Rs. 2,79,50,021/- u/s 14A of the Act towards expenses on earning exempt income.

7.

The Assessing Officer was not convinced with the contentions of the assessee and proceeded by applying Rule 8D for the computation of disallowance u/s 14A of the Act and computed the disallowance at Rs. 2,79,50,021/- and after deducting suo moto disallowance of Rs. 2,79,50,021, added Rs. 97,08,477/-.

8.

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

9. This issue is no more res integra and has been decided against the assessee and in favour of the revenue by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd 91 Taxmann.com 154. The gist of the decision of the Hon'ble Supreme Court is as under:

“(1) When the shares are held by the assessee not to earn exempt income but to retain controlling stake in the investee company, the dominant purpose test cannot be said to be relevant for the purpose of Sec 14A and disallowance u/s 14A can be made. It is not the dominant purpose test but the principle of apportionment which is ingrained in the provisions of Section 14A. When the assessee itself makes disallowance of certain expenditure incurred to earn dividend income and if the AO does not accept such disallowance, it is necessary for the AO to record satisfaction before rejecting the same. (2)

Section 14A would be applicable only to income arising from the investment portfolio and not from stock-in-trade.”

9.

In the light of the ratio laid down by the Hon'ble Supreme Court [supra] we confirm the addition and dismiss the appeal.

10.

In the result, the appeal of the assessee in is dismissed.

The order is pronounced in the open court on 22.07.2019.

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