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Income Tax Appellate Tribunal, DELHI BENCHES (CAMP AT MEERUT
Before: SHRI N.S. SAINI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : The appellant, DCIT, Circle 2, Meerut (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 24.07.2017 passed by Ld. CIT (Appeals), Meerut qua the Assessment Year 2013-14 on the grounds inter alia that :-
“1. Whether in the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred in law and facts in deleting the addition of Rs.52,64,384/- on the ground of rule of consistency, made by the A.O. on a/c of disallowance of proportionate interest paid on borrowed funds due to investment for non-business purpose or earning of exempt income, ignoring that res-judicata is not applicable in Income Tax proceedings.
2. Whether in the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred in law and facts in deleting the addition of Rs.52,64,384/- made by the AO on a/c of disallowance of proportionate interest paid on borrowed funds due to investment for non-business purpose or earning of exempt income, ignoring that assessee did not avail opportunity given by the AO and violating the procedure laid down by Rule 46A of I.T. Rules, 1962.
3. Whether in the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred in law and facts in deleting the addition of Rs.36,93,280/- made by the AO on a/c of disallowance of depreciation, ignoring that assessee failed to discharge his onus to prove the expenditure by way of furnishing necessary evidences.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessing Officer noticed that the assessee has made investment of Rs.17,63,58,565/- in the shares of various companies and various properties. AO proceeded to make addition of Rs.52,64,384/- under section 14A of the Income-tax Act, 1961 on the ground that the assessee has failed to prove that the said investment has not been made by the borrowed funds. AO also made addition of Rs.36,93,280/- on the ground that the assessee has falsely claimed depreciation on account of addition of fixed assets whereas no fixed asset has been added by the assessee during the year under assessment.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the addition by partly allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1 & 2 5. Undisputedly, assessee has made investment of Rs.17,63,58,565/- in the shares of various companies and properties during the year under assessment. It is also not in dispute that the assessee has not earned any exempt dividend income.
Undisputedly, AO without recording his dissatisfaction as to the working out made by the assessee that no expenses have been incurred nor earned any dividend income proceeded to invoke the provisions contained u/s 14A read with section 36(1)(iii) in a mechanical manner which is not permissible under law. Hon’ble Delhi High Court in case cited as Maxopp Investment Ltd. vs. CIT – (2012) 347 ITR 272 (Del.) while deciding the identical issue has held as under :-
“Section 14A even prior to the introduction of sub- sections (2) and (3) would require the Assessing Officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the Assessing Officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of .sub-section (2) of section 14A . Prior to that, the assessee was free to adopt any reasonable and acceptable method. So, even for the pre- rule 80 period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the Act. Even where the assessee claims that no expenditure has been incurred in' relation to income which does not form part of the total income, the Assessing Officer will have to verify the correctness of such claim. In case, the Assessing Officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the Assessing Officer is not, on the basis of the objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the Assessing Officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment.”
In the instant case, the assessee has given computation of income, available at pages 8 to 11 of the paper book, showing the entire investment. Assessee has also shown in the return of income for the year under assessment that he has earned zero dividend income during the year under assessment. It is also not the case of the AO that the assessee has made investment during the year under assessment in shares and property from the borrowed funds.
AO has also not computed the interest to be disallowed u/s 14A as required under Rule 8D (1) of the Income-tax Rules, 1962.
The ld. CIT (A) has written categoric finding of fact based upon material made available before him as well as AO that the assessee has not invested any amount of advance of Rs.10 crores received from Meerut Cable network Pvt. Ltd. as per agreement which was required to be incurred as per agreement to acquire the cable points and after acquiring the same, the same were to be transferred to Meerut Cable Network Limited. So, when the assessee has not invested the amount of advance in any manner, the question of disallowing the interest thereon does not arise.
Ld. DR for the Revenue by relying upon the decision rendered by the coordinate Bench of the Tribunal in case of Lalli Motors India Limited – 170 ITD 370 contended that even if there is no dividend income, interest can be disallowed. But, we are of the considered view that in the face of the decisions rendered by the Hon’ble Delhi High Court in case of Holcim India Pvt. Ltd. – & ITA No.299/2014 and Hon’ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd.- 394 ITR 449 (SC) wherein it is categorically held that where the assessee has not earned any dividend income forming part of the total income during the year under assessment, section 14A read with Rule 8D is not attracted, the decision rendered by the coordinate Bench of the Tribunal in Lalli Motors India Ltd. (supra) cannot be followed. Moreover, when AO has not recorded his dissatisfaction as to the working out of the accounts given by the assessee, provisions contained u/s 14A read with Rule 8D cannot be invoked in mechanical manner. So, the ld. CIT (A) has rightly deleted the addition by thrashing the complete facts of the case. So, finding no illegality or perversity in the findings returned by the ld. CIT (A), grounds no.1 & 2 are determined against the Revenue.
GROUND NO.3 10. Undisputedly, the assessee is into the same business for the last so many years and no such expenditure has been claimed by the assessee in past. AO by finding the discrepancies in bill dated 17.08.2013 for Rs.14,16,000/-having no.E053 when tallied with bill dated 17.087.2012 having no.E054/2012 came to the conclusion that the assessee was falsely claiming depreciation on account of addition in fixed assets. However, during the appellate proceedings before ld. CIT (A), assessee has proved that bill no.E053 of Rs.14,16,000/- was wrongly dated 17.08.2013 instead of Rs.17.08.2012. Assessee has also proved that the cabling and ducting work was executed by Tarun Associates who has filed the affidavit along with original bills and payment which was made through banking channel after deducting the TDS. Assessee has also proved that the bill of Rs.14,16,000/- has not been claimed as expenditure in the next assessment year i.e. 2014-15. So, in these circumstances, we are of the considered view that the ld. CIT(A) has rightly deleted the addition on account of deprecation claimed by the assessee which was merely disallowed by the AO on the basis of incorrect appreciation of facts. So, Ground No.3 is determined against the Revenue.