DCIT, NEW DELHI vs. M/S. A.K. CAPITAL SERVICES LTD., NEW DELHI

Brief facts of the case emanating from the orders of the authorities below and as argued by the parties are that the assessee is a company engaged in the business of providing Merchant Banking Services and providing various financial services to its clients like IPO Management, Debt Syndication, Debt Trading, Project financing, Mutual Fund Distribution, Loan Syndication and Private Placement of Debt instruments. For the Asstt. Year 2009-10, assessee filed their return of income on 30.09.2009 declaring a total income of Rs.55,46,80,447/-. Assessment u/s 143(3) of the Income-tax Act, 1961 (“the Act”) was completed at Rs.63,17,44,861/- by making two additions, namely, Rs.7,06,12,161/- (which was subsequently rectified to Rs.88,10,748/-) on account of Section 14A read with Rule 8D of the Income Tax Rules, 1962 ( “the Rules” ) and Rs.64,52,253/- on account or disallowance of business promotion expenses.

In appeal, learned CIT(A) having considered the details of interest expenditure submitted by the assessee to show that no interest expenditure was incurred for making the investments, restricted the disallowance u/s 14A read with 8D of the Rules to Rs.7,70,600/- holding that the provisions under Rule 8D(2)(ii) have no application to the facts of this case. Learned CIT(A), however, deleted the disallowance of Rs.64,52,263/- on account of business promotion expenses by placing reliance on the decision of the first appellate authority in assessee’s own case for the Asstt. year 2010-11. Hence, the revenue is in this appeal before us.

3 4. We have gone through the record. Assessee claims to have received Rs.39,18,947/- towards the dividend income and computed the expenditure incurred for earning the same at Rs.7,70,600/-. Learned AO recorded that the total interest was Rs.11,17,63,952/- and it has to be considered for working out the disallowance u/s 14A read with Rule 8D and by working out the formula, the AO reached the amount disallowable at Rs.7,06,12,161/-.

Assessment order speaks that the assessee pleaded before the learned AO that the interest that was paid on the funds borrowed from the bank was utilized solely for the purpose of debt securities and purchase of car and no part of such fund was utilized for investment to earn the exempt income. The assesse’s case has been that out of total interest expenditure of Rs.11,70,63,952/-, a sum of Rs.11,63,00,665/- was paid on the overdraft bank limit against the debt securities which was to be specifically utilized for dealing in debt securities as per the contract, Rs.7,04,710/- was paid on loan taken from bank and financial instruments and Rs.58,577/- was paid for late payment of service tax and TDS. It is, therefore, the contention of the assessee that no part of the borrowed amounts were utilized for investment to earn the exempt income and as a matter of fact, own funds of the assessee as on 31.3.2009 were to the tune of Rs.1,36,16,41,847/- whereas the tax free investment of the assessee was only Rs/21,60,50,180/- as is evidenced by the balance sheet and financials incorporated at page Nos. 10 to 16 of the paper book.

There is no denial of the facts and figures furnished above. Learned CIT(A) considered the issue at length and recorded that the borrowed funds were used only for the approved purposes and not use for capital markets 4 operations so also it was found that the amount of Rs.7,70,600/- offered by the assessee suo moto was enough to cover the situation. On this basis, learned CIT(A) restricted the disallowance to Rs.7,70,600/- by deleting the sum to the tune of Rs.80,40,148/-. Since no contrary facts were brought to our notice, we accept the factual finding given by the learned CIT(A).

Further, Assessment order does not speak any reasons for the learned AO to say that the expenditure disallowed suo moto by the assessee at Rs.7,70,600/- is incorrect having regard to the books of accounts of the assessee.

By placing reliance on the decision of the Hon’ble jurisdictional High Court in the cases of CIT vs. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Delhi); (ii) CIT vs. I.P. Support Services India (P) Ltd. (2015) 370 ITR 240 (Delhi); (iii) Eicher Motors Ltd. Vs CIT-III (2017) 398 ITR 51 (Delhi); (iv) Maxopp Investment Ltd vs CIT (2012) 347 ITR 272 (Delhi); (v) Joint Investments (P) Ltd. Vs CIT (2015) 372 ITR 694 (Delhi); and the Hon’ble Supreme Court decision in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT (2017) 394 ITR 449 (SC), learned AR contended that without recording any reasons for rejecting the computation of disallowance worked out by the assessee and without generating requisite satisfaction to invoke the provisions u/s 14A read with Rule 8D, the AO cannot make any addition.

In the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), the Hon’ble Supreme Court observed that ,-