JOINT COMMISSIONER OF INCOME TAX (OSD) 14(1)(2), MUMBAI vs. DHFL HOLDING PRIVATE LIMITED, MUMBAI

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ITA 985/MUM/2018Status: DisposedITAT Mumbai31 July 2019AY 2012-135 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to restrict the disallowance under Section 14A to the extent of the exempt income earned by the assessee. This was based on judicial precedents that limit such disallowances to the amount of exempt income.

What were the facts?

The assessee company, engaged in holding and investments, declared nil total income and a significant loss for AY 2012-13. The Assessing Officer (AO) disallowed expenditure under Section 14A read with Rule 8D, amounting to Rs. 5176 lakhs, to earn exempt dividend income of Rs. 27,49,31,445/-.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D should be restricted to the amount of exempt income. Whether the CIT(A) was right in restricting the disallowance to the extent of exempt income.

Which sections of the Income-tax Act were involved?

Section 14A,Section 10(34)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI M. BALAGANESH, AM & SHRI AMARJIT SINGH, JM

Hearing: 29/07/2019Pronounced: 31/07/2019

O R D E R

PER AMARJIT SINGH, JM:

1.

The revenue has filed the present appeal against the order dated 28.11.2017 passed by the Commissioner of Income Tax (Appeals) -22, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.

2.

The revenue has raised the following grounds: - "

1. "on the facts and in the circumstances of the case and in law, was the CIT(A) right in upholding the decision of the Assessing Officer in partly confirming the decision of the AO; that is contrary to the A.Y.2012-13 provisions of Section 14A read with Rule 8D, that has been introduced with retrospective effect from 1.4.1962. 2. "on the facts and in the circumstances of the case and in law, was the CIT(A) right in restricting the disallowance u/s.14A to the extent of exempt income earned by the Assessee Company".

3. The appellant prays that the order of the CIT(A) on the above ground be reversed and that of the assessing officer be restored.

4. The appellant craves leaves to amend or alter any ground or add a new ground which may be necessary.”

3. The brief facts of the case are that the assessee filed its return of income for the A.Y 2012-13 on 26.09.2012 declaring total income to the tune of Rs. Nil and current year loss to the tune of Rs.52,31,74,228/- Thereafter, the case was selected for scrutiny, therefore, notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. The assessee company was a Private Limited Company engaged in the business of Holding & Investments in Shares, Bonds, Debentures etc. On verification, it was found that the assessee received the dividend income to the tune of Rs.27,49,31,445/- which was claimed as exempt u/s 10(34) of the Act. The AO applied the provisions u/s 14A of the Act r.w. Rule 8D of the Rules and assessed the expenditure to earn the exempt income to the tune of Rs.5176 lakhs. The total income of the assessee was assessed as Nil and book profit at loss of Rs.2333 lakhs. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) restricted the addition to the extent of exempt income. Feeling aggrieved, the revenue has filed the present appeal before us.

4.

We have heard the arguments advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly deleted the addition raised by the 2 A.Y.2012-13 AO in view of the provisions u/s 14A of the Act r.w. Rule 8D of the Rules, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “6.2 I have considered the appellant’s submissions. There is no dispute that the whole of the interest expenses of Rs.4832 lakhs has been incurred on account of borrowings for making the investment from which exempt income has been earned. This is an expenditure directly relating to such income and the whole of such expenditure is to be disallowed u/s 14A of the Act. As regards disallowance of administrative expenses of 0.5% under Rule CD (2)(iii), the various Courts have held that earning of income including exempt income is not an automatic activity and that it involves resources and administrative expenses. The disallowance made by the Assessing Officer is, therefore, confirmed in principle. However, while calculating the average value of investments, the investments made in subsidiaries for strategic purpose is to be excluded as held by the various courts. 6.3 The appellant has contended that disallowance u/s 14A has to be restricted to the extent of exempt income claimed. Reliance has been placed on the decision of the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT (2015) 372 ITR 694 (Delhi)(HC) in support of this proposition. Further reliance has also been placed on the decision of the Hon'ble jurisdictional Tribunal in the case of Daga Global Chemicals Pvt. Ltd. in TA No. 5592/Mum/2012 wherein it has been held that disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of these judgements, the disallowance u/s 14A is restricted to the exempt income of Rs.2749 lakhs. The appellant's ground of appeal

is partly allowed.”

5. On appraisal of the above mentioned order, we noticed that the CIT(A) has restricted the expenditure to earn the exempt income to the extent of dividend income in view of the decision of Hon’ble Delhi High Court in case of Joint Investments Pvt. Ltd. Vs. CIT (2015) 372 ITR 694 3 A.Y.2012-13

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