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Income Tax Appellate Tribunal, ‘B’ BENCH : CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER This is an appeal filed by the Assessee directed against the order of the Commissioner of Income Tax (Appeals)-15, Chennai (‘CIT(A)’ for short) dated 29.01.2019 for the Assessment Year (AY) 2013-2014.
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The Assessee raised the following grounds of appeal:
‘’1. The order of the CIT(A) in ITA.No.24/18-19/CIT(A)-15 dated 29.01.2019 is against law and facts of the case.
The CIT(A) erred in confirming part of the disallowance made u/s.14A r.w Rule 8D.
The CIT(A) erred in not appreciating the fact that out of the total dividend income received of Rs.1,23,12,020/- Rs.1,22,60,580/- has been credited to the appellant’s bank account under ECS and only the balance amount of Rs.51,440/- has been received by cheque and that the appellant company itself has disallowed Rs.40,628/- u/s.14A taking into account the administrative expenditure incurred.
The CIT(A) erred in not appreciating the fact that the Assessing Officer applied rule 8D without recorded as to why he was not satisfied above the correctness of the amount disallowed by the appellant u/s.14A. In this connection the appellant relies on the following decisions.
i. CIT Vs Taikisha Engineering India Ltd (229 Taxman 143) Delhi HC
ii. CIT Vs I P Support Services India P Ltd (378 ITR 240) Delhi HC.
iii. Principal CIT Vs Reliance Capital Asset Management Limited (Bombay HC (400 ITR 217)). SLP against this judgment has been dismissed by the Hon’ble SC. SLP(C) No.11379 of 2018 dated 07.09.2018 (259 Taxman 83).
The CIT(A) erred in not appreciating the fact that the investments in subsidiary companies and associate companies were made as a matter of commercial expediency and not with intention of earning exempt income.
6 Without prejudice to the above grounds the appellant raises the following ground.
a. The CIT(A) erred in not appreciating the fact that while applying rule 8D, the Assessing Officer has taken into account the investments from which no exempt income was received though
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in the following decisions, it has been held that, the investments from which no exempt income was received have to be excluded.
i. ITAT Chennai C Bench decision in the case of Shriram Ownership Trust in ITA No.406 & 407 / Mds/2017 dated 05.07.2017.
ii. ITAT Special Bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd (82 Taxmann.com 415).
For these and other grounds that may be adduced before or at the time of hearing, the ITAT may be pleased to delete the disallowance made u/s.14A r.w. Rule 8D’’.
The brief facts of the case are as under: 3.
The appellant namely ‘’Shriram Transport Finance Company
Ltd’’, is a company incorporated under the provisions of the Companies
Act, 1956. It is engaged in the business of financing commercial
vehicles. The return of income for the AY 2013-14 was filed on
28.09.2013 disclosing total income of Rs.17,71,53,21,550/- and the
same was revised on 30.03.2015 disclosing total income of
�18,23,64,72,690/-. The assessee also returned book profit of
Rs.21,12,15,69,521/- u/s.115JB of the Income Tax Act, 1961 (in short
‘’the Act’’). Against the said return of income, the assessment was
originally completed by the Assessing Officer vide order dated
21.03.2016 passed u/s. 143(3) of the Act at total income of
Rs.24,31,15,65,293/-. While doing so, the AO made disallowance
u/s.14A of the Act of Rs.1,56,69,564/-, disallowance of provision for
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bad debts �180,04,49,000/-, disallowance of royalty payment of
�13,35,73,963/-, disallowance of interest u/s.234D of �7,31,78,234/-
and disallowance of statutory reverse of �405,22,21,842/-. Aggrieved
by the assessment order, assessee filed appeal before ld. CIT(A). The
addition were further contested before the Tribunal on the issue of
disallowance u/s.14A r.w.r. 8D. The Tribunal in its order dated
01.05.2017 in ITA No.2407 /Mds/2016 restored the issue to the file of
the Assessing Officer for fresh adjudication. Accordingly, the Assessing
Officer completed the assessment vide order dated 19.06.2018
passed u/s.143(3) r.w.s. 254 of the Act after making disallowance of
Rs.1,57,10,192/- u/s.14A of the Act.
Being aggrieved, an appeal was preferred before the ld.CIT(A) 4.
who vide impugned order directed the Assessing Officer to restrict the
amount of disallowance to the extent of exempt income of
Rs.1,56,28,936/- rejecting the argument that only investments which
yielded exempt income shall alone be considered for the purpose of
computing disallowance under Rule 8D.
Being aggrieved, the appellant is in appeal before us in the 5.
present appeal. Ld. Counsel submitted that assessee itself had offered
disallowance of Rs.40,628/- u/s.14A of the Act. The Assessing Officer
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without recording any satisfaction as to how the claim of the
assessee is incorrect had resorted to provisions of Section 14A r.w.r
8D. Thus, it was submitted that without recording any satisfaction,
no disallowance u/s.14A of the Act can be made. In this connection,
he placed reliance on the decisions of Hon’ble Bombay High Court in
the case of Principal CIT vs. Reliance Capital Asset Management
Limited, 400 ITR 217, Hon’ble Delhi High Court in the cases of CIT
vs. Taikisha Engineering India Ltd, 229 Taxman 143 and CIT vs. I P
Support Services India P. Ltd, 378 ITR 240. Without prejudice to the
above, it is submitted that no disallowance u/s.14A of the Act can be
made in respect of investments made in subsidiary company as
strategic investments. He further submitted that ratio decision of
Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs.
CIT, (2018) 402 ITR 640 is not applicable to the present case. Finally,
ld. Authorised Representative contended that for the purpose of
computing average value of investments, the amount of disallowance
u/s.14A r.w.r.8D, investments which yielded exempt income alone
has to be considered, placing reliance on the decision of Co-ordinate
Bench of the Tribunal in the case of Shriram Ownership Trust in ITA
Nos.406 & 407/Mds/2017, dated 05.07.2017 and decision of Special
Bench of the Tribunal in the case of ACIT vs. Vireet Investments P
Ltd. 82 Taxmann.com 415.
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On the other hand, the ld. Sr. Departmental Representative
placed reliance on the orders of lower authorities.
We heard the rival submissions and perused the material on 7.
record. The only issue in the present appeal relates to disallowance
u/s14A of the Act. Admittedly, assessee made investments which
yielded dividend income of Rs.1,23,12,020/- and investments were
made in subsidiary companies for strategic purpose. Admittedly,
assessee itself had offered suo-motu disallowance of Rs.40,628/-
u/s.14A of the Act. The provisions of Sub Section (2) of Section 14A of
the Act provides that resort to disallowance u/s.14A of the Act can
be made only if he is not satisfied with the correctness of the claim of
the assessee in respect of expenditure incurred to earn exempt
income. Therefore, it is mandatory on the part of the Assessing Officer
to record a satisfaction as to correctness or otherwise of the claim of
the assessee regarding expenditure incurred to earn exempt income.
In the present case, assessee suo-motu offered disallowance of
Rs.40,628/-. From the perusal of the assessment order, it is clear that
there is no findings by the Assessing Officer as to the correctness or
otherwise of the claim of the assessee that only an expenditure of
Rs.40,628/- was incurred. In this absence of such findings by the
Assessing Officer, resort to provisions of Section 14A of the Act cannot
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be made as ruled by Hon’ble Bombay High Court in the case of
Reliance Capital Asset Management Ltd (supra) and the SLP against
this judgment was dismissed by Hon’ble Supreme Court in 259
Taxman 83. The Hon’ble Supreme Court in the case of Maxopp
Investment Ltd (supra) has upheld this principle by holding as under:-
Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/ making the investment in shares is to be examined by the Assessing Officer’’.
Recently, the Co-ordinate Bench of the Tribunal to which one of us
i.e. the Accountant Member is the author of the order, in the case of
City Union Bank Ltd vs. Assistant Commissioner of Income Tax,
(2019) 74 ITR Trib (644) Chennai held as follows:-
‘’As regards to other limb of the argument of the assessee that in the absences of any finding by the Assessing Officer as to how the contention of the assessee that no expenditure was incurred is incorrect no disallowance should be made. We find from the assessment order that the assessee bank itself has offered a sum of �2,19,751/- under the provisions of Section 14A of the Act. From the perusal of the order of the Assessing Officer, it is clear that the Assessing Officer had not assigned any reason whatsoever as to how the claim of
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the assessee is incorrect. In the similar facts, the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, 402 ITR 640 held that in the absence of the finding of the Assessing Officer resort to provisions of Section 14A of the Act r.w.r 8D of the Rules cannot be made. This decision was followed by the Co-ordinate Bench of the Tribunal in the case of Karur Vysya Bank (supra) cited by holding as under:-
‘’Ground No. 8 challenges the addition of �3,88,882/- invoking the provision of Section 14A of the Act. It is the contention of the appellant that the appellant had not incurred any expenditure to earn exempt income. The Assessing Officer had not given any findings as to how the claim of the assessee- bank that no expenditure was incurred to earn the exempt income was incorrect. In the absence of this finding resort to the provisions of rule 8D of the Income Tax Rules cannot be made as held by the Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT, (2018) 402 ITR 640. Therefore this ground of appeal filed by the assessee is allowed. Accordingly, this ground of appeal stands allowed in favour of the assessee’’.
Similar view was taken up by the Hon’ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd, 370 ITR 338 and PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274. The Hon’ble Delhi High Court had firmly held that mere rejection of the explanation of the assessee per se cannot be accepted. This decision of Delhi High Court in the case of Moonstar Securities Trading and Finance Co. (P) Ltd, was affirmed by the Hon'ble Supreme Court in the case of dismissal of SLP in PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 275’’.
In the light of the above decisions, admittedly, in the present case, the
Assessing Officer had not recorded any findings as to the correctness
or otherwise of the claim of assessee company that only expenditure
of Rs.40,628/- was incurred to earn exempt income. Therefore, the
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Assessing Officer was not justified in resorting to provisions u/s. 14A of
the Act. Accordingly, no disallowance can be made u/s.14A of the Act.
In the result, the appeal filed by the assessee in ITA No. 8.
1250/CHNY/2019 for assessment year 2013-2014 stands allowed.
Order pronounced on 16th day of December, 2019, at Chennai.
Sd/- Sd/- (इंटूर� रामा राव) (धु�वु� आर.एल रे�डी) (DUVVURU RL REDDY) (INTURI RAMA RAO) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated:16th December, 2019. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF