LADDERUP FINANCE LIMITED ,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX-10(2)(1), MUMBAI

(a) Disallowance u/s. 14A r.w.r 8D(2)(iii) be deleted;

(b) Dividend received from subsidiary company be allowed to be set off as per section 115-0(1 A) of the Act.

(c) Such other relief, as may be deemed fit in the matter, be granted.

2. The brief facts of the case are that assessee is a registered non-banking finance company and is engaged in the business of granting loans and advances and derivative trading. The return of income for the year under consideration was filed on 29.09.2013 declaring a total income of Rs.1,54,22,630/-. Thereafter, the case was selected for scrutiny and after serving statutory notices and providing opportunity of hearing, assessment order u/s 143(3) of the I.T. Act was passed thereby making additions/disallowances u/s 14A r.w.r. 8D of the I.T. Act. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, partly allowed the appeal of the assessee by restricting the disallowance of Rs. 7,11,140/-

Now before us, the assessee has preferred the present appeal.

Ground No. 1 (a & b) 3. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in sustaining the disallowance u/s 14A r.w.r 8D(2)(iii) of the Act made by AO.

4. At the outset, Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A) and submitted before us that during the year under consideration, the assessee had received dividend income of Rs.1,14,88,492/-, which was claimed exemption u/s. 10(34) of the Act. It was submitted that assessee disallowed a sum of Rs.1,42,952/- being expenses related to exempt income u/s. 14A of the Act. In this regard, Ld. AR drawn our attention to the written submission filed by him before Ld. CIT(A) which is contained in para no. 3 of its order, wherein assessee vide letter dated 11.01.16 submitted the expense wise explanation as to why the expenses claimed cannot be attributable towards earning of exempt income. In this way, assessee submitted that the disallowance of Rs. 1,42,952/- made u/s 14A of the Act was justified and stands explained. Ld. AR further submitted that AO had not recorded ‘objective satisfaction’ having regard to the accounts of the assessee while making disallowance u/s 14A of the Act and relied upon judgment in the case of Smartchem Technologies Vrs. ACIT(85 taxmann.com 43) (Mum) and Aditya Birla Finance Ltd. Vrs. ACIT (83 taxmann.com 85) (Mum). It was further submitted that investment from which exempt income had been earned, should have only been considered by the AO and relied upon judgment in the case of ACIT vrs. Vireet Investment Pvt. Ltd. (82 taxmann.com 415) (Del-S.B.) and DCIT vrs. Reliance Power Ltd. (ITA No. 5975/Mum/12).

From the records, we notice that assessee had received dividend income of Rs.1,14,88,492/-, which was claimed exemption u/s. 10(34) of the Act and in this way assessee had suo-moto disallowed a sum of Rs.1,42,952/- being expenses related to earn exempt income u/s. 14A of the Act. In para no. 3 of the order of Ld. CIT(A), assessee vide letter dated 11.01.16 submitted in detail the expense wise explanation as to why the expenses claimed cannot be attributable towards earning of exempt income. It was also argued that the investment from which exempt income has been earned during the year, should have been considered for the purpose of calculating average value of investment. However, Ld. CIT(A) had made no reference to the factual details submitted by the assessee and had not recorded any credible reasoning having regard to the accounts of the assessee, which according to us is a condition precedent for applying formula contained in rule 8D. In this respect, we draw strength from the judgment of Tribunal in the case of Smartchem Technologies Vrs. ACIT(85 taxmann.com 43) (Mum), wherein it was held that ‘Where there was no reference to any of fact situation or any credible reasoning or material by AO, condition precedent for applying formula contained in rule 8D was not satisfied in order to compute disallowance u/s 14A of the Act’ and judgment in the case of Aditya Birla Finance Ltd. Vrs. ACIT (83 taxmann.com 85) (Mum).

Ground No. 2 10. Since this ground raised by the assessee has not been pressed, therefore this ground raised by the assessee stands dismissed as not pressed.

Ground No. 3 & 4 11. These grounds raised by the assessee are general in nature, thus requires no specific adjudication.