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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P BOAZ
Per Shri Jason P Boaz, A.M. : These appeals by the assessee are directed against the separate orders dated 22.11.2017 of the CIT(Appeals)-10, Bengaluru, relating to assessment years 2012-13 and 2013-14.
Briefly stated, the facts of the case are as under:
2.1 The assessee is a company engaged in the business of manufacture of automobile leaf springs. In the course of assessment proceedings, for both Assessment Years 2012-13 and 2013-14, the Assessing Officer (‘AO’) noticed that and 337/Bang/2018 Page 2 of 5 the assessee had earned dividend income of Rs.51,000/- in each of these years, which was claimed exempt u/s 10(34) of the Income Tax Act, 1961 (in short ‘the Act’). In terms of section 14A of the Act, the AO wanted to disallow expenses incurred in earning exempt income. The dispute before the AO was with regard to disallowance of other expenses in terms of Rule 8D(2)(ii) and (iii) of the Income-Tax Rules, 1962 ["the Rules"] r.w.s. 14A of the Act. According to the assessee, no expenses were incurred for earning the exempt income. The assessee pleaded that the investments were made out of capital and free reserves available with it and that the disallowance, if at all, cannot exceed the amount of exempt income earned by the assessee during the relevant previous year. The AO, however, was of the view that disallowances in terms of Rule 8D(2)(ii) and (iii) of the Rules were called for. Accordingly, the AO computed the disallowance under Rule 8D(2)(ii) and (iii) as under:-
Assessment Year Disallowance u/R Disallowance u/R Total 8D(2)(ii) 8D(2)(iii) (Rs.) (Rs.) (Rs.) 2012-13 16,97,863/- 86,062/- 17,83,925/- 2013-14 19,41,869/- 87,041/- 20,28,910/- 2.2 Aggrieved by the orders of assessment for Assessment Years 2012-13 and 2013-14, the assessee preferred an appeal before the CIT(Appeals)-10. The CIT(Appeals) was of the view that disallowance u/s. 14A of the Act r.w.r. 8D was warranted and therefore upheld the disallowance thereunder made by the AO.
Aggrieved by the orders of CIT(Appeals)-10, Bangalore, dated 22.11.2017, for Assessment Years 2012-13 and 2013-14, the assessee has preferred the present appeals before the Tribunal wherein it has raised almost identical grounds (except for the quantum of disallowance) and we therefore extract hereunder the grounds raised
for Assessment Year 2012-13: and 337/Bang/2018 Page 3 of 5
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in sustaining the disallowance of Rs.17,83,925/- u/s. 14A of the Act computed as per Rule 8D of Income-tax Rules, without appreciating • that the appellant has not incurred any expenditure to earn exempt income and hence, the provisions of sec. 14A of the Act are not attracted under the facts and in the circumstances of the appellant's case.
3. Without prejudice to the above, the learned CIT[A] failed to appreciate the fact that the appellant's investment in shares was only to the tune of Rs.173.77 lakhs (of which more than 95% relates to investment in the shares of subsidiary company i.e. M/s.Lamina Foundries Ltd.) and these investments were made by the appellant from of its own funds represented by share capital and reserves, which was to the tune of Rs.503.76 lakhs and no interest was paid thereon and therefore, the disallowance made by invoking the provisions of Rule 8D[2][ii] of the I.T.Rules was misplaced since the investment in shares was not out of borrowed funds and hence, the disallowance made to the extent of Rs. 16,97,863/- ought to have been deleted. 3.1 Without prejudice to the above, the Learned CIT[A] erred in considering the entire amount of interest and bank charges for the purpose of calculating the amount of disallowance U/S.14A of the Income Tax Act. The learned CIT[A] erred in not excluding the interest and bank charges paid by the appellant on non-fund based (facility where no money has been received by the Company) such as Letter of Credit drawn on the suppliers of raw material. Such facility has no inflow of money which could be invested in shares.
4. The learned CIT[A] has erred in confirming the disallowance at 0.5% of average value of investment under Rule 8D(2)(iii) of Income-tax rules without appreciating that there was no exempt income that had arisen out of these investments so made and hence, the same ought to have been deleted under the facts and in the circumstances of the appellant's case.
5. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-B, 234-C and 234-D of the Act, which under the facts and in the circumstances of the appellant's case deserves to be. cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be and 337/Bang/2018 Page 4 of 5 allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
The grounds at Sl. Nos. 1 and 6 being general in nature, no adjudication is called for thereon.
Grounds 2 to 4 – Disallowance u/s 14A r.w.r. 8D 5.1 We have heard the rival submissions. The Hon'ble Delhi High Court in the case of Joint Investments (P) Ltd. v. CIT, 372 ITR 694 has taken the view that disallowance u/s. 14A of the Act cannot exceed the exempt income. Similar view was expressed by the Hon'ble Delhi High Court in the case of CIT v. Holcim India Pvt. Ltd., 272 CTR 282 (Del). These decisions were considered by the Mumbai Bench of the Tribunal in the case of Future Corporate Resources Ltd v. ACIT, dated 26.07.2017 relating to AY 2011-12 and it was held by the Tribunal Mumbai Bench that disallowance u/s. 14A of the Act cannot exceed the exempt income. Following the aforesaid decisions, we hold that disallowance u/s. 14A of the Act in the present case should be restricted to the exempt income of Rs.51,000/- earned by the assessee. We hold and direct accordingly.
Ground No. 5 – Charging of Interest u/s 234B, 234C and 234D of the Act 6.1 In this ground (supra), the assessee denies itself liable to be charged interest u/s 234B, 234C and 234D of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I therefore uphold the action of the AO in charging the assessee the said interest. The AO is, however, directed to re-compute the interest chargeable u/s 234B, 234C and 234D of the Act, if any, while giving effect to this order.
In the result, the appeals of the assessee for Assessment Years 2012-13 and 2013-14 are partly allowed.
Order pronounced in the open court on this 11th day of January, 2019.