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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
These are two cross appeals filed by the assessee & Revenue directed against the Order of the Commissioner of Income Tax (Appeals)- 15, Chennai, dated 25.09.2017 for the AY 2014-15.
Briefly the facts of the case are as under:
The assessee M/s.SVL Ltd., is a company registered under Companies Act, 1956. It is engaged in the business of investment. The return of income for the AY 2014-15 was filed declaring a loss of Rs.4,74,25,503/-. Against the said return of income, the assessment came to be completed by the AO vide order dated 30.12.2016 passed u/s.143(3) of the Act at total income of Rs.23,21,76,350/-. While doing so, the AO made disallowance of Rs.27,94,58,122/- invoking the provisions of Sec.14A of the Act.
The above additions were added back to the book profits u/s.115JB of the Act as well as under the normal provisions.
Being aggrieved by the above Assessment Order, an appeal was preferred before the Ld.CIT(A), who vide impugned order directed the AO to restrict the amount of disallowance to the extent of exempt income earned Rs.26,67,660/- and also set aside the matter to the AO to compute the value of investments for the purpose of computation of disallowance & 3004/Chny/2017 :- 3 -:
u/s.14A to exclude the investments in subsidiary company and the investments which have not earned any exempt income. However, the Ld.CIT(A) held that the amount of disallowance u/s.14A cannot be added back to the book profits for computing tax liability u/s.115JB of the Act following the decision of the Tribunal in the case of M/s.Shriram Capital Ltd.,
Being aggrieved by that part of the order of the Ld.CIT(A) which is against the interest of the Revenue, the Revenue is in appeal in and being aggrieved that part of the order which is against the assessee, the assessee is in appeal in ITA No.3004/Chny/2017. Now, we will take up the assessee’s appeal, the assessee has raised the following grounds:
1. The order of the CIT(A) is contrary to law and facts of the case.
2. The CIT(A) erred in confirming part of the disallowance made u/s.14A r.w. Rule 8D 3. The CIT(A) erred in not appreciating the fact that the appellant is in the business of investment promotion and the investments were not made for earning dividend income but only as strategic investment. Therefore, no disallowance u/s.14A.r.w.Rule 8D is attracted. 4. The CIT(A) erred in not appreciating the fact that the disallowance u/s.14A made by the appellant of Rs.53,353/- is reasonable. 5. The CIT(A) erred in not appreciating the fact that before proceeding to apply Rule 8D, the Assessing Officer has not recorded, having regard to the accounts of the appellant, as to why he was not satisfied with the correctness of the amount disallowed by the assessee u/s.14A of Rs.53,353/-. In this connection, the appellant relies on the Delhi High Court judgment in the case of CIT Vs Taikisha Engineering India Ltd (299 Taxman 143) and CIT Vs I P Support Services India Ltd ( 378 ITR 240). 6. For these and other grounds that may be adduced before or at the time of hearing, the Hon'ble ITAT may be pleased to delete the disallowance made u/s.14A r.w. Rule 8D. 6. The ld.Counsel for the assessee submitted that the Ld.CIT(A) erred in resorting the provision of Sec.14A without recording his satisfaction as to how the claim of the assessee that only expenditure of Rs.53,353/- was & 3004/Chny/2017 :- 4 -:
incurred to earn the exempt income. On the other hand, the Ld.DR placed reliance on the orders of the lower authorities.
We have considered the rival submissions and perused the materials placed on record.
It is a matter of record that the assessee itself disallowed a sum of Rs.53,353/- u/s.14A. The AO gave a finding that once there is an exempt income, the provisions of Sec.14A are triggered accordingly computed the disallowance u/s.14A r.w.r.8D. He also gave finding that once the provisions of Sec.14A are invoked, the computation of disallowance should be made under Rule 8D. Thus, the AO gave a categorical finding that the amount of disallowance offered by the assessee is not acceptable.
Therefore, the contentions raised on this behalf are devoid of any merit.
Consequently, the appeal filed by the assessee is dismissed.
In the Revenue’s appeal, the Revenue has raised the following grounds:
1) The order of the Commissioner of Income Tax (Appeals) is contrary to the law and facts of the case. 2) The Ld CIT(A) erred in directing the AO to examine the assessee's submission with reference to the assessment record and to carry out the following directions: i) To restrict disallowance u/s 14A r.w.rule 8D, up to the exempted dividend income declared by the appellant to the extent of Rs..26,67,660/-. ii) To exclude the investment in subsidiary company. iii) To exclude the investment which have not earned any exempt income. 2.1) The CIT(A) ought to have appreciated that as per section 251(l)(a) of the Act, the "power to set aside" or "examining the issue afresh" has been omitted with effect from 01.06.2001 as per Finance Act 2001.
& 3004/Chny/2017 :- 5 -:
2.2) The Ld CIT(A) erred in directing the AO to delete the addition u/s.14A, holding the assessee did not earn any exempt income during the year when Rule 8D does not make distinction and the intention of the assessee in making such investment is relevant to the issue as held by the Apex Court in Rajendra Prasad Moody (115 ITR 519) and actual earning of interest in a particular year. 2.3) The Ld CIT(A) failed to appreciate that disallowance u/s.14A is attracted even in a case where there is no exempt income earned as held in the Chennai ITAT decision in the case of M/s.Siva Industries & Holding Ltd Vs ACIT (54 SOT 49) and which is in conformity' with department view as clarified vide Circular No.5/2014 to the effect that disallowance will be attracted even when there is no exempt income. 2.4) The Ld CIT(A) erred in directing the AO to delete the addition made to book profits computed u/s.115JB being expenditure incurred to earn exempt income even though cl.(f) Explanation 1 to Sec.115JB specifically provides for it. 2.5) The Ld CIT(A) erred in not following the decisions in Hindustan Construction Co Ltd., Vs DCIT (ITAT) MUM 145 ITD 175 and CIT Vs Goetz (India) Ltd 97 DTR 169 and Dabur India Ltd Vs ACIT(ITAT,Mum)145 ITD 175 on identical issue of addition u/s.115JB and whether such an act makes the order of Tribunal perverse in the eyes of law and on facts. 2.6) The Ld CIT(A) erred in directing the AO to examine the addition on account of u/s.14A amount even though, in earlier years department appeals are pending before High Court, 3) For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
The Revenue is in appeal challenging the finding of the Ld.CIT(A) the amount of disallowance should not be restricted to the extent of exempt income and the amount of disallowance computed u/s.14A should be added back to the book profits for the purpose of computing the tax liability. The decision of the Ld.CIT(A) is inconsistence the decision of Principal CIT, Patiala vs. State Bank of Patiala reported in [2018] 99 taxmann.com and the decision of the Hon’ble jurisdictional High Court in the case of Redington (India) Ltd. vs. ACIT reported in [2017] 77 taxmann.com 257 and also this judgment was affirmed by the Hon’ble Apex Court by dismissal of SLPs and therefore, we do not find any merit in Grounds Nos.2 to 2.3. Consequently, Grounds Nos.2 to 2.3 of the Revenue appeal are dismissed. & 3004/Chny/2017 :- 6 -:
In regard to Ground Nos.2.4 to 2.6 challenging the decision of the Ld.CIT(A) to delete the amount of disallowance u/s.14A to the book profits. The decision of the Ld.CIT(A) is based on the decision of the ITAT Delhi Bench ‘H’ (Special Bench) reported in [2017] 82 taxmann.com 415 (Delhi Trib.) (SB) and therefore, we do not find any merit in the Ground Nos.2.4 to 2.6. Consequently, Ground Nos.2.4 to 2.6 of the Revenue appeal are dismissed.
In the result, the appeal filed by the Revenue in & the appeal filed by the assessee in ITA No.3004/Chny/2017 are dismissed.
Order pronounced on the 16th September, 2019 in Chennai.