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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI SUDHANSHU SRIVASTAVA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the Revenue is preferred against the order of the Commissioner of Income Tax (Appeals) – 4, New Delhi dated 27.02.2015 pertaining to assessment year 2009-10.
The solitary grievance of the Revenue is that the CIT(A) has erred in deleting the addition of Rs. 56,68,293/- made u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] r.w.r 8D of the Income tax Rules [hereinafter referred to as ‘the rules’].
Briefly stated, the facts of the case are that during the course of assessment proceedings and on perusal of the profit and loss account and balance sheet of the assessee, the AO found that the assessee has made investment in shares at Rs. 20.74 crores. The AO further found that the assessee has earned dividend income at Rs. 2.34 crores and noticed that the assessee has not disallowed any amount u/s 14A of the Act for earning exempt income. The assessee was asked to explain why such disallowance should not be computed as per Rule 8D of the I.T. Rules.
In its reply, the assessee explained that it has not incurred any expenditure for earning exempt dividend income. It was further explained that all the expenses debited to profit and loss account are related to business of the assessee and none of the expenses have been incurred towards earning of the exempt income.
The AO was not convinced with the reply of the assessee and proceeded by computing disallowance u/s 14A of the Act r.w.r 8D of the Rules and computed the disallowance at Rs. 56.68 lakhs.
The assessee carried the matter before the CIT(A) and reiterated its contentions. It was explained that the AO has, without recording any satisfaction, mechanically computed the disallowance. It was further explained that the assessee was having sufficient own funds for making investments and the borrowed capital was not used for making the investment.
After considering the facts and submissions, the CIT(A) found that the assessee was having share capital of Rs. 2 crores and reserves and surplus of Rs. 52.69 crores. The CIT(A) further found that the secured loan was obtained for purchase of cars. The CIT(A) came to the conclusion that none of the borrowings was utilised for making investment. The CIT(A) accordingly deleted the interest expenses considered for computing the disallowance. The CIT(A) further observed that the assessee has not made any administrative efforts for receiving dividend or making investment out of surplus funds. Entire disallowance of Rs. 56.68 lakhs was directed to be deleted.
None appeared for the assessee. We heard the ld. DR who relied upon the findings of the AO.
We have given thoughtful consideration to the orders of the authorities below qua the issue. The investment in shares is at Rs. 20.74 crores and there is no dispute that the assessee was having interest free own funds at Rs. 54.69 crores. It can be safely concluded that the investment has come out of interest free own funds. Therefore, there is no question of considering the interest for the purpose of computing the disallowance. No doubt, the assessee has not made any administrative efforts for earning exempt income, but at the same time, in our considered opinion, a reasonable disallowance should be made. Therefore, in the interest of justice, we direct the AO to restrict the disallowance to Rs. 2 lakhs.
In the result, the appeal of the revenue in is partly allowed.
The order is pronounced in the open court on 12.06.2018.