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Facts
Multiplex Capital Ltd., a registered broker, claimed dividend income as exempt for AY 2014-15. The AO disallowed Rs. 1,29,72,585/- under Section 14A read with Rule 8D, which the CIT(A) partly allowed, restricting the disallowance to the exempt income.
Held
The Tribunal observed that the assessee possessed sufficient surplus own funds (share capital, reserves & surplus) and had made no fresh investments. Citing Supreme Court precedents, the Tribunal held that if own funds are sufficient, a presumption arises that investments were made from these funds, thus disallowance under Section 14A is not warranted.
Key Issues
Whether disallowance under Section 14A read with Rule 8D for expenses related to exempt income is applicable when the assessee possesses sufficient own funds and no fresh investment is made.
Sections Cited
143(3), 10, 14A, 8D
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Income Tax Appellate Tribunal, DELHI BENCHES : E : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI BRAJESH KUMAR SINGH
This appeal is preferred by the assessee against the order dated 13.11.2019 of the Commissioner of Income Tax (Appeals), Delhi-6 (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.CIT(A), Delhi-6/10494/2016-17 arising out of the appeal before it against the order dated 26.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ITO, Ward 17(2), New Delhi, (hereinafter referred to as the Ld. AO).
Heard and perused the record. The Assessee Company is a registered broker under SEBI and trades in equity and F&O market for itself as well on behalf of its clients. Original return was e-filed on 27.11.2014. The Assessee had claimed dividend income of Rs. 3,66,199/- as exempt under section 10 of the Act and no suo moto disallowance was made by the Assessee against this exempt income. The assessment was completed vide order dated 26.12.2016 passed under section 143(3) of the Act wherein the AO made disallowance of Rs. 1,29,72,585/- under Section 14A read with Rule 8D. The CIT (A) vide order dated 13.11.2019 allowed the appeal partly and restricted the disallowance to the exempt income.
The basis and foremost contention of Ld. AR is that as the Assessee had sufficient surplus funds available which is evident from the financial statements of the Assessee and the Assessee had not made any fresh investment, no disallowance can be made. In this context we appreciate the submissions of ld. AR, while referring to the Balance Sheet at page 16 of PB, that assessee had shown share capital and reserves and surplus of Rs. 32,500,000/- and Rs. 66,607,323 respectively. There are no long term borrowings and short term borrowings are of Rs. 1,01,77,534. Then there is no change in non-current and current Investments in the impugned AY. It is settled proposition of law that if 2 own funds are sufficient to meet the amount of investment yielding the exempt income, then a presumption would arise that the investment was made out of the own funds available with the assessee. Reliance is rightly placed by ld.AR on decisions in South Indian Bank Ltd. v. Commissioner of Income-tax [2021] 438 ITR1 [SC]; Godrej & Boyce Manufacturing Company Ltd. 394 ITR 449 (SC); Principal Commissioner of Income-tax-IV, Ahmedabad v. Sintex Industries Ltd. (2018) 93 taxmann.com 24 (SC).
Consequently the grounds are sustained and the appeal is allowed.