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Facts
The assessee filed its return for A.Y. 2011-12, declaring a loss. The Assessing Officer, under Section 143(3), disallowed Rs. 8,25,801/- under Section 14A read with Rule 8D, citing expenses incurred in relation to earning exempt dividend income from investments. The CIT(A) upheld this disallowance, noting the assessee's investments and dividend income, and dismissed the assessee's appeal.
Held
The Income Tax Appellate Tribunal found no reason to interfere with the concurrent findings of the AO and CIT(A). It held that the disallowance made under Section 14A read with Rule 8D was correctly applied, particularly considering the assessee's investments yielding exempt income and the principles established in the Maxopp judgment. The appeal of the assessee was therefore dismissed.
Key Issues
Whether the disallowance of expenditure incurred in relation to exempt income under Section 14A read with Rule 8D of the Income Tax Act, 1961, was justified.
Sections Cited
Section 14A, Rule 8D, Section 143(3), Section 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
Before: SH. S. RIFAUR RAHMAN & SH. SUDHIR KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI BEFORE SH. S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SH. SUDHIR KUMAR, JUDICIAL MEMBER ITA No.2424/Del/2022 Assessment Year: 2011-12 Angelic Construction Private Vs ACIT Central Circle -8 Limited New Delhi, H.No. 119 New Delhi G/F Gali no -1KH No Khajuri khas near Shiv Mandir New Delhi-110094 PAN No. AAACC1080F (APPELLANT) (RESPONDENT) Appellants by None present Respondent by Sh. Amit Katoch, Sr. DR. Date of hearing: 11/09/2024 Date of Pronouncement: 16/10/2024 ORDER PER SUDHIR KUMAR, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Delhi, [hereinafter referred to as “CIT(A)”], vide order dated 27.03.2018 pertaining to A.Y. 2011-12 and arises out of the assessment order dated 28-03-2014 passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred as ‘the Act’].
The assessee has raised the following grounds of appeal :-
That the order passed by the Ld CIT Appeal confirming the addition made by the Assessing Officer is contrary to the facts, bad in law and must be quashed.
That having regard to the facts and circumstances of the case, Ld. CIT appeal has erred in law and on the facts in confirming addition of Rs. 8,25,801/- under section 14A of the 1.T. Act, 1961 read with Rule SD of the I.T. Rules, 1962 treating them as non-genuine is arbitrary, capricious, unwarranted and must be quashed.
3.That the action of the Ld. CIT Appeal in confirming the addition 0 of Rs. 8,25,801/- on account of ignorance of the facts that the company had not incurred any expenditure during the year which could be related to earn dividend income and making investment, hence no disallowance is called for u/s 14A.
That the action of the Ld. CIT Appeal in confirming the addition 0 of Rs. 8,25,801/- on account of ignorance of the Judicial pronouncements in case of Priya Exhibitors Pvt. Ltd., Delhi ITAT in ITA No. 1707/Del/2011 wherein it was held that the disallowance u/s 14A requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions.
That the action of the Ld. CIT Appeal in confirming the addition of Rs. 8,25,801/- on account of ignorance of the term "expenditure incurred" in section 14A refers to actual expenditure and not to some imagined expenditure. If no expenditure is incurred in relation to the exempt income, no disallowance can be made u/s 14A.
At the time of hearing none appeared. We notice from the record that the appeal was filed on 30.09.2022. Since then the case was posted for hearing in ten occasions and none represented. Hence, for today the notice was issued and none represented. The Bench decided to proceed the issue with the assistance of Ld. DR.
Brief facts of the case are that the assessee has filed the return of income declaring total loss of Rs. 3014695/- on 30- 09-2011. A notice u/s 143(3) of the Act was issued on 26-07- 2013. Notice u/s 142(1) of the Act along with questionnaire was issued on 26-07-2013. In the response of the notices Sh. Karan Jain attended the proceedings time to time. The AO has assessed the income of the assessee of Rs.21,88,894/- after allowing the disallowance of Rs.825801/- u/s 14A of the Act read with rule 8D of the Act.
Aggrieved by the order of the AO the assessee has filed the appeal before the Ld CIT(A) who vide his order dated 27-03-
2018 dismissed the appeal against which the assessee is in appeal before us.
Ld DR has strongly supported the findings of the AO and Ld CIT(A). He has also submitted that the AO has rightly assessed the income of the assessee.
We have heard the Ld. DR and perused the material available on record. No one is present on behalf of the assessee.
The Ld.CIT(A) observed in his order as under :-
a. I have considered the facts of the case, the basis of the disallowance made by the Assessing Officer and the arguments of Id. AR during appellate proceeding. Only issue is in respect of disallowance u/s 14A, It is disposed off as below-
b. As per section 14A of the Act for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under the Act Hon’ble Delhi HC in the case of Maxopp Investment Ltd. vs CIT 203 Taxman 364 (Del.) has also held that before invoking provisions of Rule SD, the AO has to first examine the expenditure and its nexus with the earning of tax-free income, as provided in sub-section (2) of section 14A. If there
is no nexus, the disallowance cannot be made, otherwise disallowance can be computed as prescribed in Rule 8D. The appellant company had investment in shares on which the appellant company has earned dividend income amounting to Rs 8,30,472/- during the year. The company has made investment in the quoted shares of M/s Era Infra Engineering Limited of Rs. 17,10.02.860 and unquoted shares of M/s Image Estates (P) Ltd of Rs. 20,00,000/- in the preceding years. Most of the investment in shares was made in preceding years. It was stated to be for strategic purposes. Now this plea of strategic investment is rendered infructuous in view of recent judgment of Hon'ble Supreme Court in case of Maxopp where such classification has been done away with. The computation of disallowance of expenses under section 14A | in relation to exempt income) is to be made only in respect of expenses only. The expense shall be subjected to examination per section 14A read with rule 8 D. The AO has carried out the disallowance as per the extant rules. This entity has investments and has earned dividends. The basic premise of section 14A has to be considered while examining the disallowance. The ruling of Hon'ble Jurisdictional ITAT in the case of M/s Gillette Group India Pvt. Ltd. vs ACIT (in ITA no. 267/Del/2012) is also relied upon herein. In view of the extant jurisprudence and the position of statute read with rule 8D, the action of the AO is upheld in entirety.
The other ground about penalty is premature, hence dismissed.
On perusal of the order of the AO it reveals that AO has rightly assessed the income of the assessee. The Ld.CIT(A) has rightly dismissed the appeal. We do not find any reason to interfere with the finds of the Ld CIT(A). The appeal of the assessee is liable to be dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 16.10.2024.
Sd/- Sd/- (S. RIFAUR RAHMAN) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *NEHA, Sr. PS* Date:- .10.2024 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) ` 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI