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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
This appeal is filed by the assessee against the order dated 25/02/2011 passed by CIT(A)-XVII, New Delhi.
The grounds of appeal are as under:-
1. That the Ld. CIT(A) has erred in confirming the disallowance made by the Ld. AO of Rs. 12,66,444/- against the dividend of Rs. 3,63,450/- u/s 14A of the Income Tax Act, 1961 read with Rule 8D without establishing the proximate cause between exempt income and expenses incurred to earn such income.
2. That the Ld. CIT(A) has erred in confirming the disallowance of all the expenses debited to Profit and Loss Account without appreciating the fact that the expenses of Rs. 12,66,444/- were incurred to earn Taxable Interest income of Rs. 1,10,27,443/-.
3. That the Ld. CIT(A) has failed to appreciate that interest expenses has no relation with exempt income earned in view of the fact that even when investment account balance as on 31.03.2008 was the highest for the year under appeal, there were NIL amount of borrowed funds. Thus there is no nexus between borrowed funds and investment made. Hence disallowance of interest u/s 14A of the Income Tax Act, 1961 is not warranted.
4. That the Ld. CIT(A) has not appreciated that certain expenses debited to Profit and Loss account like Depreciation etc do not attract the provisions of Section 14A of the Income Tax Act, 1961.
5. The additions made are illegal and bad in law and it are based on surmises and conjectures. The addition made cannot be justified by any material on record.
That the explanations given, evidence produced and material available on record has not been properly considered and judicially interpreted.
7. That the interest u/s 234B has been wrongly and illegally charged as the appellant could not have foreseen the additions and as such there is no default of advance tax. In any case the interest charged u/s 234B is also excessive. 3. The assessee is in the business of providing loans and advances & inter corporate deposits. The assessee filed its return of income on 22.05.2009 showing total income of Rs.49,28,18,382/-. The Return was processed u/s 143(1) of the Income Tax Act, 1961. Case was selected for scrutiny and accordingly, notice u/s 143(2) of the Act was issued to assessee on 26.08.2010. During the assessment proceedings, various claims made by the assessee were examined and various replies and explanation filed by the assessee were considered. The Assessing Officer made an addition of Rs.12,66,444/- and disallowed the claim of expenses u/s 14A Rule 8D. The Assessing Officer also disallowed business loss set off and made an addition of Rs.39,89,557/-.
Being aggrieved by the same, the filed appeal before the CIT(A). The CIT(A) held that the Assessing Officer was fully justified in making the disallowance particularly because almost all the income i.e. around 98% on income is of such a nature against which deduction of expense is not allowable.
5. The Ld. AR submitted that there was no satisfaction given by the Assessing Officer as to why expenses have to be disallowed. The Ld. AR relied on the order of the Hon’ble Delhi High Court in case of H T Media Ltd Vs. Principal CIT being 549/2015 judgment dated 23/8/2017.
6. The Ld. DR relied upon the order of the Assessing Officer and the CIT(A).
We have heard both the parties and perused the material available on record. The Hon'ble High Court in case of H. T. Media Limited held that for the purpose of Rule 8D (2)(ii), the Assessing Officer was required to examine whether “the assessee has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income of receipt. Thus, it is the mandatory requirement u/s 14A of the Act, 1961 and Rule 8D of the Income Tax Rules, 1962 to record satisfaction, and if the satisfaction/reasons are not mentioned the question of applying Rule 8D did not arise. Consequently, on the aspect of administrative expenses being disallowed since there was a failure by the Assessing Officer to comply with the mandatory requirement of Section 14A(2) of the Act read with Rule 8D (1) (A) of the Rules record of satisfaction is required there under. The question of re-applying Rule 8D(2) (iii) of the Rules did not arise. In the present case also, the same does not arise. The Assessing Officer as well as the CIT(A) have failed to take into account the expenses incurred by the assessee and there was no satisfaction recorded by the Assessing Officer regarding invocation of Rule 8D. The Hon’ble High Court in case of ACB India Ltd. (Formerly M/s Aryan Pol beneficiations Pvt. Ltd.) Vs. ACIT being dated 24th March, 2015 held as under:-
“4. The A.O, instead of adopting the average value of investment of which income is not part of the total income i.e the value of tax exempt investment, chose to factor in the total investment itself. Even though the CIT(A) notices the exact value of the investment which yielded taxable income, he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs.38,61,09,287/- with the figure of Rs.3,53,26,800/- and thereafter arrive at the exact disallowance of 0.5%.
In view of the above reasoning, the findings of the ITAT and the lower authorities are hereby set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the A.O who shall do so after giving due notice to the party.”
Thus, in the present case no satisfaction/reason recorded by the Assessing Officer as well as CIT(A) as to whether the assessee incurred the expenditure or not. Merely coming to the conclusion that the Revenue is not satisfied the assessee’s claim that no expenditure was incurred can not suffice the purpose of the invocation of Rule 8D of the Income Tax Rules, 1962. Thus, the issue contested by the assessee is squarely covered by the jurisdictional High Court in favour of the assessee.
In result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 22nd November, 2017.