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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: HON’BLE, SHRI G.D. AGRAWAL & SHRI KULDIP SINGH
ASSESSEE BY : Shri K.M. Gupta, Advocate REVENUE BY : Shri Arun Kumar Yadav, Senior DR Date of Hearing : 31.10.2017 Date of Order : 08.11.2017
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : objections filed by the assessee are being disposed off by way of consolidated order to avoid repetition of discussion.
The Appellant, Deputy Commissioner of Income-tax, Circle 7 (1), New Delhi (hereinafter referred to as ‘the Revenue’) in by filing the present appeal sought to set aside the impugned order dated 07.07.2015 passed by the Commissioner of Income-tax (Appeals)-3, New Delhi qua the assessment year 2011-12 on the ground that :-
“Whether on the facts and in the circumstances of the case and in law, Ld. CIT (A) has erred in restricted the disallowance of Rs.45,50,271/- made by the AO to Rs.3,46,535/- under Rule 8D(iii) read with section 14A of the Act.”
The Objector, M/s. DARCL Logistics Limited, by filing the present cross objections challenged the impugned order dated 07.07.2015 passed by the Commissioner of Income-tax (Appeals)- 3, New Delhi qua the assessment year 2011-12 on the grounds inter alia that :-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in affirming the disallowance of INR 3,46,535 1- by applying the provisions of Rule SO(2)(iii) read with Section 14A of the Income Tax Act, 1961 ('the Act') without appreciating the fact that no expenditure was incurred by the respondent assessee for earning exempt dividend income of INR 36,532/- during the subject year.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in affirming the disallowance of INR 3,46,535/- by applying Rule SO read with Section 14A of the Act without appreciating that the Ld. AO, having regard to the ./2015 CO No.445/Del/2015 accounts of the respondent assessee, has failed to record his dis- satisfaction with respect to correctness of claim made by the respondent assessee that no expenditure has been incurred in relation earning exempt dividend income of INR 36,532/- during the subject year before invoking Rule 8D. 3. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal
, the Ld. CIT(A) has erred in not restricting the disallowance under Section 14A of the Act upto the extent of exempt dividend income of INR 36,532/- received by the respondent assessee in view of decision of Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT (ITA No. 117/2015) and Mumbai ITAT in the case of Daga Global Chemicals Pvt. Ltd. vs. ACTT (ITA No. 5592/Mum/2012).”
4. Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee is into the business of transportation of goods and material through road transport with heavy vehicles hired from market and with its own fleets of trucks as well as through rail transportation. Assessing Officer by invoking the provisions contained under section 14A of the Income-tax Act, 1961 (for short ‘the Act’) made disallowance of Rs.45,50,271/- during the year under assessment by rejecting the contentions raised by the assessee company that all the investments on which the assessee company has received dividends are old investments and the assessee company has not incurred any expenses to earn the same as the dividends are directly credited in the bank account of the assessee company through ECS.
Consequently, the AO computed the income of the assessee company as under :-
Cla- Particulars Amount use (in Crs.) i. Expenditure Nil directly related to exempt income ii. Disallowance of interest 250084647 expenditure
A. Interest expenditur e incurred during the year B. Average Value of 68282461+70331501 69306981 investment 2
4794955816+3451333395 4123144606 C. Average of 2 total assets
250084647x69306981 4203736 Disallowance 4123144606 =A* B/C iii Aggregate of 346535 Opening and Closing value of investment (Average Value 0.5% of 69306981 of Investment) ½% of above as per Rule 8D Total disallowance [Aggregate of (i), (ii) & (iii) 4550271
5. Assessee carried the matter by way of filing appeal before the ld. CIT (A) who has partly allowed the appeal by deleting the addition to Rs.42,03,736/- made u/s 14A read with Rule 8D of the Income-tax Rules, 1962 (for short ‘the Rules’). CIT (A) consequently restricted the addition to Rs.3,46,535/- on account of income. Feeling aggrieved, the Revenue has challenged the deletion of Rs.42,03,736/- by way of filing the appeal. At the same time, the assessee company has also challenged the impugned order passed by ld. CIT (A) to the extent of sustaining the addition of Rs.3,46,535/- by filing cross objection.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Ld. DR for the Revenue challenging the impugned order passed by ld. CIT (A) relied upon the assessment order.
However, on the other hand, the ld. AR for the assessee company to repel the arguments addressed by the ld. DR contended that section 14A is not attracted in this case as the assessee company has received dividend on old investment of Rs.69,86,434/- on which no expenses have been incurred. The ld. AR for the assessee company further contended that in the AY 2009-10, similar disallowance has been deleted by the Tribunal in assessee’s own case in order datecx30.04.2014; that the assessee company has only made an investment of Rs.5,00,000/- during the year under assessment that Rs.3,46,535/- (actual amount is Rs.43,228/-) made by the ld. CIT (A) is not sustainable.
Undisputedly, assessee company has received dividend income of Rs.43,228/- during the year under assessment as per Schedule 17 brought on record during the course of argument. It is also not in dispute that all other investment considered by the AO for apportionment of expenses u/s 14A read with Rule 8D are old investments. It is also not in dispute that the assessee company has invested an amount of Rs.5,00,000/- only during the year under assessment, that too out of its own funds.
In the backdrop of the aforesaid facts and circumstances of the case, we are of the considered view that there is no illegality or perversity in the deletion of addition of Rs.42,03,736/- by the ld. CIT (A) as the provisions contained u/s 14A read with Rule 8D are not attracted.
So far as question of restricting the disallowance to Rs.3,46,535/- (actual amount is Rs.43,228/-) as made by ld. CIT (A) on account of administrative expenses is concerned, when the ld. CIT (A) has recorded categoric finding that investment of Rs.5,00,000/- was made by the assessee company out of its own surplus funds, such disallowance can be made to the extent of (Del.) 12. In view of what has been discussed above, we are of the considered view that the impugned order passed by ld. CIT (A) to the extent of deletion of addition of Rs.42,03,736/- does not suffer from any illegality or perversity. However, findings returned by ld. CIT (A) qua restricting the disallowance to the tune of Rs.3,46,535/- (actual amount is Rs.43,228/-) on account of administrative expenses are not sustainable to the extent that the disallowance can only be restricted to the extent of exempt income only. Consequently, appeal filed by the Revenue is dismissed and cross objections filed by the assessee are allowed. AO is directed to restrict the disallowance to the extent of exempt income which is Rs.43,228/-. Order pronounced in open court on this 8th day of November, 2017.