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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC”, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM (Assessment Year :2012-13) (Assessment Year :2013-14) ITA No.1940/Mum/2018 (Assessment Year :2014-15) Ms. Radhika D. Mehta Vs. The Income Tax Officer 73-A, Sky Scrapper Of Income Tax Ward 7th Warden Road 19(3)(1), Mumbai – 400 026 Matru Mandir, Mumbai – 400 020 PAN/GIR No.AAEPM4477H Appellant) .. Respondent) Assessee by Shri Rajan P. Vora Revenue by Ms. N. Hemalatha Date of Hearing 04/06/2018 Date of Pronouncement 26/07/2018 आदेश / O R D E R PER R.C.SHARMA (A.M):
These appeals are filed by assessee against the order of CIT(A)-6, Mumbai dated 22/02/2018 for A.Y.1012-14 to 2014-15 in the matter of order passed u/s. 143(3) of the IT Act. 2. The common grounds taken by assessee are as under:- On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) [CTT(A)] Assessing Officer General 1. Erred in confirming an addition of Rs. 11,91,119/- to the total income of the appellant.
1940/Mum/2018 Ms. Radhika D. Mehta Disallowance under section 14A in respect of Dividend income exempt under section 10(34) 2. Erred in confirming the disallowance of Rs. 11,91,119/- under section 14A of the Act r.w.r. 8D (i.e. Rs. 10,22,1997- of interest under rule 8D(2)(ii) and Rs. 1,68,9207- of administrative expenses under rule 8D(2)(iii)of the Rules); Investment made from non-interest bearing funds 3. Failed to appreciate the fact that interest bearing funds were not used for the purpose of making investment and appellant had sufficient own funds (non interest bearing funds) and there by no interest expenses can be disallowed under section 14A of the Act read with rule 8D of the Rules; Non-exclusion of Strategic Investment 4. Erred in not excluding the strategic investment made by the appellant from the total investments, while computing disallowance under section 14A read with rule 8D the Rules; Restriction of disallowance u/s 14A of the Act 5. Without prejudice to the above, disallowance if any, under section 14A of the Act should be restricted to 1% of the exempt dividend income earned by the appellant; 6. Without prejudice to the above, disallowance if any, under section 14A of the Act should be restricted to the amount of exempt dividend income earned by the appellant; Set-off of brought forward losses 7. erred in denying carry forward of the brought forward losses of earlier years to subsequent years, to the extent it was set off by the Assessing Officer in current year against the addition under section 14A of Rs. 1 1,91,119/- The above grounds are without prejudice to each other. The Appellant craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of appeal at any time before, or at the time of, hearing of the appeal, so as to enable Hon'ble tribunal to decide this appeal according to law.
3. The common grievance of the assessee pertains to disallowance made under Section 14A of the Act. Rival contentions have been heard and record perused. The brief facts of the case are that the assessee is an individual engaged in the business of trading/dealing in shares and securities on the stock exchange. The assessee had made investment in 1940/Mum/2018 Ms. Radhika D. Mehta the shares from which dividend income was received during the three years under consideration. The details of investment in share are as under:
Particulars As on 31 As on 31 As on 31 March 2012 March 201 3 March 2014 Investment in shares (mainly Rs. Rs. Rs. in Axis Capital Markets (I) 6,65,96,146 6,68,04,441 6,68,04,441 Ltd.)
During the course of scrutiny assessment the Assessing Officer made disallowance under section 14A of the Act r.w. Rule 8D for these assessment years under consideration, and the summary of the same is as under:
Disallowance under section 14A r.w. Rule 8D Assessment Other administrative Interest under Rule Year expenses under Rule Total 8D(2)(ii) 8D(2)(iii) 2012-13 10,22,199 1,68,920 Rs. 11,91,119 2013-14 18,16,140 3,33,501 Rs. 21,49,641 2014-15 17,57,395 3,34,022 Rs. 20,91,418
It was argued by the learned A.R. that in respect of A.Y. 2013-14 & A.Y. 2014-15 the assessee had made a suo-moto disallowance under section 14A of the Act of Rs.10,481/- and Rs. 9,817/- respectively. According to the learned A.R. there is inappropriate application of Rule 8D by the AO without recording dis-satisfaction as to correctness of suo-moto disallowance offered by the assessee. It was vehemently argued by the learned A.R. that Rule 8D cannot be applied in case of the assessee, since
1940/Mum/2018 Ms. Radhika D. Mehta the assessee had already made suo-moto disallowance under section 14A of the Act and the AO has not given any reason with regard to the dissatisfaction on the same. He further contended that while computing disallowance for assessment years 2013-14 and 2014-15, the AO has not given credit for the suo-moto disallowance already offered by the assessee in the return of income, thereby to the extent of Rs.10,481 in A.Y. 2013-14 and Rs. 9,817 in A.Y. 2014-15, there is a double disallowance made by the AO. As per the learned A.R. the aforesaid investment in Axis Capital Market (I) Ltd. was made from interest free funds available with the assessee and no direct or indirect expense has been incurred in relation to earning exempt income. Investment in shares was made in assessment years 2011-12 and 2012-13 and the same investments were continued in subsequent assessment years. As per learned AR, sufficient own/ interest-free funds were available in the said years when the investments were made. After making the investment no further efforts or cost were required for earning dividend income from the said investment. Therefore, it was submitted that no disallowance under section 14A of the Act should be made.
In view of above, he contended that the Assessing Officer has however, without appreciating the factual matrix, has arrived at the conclusion that the investment has been made from interest bearing borrowed funds. Accordingly, he submitted that no interest should be 1940/Mum/2018 Ms. Radhika D. Mehta disallowed since own funds have been used for the purpose of making investment. For this proposition, he relied on the following decisions:
• HDFC Bank Ltd. (366 ITR 505) (Bom) • Reliance Utilities & Power Ltd. (31 3 ITR 340) (Bom) • M/s. Uma Polymers Ltd. vs. DCIT (ITA 3329/Mum/2015) dated 9th February 2017 (Mum) 7. On the other hand, the learned D.R. relied on the orders of the lower authorities and contended that the AO as precisely applied Rule 8D, which is applicable for assessment years under consideration and that proper finding has been recorded by the AO to the effect that the assessee has not offered the disallowance keeping in view the quantum of expenditure incurred on account of interest and administrative expenses.
We have considered the contentions and carefully gone through the orders of the Authorities below and found from the record that the AO had computed the disallowance as per Rule 8D after observing that assessee had incurred interest on funds which was used for earning exempt income. From the record, we found that the assessee has used interest free funds borrowed from spouse, the details of which are as under: -
Particulars AY 12-1 3 AY 13-14 AY 14-1 5 Average value of Investment in shares A 3,37,84,005 6,67,00,294 6,68,04,442 as considered by the AO (opening balance + closing balance 12) Average Interest-free funds borrowed B 3,17,02,000 3,50,10,500 3,44,03,000 from Spouse (opening balance + closing balance 12)
1940/Mum/2018 Ms. Radhika D. Mehta Investment made from Borrowed C 20,82,005 3,16,89,794 3,24,01,442 funds (A-B) Total interest expenses D 24,80,484 25,02,256 26,06,036 Average Assets E 9,42,91,440 9,18,98,862 8,61,30,292 Disallowance of interest to be made F 54,770 8,62,861 9,80,367 under section 14A (D*C/E) Disallowance of interest made by the G 10,22,199 18,16,140 17,57,395 AO under section 14A r.w. Rule 8D Excess disallowance made by AO (G- 9,67,429 9,53,279 7,77,028 F)
It is clear from the above table that the AO has computed excess disallowance of interest by not giving credit for the investment made out of interest free funds borrowed from spouse. Accordingly we direct the AO to delete the excess disallowance of interest so made. So far as disallowance made under Rule 8D(2)(iii) is concerned, we observe that the AO has made proper disallowance.
We also found that as per the following judicial pronouncements disallowance under Section 14A cannot exceed the exempt income: -
i) M/s Uma Polymers Ltd. vs. DCIT (ITA 3329/Mum/2015) dated 9th February, 2017 (Mum) ii) Joint Investments Pvt. Ltd. vs. CIT (92 CCH 88) (Delhi HC) iii) DAGA Global Chemical Pvt. Ltd. vs. ACIT (43 CCH 613)(Mum) iv) M/s Diligent Investments Pvt. Ltd. (ITA No.2224/Mum/2013) dated 24th September, 2015 v) Jindal Stainless Steelway Ltd. (ITA No.6167/Del/2012) dated 28th May, 2015 vi) PCIT vs. Empire Package (P) Ltd. (95 CCH 219) (Punjab & Haryana HC)
1940/Mum/2018 Ms. Radhika D. Mehta 11. ln respect of assessment years 2012-13 and 2014-15, disallowance made by the AO exceeds the amount exempt income earned by way of dividend, as under: Assessment Year Particulars 2012-1 3 2014-15 Dividend earned Rs. 2,16,024 Rs. 15,11,640 Disallowance made by AO under section 14A Rs. 11,91,119 Rs. 20,91,418 r.w. Rule 8D
12. In view of the above and respectfully following the judicial pronouncements as stated above, we direct the AO to restrict the disallowance in the assessment years 2012-13 & 2014-15 to the extent of exempt income. AO to give credit of disallowance offered by assessee. We direct accordingly.
In the result apples file by the assessee are allowed in part in terms indicated herein above.