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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
Before: SHRI SUDHANSHU SRIVASTAVA & SHRI PRASHANT MAHARISHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This appeal has been preferred by the assessee against the order dated 16.06.2014 passed by the Ld. CIT (A)-XI, New Delhi for assessment year 2011-12 and the sole issue under challenge is the disallowance of Rs. 3,38,930/- made by the Assessing Officer on account of expenses incurred u/s 14A of the Income Tax Act, 1961 and confirmed by the ld. CIT(A).
Brief facts of the case are that the return of income was filed declaring income of Rs. 2,39,74,228/- and the assessment was completed after making a disallowance of Rs. 3,38,930/- u/s 14A of the Income Tax Act, 1961 (hereinafter called ‘The Act’). During Assessment year 2011-12 the course of assessment proceedings, the Assessing Officer observed that the assessee company had earned a dividend income of Rs. 14,45,500/- which was exempt u/s 10(34) of the Act. It was further observed that the assessee was having investment of Rs. 6,77,85,832/- throughout the year. The Assessing Officer proceeded to apply Rule 8D and made a disallowance under Rule 8D (2) (iii) of the Income Tax Rules, 1962.
2.1 On appeal by the assessee, before the Ld. Commissioner of Income Tax (A), this disallowance was confirmed and now the assessee is in appeal before the ITAT challenging the confirmation of the said disallowance.
It was submitted by the Ld. AR that before making disallowance u/s 14A, it was incumbent upon the Assessing Officer to check the correctness of the claim, then ascertain the expenditure incurred and record satisfaction that the claim of no expenditure having been incurred was incorrect. It was submitted that the Assessing Officer had not negated the assessee’s plea that no expenditure had been incurred for earning any exempt income. It was further submitted that the ‘formula’ prescribed under Rule 8D could be applied only when the Assessment year 2011-12 Assessing Officer was not satisfied with the claim of the assessee with regard to the correctness of claim of expenses or where the assessee had claimed that no expenditure had been incurred. It was also submitted that as per section 14A, only direct expenses incurred for earning exempt income would be covered and in absence of a clear finding by the Assessing Officer, no disallowance would be made in this regard. Ld. AR placed reliance on the judgment of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. Commissioner of Income Tax reported in 344 ITR 272(Del) for the proposition that the disallowance u/s 14A would be triggered only if the Assessing Officer returns the finding that he was not satisfied with the correctness of the claim of the assessee with respect to the expenditure. Reliance was also placed on the judgment of the Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Glenmark Pharmaceuticals Ltd. reported in 351 ITR 359 (Bombay) for the proposition that whether or not expenses were incurred for earning exempt income was a question of fact. Reliance was also placed on the judgment of the Hon'ble Apex Court in the case of Commissioner of Income Tax vs. Walfort Share and Stock Brokers (P) Ltd. reported in 326 ITR 1 Assessment year 2011-12 (SC) for the proposition that for attracting section 14A, there has to be a proximate cause for disallowance which is its relationship with the exempt income. It was submitted that in view of settled judicial precedents, the disallowance was bad in law and needed to be deleted.
In response, the Ld. Sr. DR placed reliance on the concurrent findings of the Assessing Officer as well as the Ld. Commissioner of Income Tax (A) and submitted that it was undisputed that the quantum of investments held by the assessee company during the year under consideration was huge and dividend income earned was also substantial and, therefore, it would be unbelievable that no administrative or managerial expenses were incurred in managing the investments and earning dividend income. It was further submitted that since the accounts of the assessee did not separately reflect the expenditure incurred towards the exempt income, the Assessing Officer’s recourse to Rule 8D was justified. It was prayed that the disallowance, as confirmed by the Ld. Commissioner of Income Tax (A), be upheld.
We have heard the rival submissions and perused the material available on record. The facts of the case are undisputed.
Assessment year 2011-12 During the year under consideration, the dividend income of Rs. 14,45,500/- was earned which was exempt and the assessee held investment of Rs. 6,77,85,832/- throughout the year. A perusal of the assessment order shows that the assessee was specifically asked vide order sheet entry dated 6.1.2014 to explain why disallowance u/s 14A may not be made against the exempt income of the assessee as the assessee had not shown any expenses towards earning of the exempt income. However, as per assessment order, the assessee does not seem to have responded to the query and, therefore, the Assessing Officer has proceeded to make a disallowance based on average value of investments held during the year. It is also seen that no disallowance has been made towards interest or other expenses which could not be directly attributed. Thus, as per scheme of the Act, the Assessing Officer has proceeded in a proper manner, especially because the assessee has not been able to demonstrate that no expenditure was incurred for earning the exempt income when it was specifically asked to do so. The assessee has relied on a plethora of case laws before us, but, at the same time, no evidence was put forth before us to corroborate the assessee’s claim that no expenditure had been incurred towards earning of exempt Assessment year 2011-12 income. However, looking to the facts and circumstances of the case, we are of the considered opinion that the assessee should be given one more chance to demonstrate with ample evidence, the veracity of its claim that no expenditure had been incurred towards earning of the exempt income before the Ld. Commissioner of Income Tax (A). Therefore, we restore the issue to the file of the Ld. Commissioner of Income Tax (A) with the direction to examine the claim of the assessee in light of documentary evidences which the assessee will be at liberty to file before the Ld. Commissioner of Income Tax (A) in this regard and as per law. We also direct that should the assessee not avail the opportunity being given by us at this juncture, the Ld. Commissioner of Income Tax (A) will be at liberty to draw a negative inference and proceed accordingly.
In the result, the appeal of the assessee stands allowed for statistical purposes in terms of our aforesaid directions.
Order pronounced in the Open Court on 1.11. 2017.