ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), NEW DELHI, C.R. BUILDING vs. APOLLO FINANCE LIMITED, DELHI

254 of the Act, while considering the directions of the Tribunal, vide order dated 31.01.2018, in to consider only the investment which yielded exempt income for the purpose of average value of investment, while computing the disallowance u/s 14A of the Act r.w.r 8D of the Income Tax Rules, 1962, did not give effect to the same on the ground that the assessee did not furnish with evidence in respect of investment yielding exempt income. The AO made the disallowance as under:-

3.1. Against this order, the assessee filed an appeal before the Ld. CIT(A).

After considering the submissions of the assessee, the Ld. CIT(A) directed the AO that disallowance u/s 14A will not exceed Rs.3,01,090/-. The following paras of the order of the Ld. CIT(A) brings out the crux of this appeal.

“4. Decision: During the course of appeal proceedings, hearing notices were sent and the appellant e-filed documents/submissions. I have gone through the facts of the case and also submissions made by the appellant. The issues raised in the grounds which require adjudication, are as under: 4.1. It is noticed that the appellant is on third round of appeal before the CIT(A) on the above said issue of and disallowance made by the Assessing Officer u/s. 14A of the Income-Tax Act, Against the decision of CIT(A) during the second round of appeal by the appellant, the Hon'ble ITAT has directed the Assessing Officer vide its order in dated 31.01.2018 is as under: "Respectfully following the finding of the Tribunal in case of Vireet Investment Private Limited (Supra), we restore the matter to the file of the Assessing Officer with direction to consider only the investment which yielded exempt income, for the purpose of average value of investment while computing disallowance, under section 14A of the Act read with Rule 8D of Income-Tax Rules 1962." 4.2. Against the said order of Hon'ble ITAT, the Assessing Officer has passed order u/s. 143(3) r.w.s.254 on 27.11.2018. It is observed from the said Assessment Order that, the appellant has worked out and submitted the disallowance u/s. 14A of the Act by considering the Average value of investments, which yielded exempted income as Rs, 1,82,803/- as directed by the Hon'ble ITAT. The same has not been accepted by the Assessing Officer stating that the appellant did not provide the details of investment which was directly related to the exempt income and accordingly the Assessing Officer has rejected the submission of the appellant and computed disallowance of Rs.5,46,34,862/- u/s. 14A of the Act as per Rule 8D of the IT rules and the same was added while computing the income under normal provisions of the Income Tax Act and also for computing book profit u/s. 115JB of the Act. 4.3. Aggrieved against the said Assessment Order, the appellant preferred third round of appeal. 4.4. It is noticed from the order of Hon'ble ITAT, clear direction was issued to the Assessing Officer to compute disallowance u/s. 14A of the Act by considering only Average value of Investments related to earning of exempted income. Accordingly, the appellant has submitted its working before the Assessing Officer and quantified the said disallowance as Rs. 1,82,803/-. But, the Assessing Officer has mentioned in the para 10 of the said assessment order that the appellant was non cooperative and did not provided the details of investment which was directly related with exempted income. Hence, he proceeded to compute the disallowance as per Rule 8D and quantified the said disallowance to the tune of Rs.5,46,34,862/- which is inclusive of 0.5% average value of investment to the tune of Rs. 3,01,090/-. Since, the Hon'ble ITAT has given clear direction to consider only the Average value of Investment for such disallowance, the Assessing Officer's approach to consider other limbs of Rule 8D is not correct. Accordingly, the disallowance worked out by the Assessing Officer needs to be re-worked. Hence, the Assessing Officer is directed to consider only the average value of investments, which yielded to exempted income during the year for the disallowance of expenditure u/s. 14A of the Act as directed by the Hon'ble ITAT and accordingly such disallowance will not exceed Rs. 3,01,090/- 5. As a result, the appeal filed by the appellant is partly allowed.”

Background facts: Pursuant to the order of National Company Law Tribunal dated 6.1.2023, the Appellant was amalgamated with "Sunrays Properties & Investments Co. Pvt.Ltd." Presently the Appellant is known as Sunrays Properties & Investments Co. Pvt. Ltd. During the previous year relevant to assessment year in question, the assessee earned exempt income (divided) of Rs.9,600/- from Hexaware Technologies Ltd (stated to be Rs.10,000/- in the return of income, for Balance Sheet was prepared in 'Lakhs"). No dividend was received on investment in shares of (i) Aptech Ltd, (ii) Pentasoft Technologies Ltd., (iii) Apollo Tyres Ltd. and (iv) Apollo International Ltd. The balance sheet of the assessee as at 31.3.2008 and ledger account of dividend received are at pages 1 to 13 & 14 of the paper book. First round: By the assessment order dated 29.10.2010 (page 15 to 18 of the paper book), the Assessing Officer made disallowance of Rs.5,46,34,862/- (wrongly stated as Rs.5,45,52,862) u/s 14A of Income tax Act ("the Act"), which comprised of following: S. Disallowance Amount No. (i) Expenditure directly related to exempt 82,000 income (ii) Interest disallowable under Rule 8D(2) ii) 5,15,35,772 (iii) Indirect expenses disallowable under 30,17,090 Rule 8D(2)(iii) TOTAL 5,46,34,862

In appeal, the CIT(A) vide order dated 25.11.2012 deleted the disallowance for the reason that the requisite satisfaction was not recorded.

In second appeal by the department, this Hon’ble Tribunal vide its order dated 31.8.2012 (page 19 to 28 of the paper book), set aside the order of the CIT(A) observing that: "We consider it fair and appropriate to set aside the order of the Id. CIT(A) and restore the matter to the file of the AO for deciding the issue, afresh in accordance with law in the light of our aforesaid observations and various judicial pronouncements, including those referred to above, after allowing sufficient opportunity to the assessee. Needless to say that while redeciding the issue, the AO shall pass a speaking order, giving reasons for his satisfaction or otherwise, as pointed out by the Hon'ble Jurisdictional High Court in their decision in Maxopp Investment Ltd. (supra)." Second round : Giving effect to the order of Hon'ble Tribunal dated 27.8.2012, the Assessing Officer again disallowed deduction of Rs.5,46,34,862/- u/s 14A of the Act. In appeal, the CIT(A) vide order dated 31.10.2014 upheld the disallowance. In appeal, before this Hon'ble Tribunal, the assessee in terms of ground No.2 raised three issues i) disallowance be restricted to exempt income of Rs.10,000/-, (ii) without prejudice, disallowance may be made by taking only the average value of investment, which yielded exempt income and iii) value of strategic investment be excluded in computing the disallowance. During the course of hearing of appeal, the ground that disallowance be restricted to the exempt income was not pressed (para 8 of the order). Considering ground No.2B, the Hon'ble Tribunal vide order dated 31.01.2018 (page 29 to 44 of the paper book), directed the Assessing Officer "to consider only the investment which yielded income for the purposes of average value of investment, while computing disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962". Third round : Pursuant to the order of this Hon' ble Tribunal dated 31.1.2018, the assessee computed the average value of investment which yielded income at Rs.11,15,000 / - (filed under the cover of letter dated 2.5.2018 and 9.11.2018). Letters dated 25.4.2018 and 9.11.2018are page 45 to 51 & 52 to 54 of the paper book The Assessing Officer rejected the said computation, for the reason that no evidence in support was enclosed. Disallowance of Rs.5,46,34,862/ - was made u/s 14A, alleging that the assessee has been non-corporative and has not discharge the onus of proving the average value of investment that yielded exempt income (para 10 of the order). In first appeal, the CIT(A) has held that disallowance will not exceed Rs.3,01,090/-, for the ITAT had directed to consider only the average value of investment which yielded exempt income and therefore, the Assessing Officer was not correct to consider the other limbs of Rule 8D. Propositions / submissions The average value of investment that yielded exempt income was rightly computed at Rs.11,15,000/-, inasmuch as, dividend (exempt income was received on 6,000 shares of Hexaware Technologies Ltd.

No dividend was received on remaining investment of Rs.7,488.03 lacs made in the shares of (i) Aptech Ltd. (ii) Pentasoft Technologies Ltd. (iii) Apollo Tyres Ltd. and (iv) Apollo International Ltd. Since the average value of investment, which yielded exempt income was only Rs.11,15,000/-, therefore, basis the same, the disallowance under Rule 8D comes to Rs.1,82,803/-, as detailed hereunder; S. No. Disallowance Amount (i) Expenditure directly related to exempt 82,000 income (ii) Disallowable under Rule 8D(2)(ii) by taking 5,15,35,772 average value of investment [7,46,14,000 x 11,15,000 ÷87,36,34,537.5] (iii) Indirect expenses disallowable under Rule 30,17,090 8D(2)(iii) TOTAL 5,46,34,862

Thus, in terms of order of Hon’ble Tribunal dated 31.01.2018, the disallowance cannot exceed Rs.1,82,803/-, however, the CIT(A) without any basis substituted the figure of disallowance to Rs.3,01,090/-.” 5.1. Further, the ld. AR submitted that it was not correct on the part of the AO to give a finding that the assessee failed to submit the details of the investments yielding exempt income along with the evidences. The Ld. AR submitted that such details were submitted in the office of the AO on 02.05.2018 vide letter dated 25.04.2018 placed at page no.45 to 51 of the paper book before passing of the order u/s 143(3.) r.w.s 254 of the Act dated 27.11.2018, subject matter is dispute in this appeal. The assessee also referred to schedule no.9 ‘income from operation’, placed at page no.8 of the paper book, wherein, dividend amounting to Rs.10,000/- is shown to have been received. The assessee also referred to page-14 of the paper book, wherein, the ledger of dividend receipt is placed showing receipt of dividend income of Rs.9600/-. The assessee also referring to page no.5 of the paper book submitted that the investments made in the shares of M/s Heaxware Technology, from which the entire dividend of Rs.9600/- was received, was also made in the earlier years. Further, the assessee gave a working of disallowance u/s 14A of the Act amounting to Rs.1,82,803/- on page-51 of the paper book, which is reproduced as under:-

“10. Respectfully following the finding of the Tribunal in case of Vireet Investment Private Limited (supra), we restore the matter to the file of the Assessing Officer with the direction to consider only the investment which yielded exempt income, for the purpose of average value of investment while computing the disallowance under section 14A of the Act read with Rule 8D of Income-tax Rules, 1962.” 8. As discussed above in the foregoing paragraphs that the AO did not follow the above directions of the Tribunal on the ground that the assessee did not submit the details of investments from which dividend income was received. Further, as rightly pointed out by the ld. AR that the Ld. CIT(A) also did not give any working in directing that the disallowance u/s 14A as directed by the Tribunal in the present case will not exceed Rs.3,01,090/-. In any case, the ld. CIT(A) directed the Assessing Officer to consider only the average value of investments which yielded exempt income during the year for disallowance of expenditure u/s 14A of the Act, which is in consonance with the directions of the Tribunal. This direction of the Ld. CIT(A) is upheld. However, we observe that the assessee has furnished working of disallowance u/s 14A as extracted by us elsewhere in the order, wherein disallowance was worked out at Rs.1,82,803/- taking the average value of dividend yielding investments for the year. This working was also placed before the Assessing Officer by the assessee. We see no reason to disturb the finding of the ld. CIT(A) in directing the Assessing Officer to consider only the average value of investments which yielded exempt income as per the directions already given by the Tribunal in its earlier order. However, the Ld. CIT(A) held that such disallowance will not exceed Rs.3,01,090/-, which in our opinion, there is no basis to arrive at this figure. Therefore, the observation of the Ld. CIT(A) that disallowance will not exceed Rs.3,01,090/- is hereby reversed and the direction of the Ld. CIT(A) to adopt the average value of dividend yielding investments for the purpose of disallowance u/s 14A is sustained. Ground No.1 of the appeal is disposed as above.

Order pronounced in the open court on 24th June, 2024.