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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
ORDER ORDER ORDER ORDER PER H.S. SIDHU PER H.S. SIDHU : : : : JM PER PER H.S. SIDHU H.S. SIDHU The Assessee has filed this Appeal against the impugned Order dated 19.11.2013 of Ld. CIT(A)-XXXI, New Delhi pertaining to assessment year 2007-08 on the following grounds:-
(A) That on the facts and circumstances of the case the Ld. ITO and the CIT(A) erred in:
1) Upholding the assessment and addition of Rs. 1,91,945/- u/s. 14A inspite of the fact that the assessment for the year had abated in terms of section 153A and no incriminating material was unearthed in the course of search and seizure operations.
2) Disallowing Rs. 1,91,945/- u/s. 14A of the I.T. Act.
3) Disallowing the expenditure u/s. 14A without the AO giving any finding in the assessment order regarding the amount of actual expenditure incurred by the assessee to earn tax free income.
4) Not following the orders of the jurisdictional High Court in this matter.
(B) The assessee craves leave to add, alter or amend the grounds of appeal at and before the hearing.
2. The brief facts of the case are that the assessee company was centralized consequent upon an action under section 132 of the Income Tax Act, 1961 (hereinafter referred as the Act)on 24.9.2009. Notice u/s. 132 of the Act was issued on 28.4.2010. Return declaring income at Rs. 183143/- was filed. Notice under section 143(2) of the Act was issued on 29.7.2011 and served upon the assessee.
Thereafter, a questionnaire was issued on 5.10.2011 under section 142(1) alongwith notice under section 143(2) of the I Act. In response to the same, the Ld. AR of the assessee attended the proceedings and filed the details and after perusing the details, AO observed that during the relevant previous year the assessee company has received dividend of Rs. 1721143/-. Income on account of dividend has been claimed as exempt from tax. As on 31.3.2007 the assessee company had made total investment of Rs. 38389000/- on account of which dividend was received. Provisions of sub section (1) of Section 14A of the Act provides that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which do not form part of the total income under this Act. Therefore, expenditure incurred on account of dividend income was disallowed amounting to Rs. 1,91,945/- and income of the assessee was assessed at Rs. 3,75,090/- u/s. 153A/143(3) of the Act vide order dated 29.11.2011.
Aggrieved by the aforesaid order of the Assessing Officer dated 29.11.2011, assessee filed an appeal before the Ld. First Appellate Authority, who vide impugned Order dated 19.11.2013 had dismissed the appeal of the Assessee.
Aggrieved with the aforesaid finding of the Ld. CIT(A), Assessee is in appeal before the Tribunal.
Ld. Counsel of the assessee ha stated that AO has made the addition on the basis of Rule 8D of Section 14A, whereas the fact of the case is that the assessee made investment out of owned funds and the investments made are old investments, no new investments has been made during the year under appeal. He further stated that no loan has been taken during the year and no interest has been paid during the year. It was further stated that as no loan has been taken for investment and no interest has been paid, so the disallowance is illegal and against the law. He relied upon the case law of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT (2010) 194 Taxmann 203 (Bom) and stated that in this case it has been held by the Hon’ble Bombay High Court that provision of section 14A(2) and (3) read with rule 8D are constitutionally valid but rule 8D shall not be applicable for assessment year prior to assessment year 2008-09, however, the assessment year involved in the present case is AY 2007-08. In view of the above, he requested that the addition in dispute may be deleted and orders of the authorities below may be cancelled and appeal of the assessee may be allowed.
On the contrary, Ld. DR relied upon the orders of the authorities below and stated that as per provisions of sub section (1) of section 14A of the I.T. Act, 1961 provides that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which do not form part of the total income under the Act.
Therefore, he stated that expenditure incurred on account of dividend income was rightly disallowed and confirmed, which does not need any interference on our part.
We have heard both the parties and perused the records especially the impugned order. We find that AO has disallowed Rs. 1,91,145/- u/s. 14A of the Act by stating that the assessee has made investment of Rs. 3.83 crores during the year and earned dividend from the same (Rs. 17,21,143/-) and that Section 14A(1) provides for disallowing expenditure incurred by the assessee on such income which is not included in the total income. Therefore, we do not find any merit in the disallowance made by the AO. We further note that AO has not given a finding that he was not satisfied with the assessee’s claim that no expenditure was incurred on the investment activity. However, Rule 8D is effective only from AY 2008-09 and not for the current assessment year. In this regard, the AO has mechanically applied Rule 8D on the ground that the assessee had received dividend income, which is not tenable in the eyes of law, as laid down by the Hon’ble Bombay High Court in the case of Godrej & Boyce Co. Ltd. vs. CIT (308 ITR 91) wherein it has been held that Rule 8D is not applicable retrospectively and is applicable only with effect from AY 2008-09 onwards, hence, the addition in dispute is deleted and ground raised by the assessee stand allowed.
In the result, the Assessee’s Appeal stands allowed.
Order pronounced in the Open Court on 29/09/2017.