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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
These appeals by the Revenue are directed against the orders passed by the learned Commissioner of Income Tax
2 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 (Appeals)-15, Chennai, both dated 30.03.2017 in ITA No. 95/2011- 12/CIT(A)-15/2014-15 & 81/A.Y.2012-13/CIT(A)-15/2015-16 for the assessment years 2011-12 & 2012-13 respectively both passed U/s.250(6) r.w.s. 143(3) of the Act. The assessee has also raised cross objections against the orders of the Ld.CIT(A) for both the relevant assessment years.
Revenue’s Appeal:- Assessment year 2011-12 & 2012-13 The Revenue has raised two identical grounds in its appeals however the crux of the issue is that the Ld.CIT(A) has erred in restricting the disallowance made by the Ld.AO by invoking the provisions of Section 14A r.w.r. 8D of the Rules to the extent of exempt income earned by the assessee.
Assessee’s Cross Objection:- A) Assessment year 2011-12:- The assessee has raised five grounds in its cross objection for the assessment year 2011-12 however the crux of the issue is that the Ld.CIT(A) has erred in partly confirming the addition made by the Ld.AO by invoking the provisions of Section 14A of the Act.
B) Assessment year 2012-13:- The assessee has raised several grounds in its cross objection for the assessment year 2012-13 and they are briefly stated herein below:- (i) The Ld.CIT(A) has erred in partly confirming the addition made by the Ld.AO by invoking the provisions of Section 14A of the Act. (ii) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO amounting to Rs.54,81,19,443/- towards unsecured loans. (iii) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO amounting to Rs.9,87,06,352/- towards sundry creditors. (iv) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO amounting to Rs.58,66,423/- towards disallowance of administrative expenses. (v) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO amounting to Rs.25,00,000/- towards undisclosed investment.
4 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 4. The brief facts of the case are that the assessee is a private limited company engaged in the business of trading in market securities and insurance consultancy services, filed its return of income for the assessment years 2011-12 & 2012-13 on 30.11.2012 & 30.09.2012 declaring total income of Rs.62,45,869/- & Rs.58,15,020/- respectively. The cases were selected for scrutiny and notice U/s.143(2) of the Act was issued on 10.12.2013 and 10.04.2014 for the assessment years 2011-12 & 2012-13 respectively. Finally assessment orders were passed U/s.143(3) of the Act for both the assessment years 2011-12 & 2012-13 on 24.03.2014 & 26.03.2015 respectively, wherein the Ld.AO made several additions.
Revenue’s Appeal - Assessment years 2011-12 & 2012-13:- Disallowance of expenditure incurred towards earning exempt income invoking the provisions of Section 14A of the Act:- During the course of scrutiny assessment proceedings in both the assessment years it was observed by the LD.AO that the assessee had made investment in shares earning dividend income which is exempt from tax. For both the assessment years, the assessee did not compute the disallowance of expenditure incurred
5 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 for earning exempt income. Therefore the Ld.AO invoked the provisions of Section 14A r.w.r. 8D of the Rules and worked out the disallowance for the assessment year 2011-12 at Rs.4,55,29.543/- and Rs.7,11,99,083/- for the assessment year 2012-13. On appeal the Ld.CIT(A) was also of the same view that of the Ld.AO, for having invoked the provisions of Section 14A r.w.r.8D of the Rules, however directed the Ld.AO to restrict the disallowance to the extent of exempt income earned by the assessee during the relevant assessment years. Aggrieved by the order of the Ld.CIT(A) the Revenue is in appeals before us.
5.1 Before us the Ld.DR relied on the orders of the Ld.AO while as the Ld.AR vehemently argued that the assessee did not incur any expenditure towards earning exempt income and hence pleaded for deleting the additions made by the Ld.Revenue Authorities.
5.2 We have heard the rival submissions and carefully perused the materials on record. It is apparent from the facts of the case, that the assessee has made huge investments in shares which earn dividend income exempt from tax. According to Section 14A of 6 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 the Act the expenditure incurred towards earning exempt income cannot allowed as deduction from the taxable income of the assessee. In the case of the assessee, it is evident that for the process of decision making as to which shares the assessee has to invest, dis-invested, and at what point of time etc., will involve cost. Such expenditures incurred towards earning dividend income which is exempt from tax cannot be claimed as deduction from the taxable profit of the assessee company. As per the provisions of the Act, the assessee is bound to compute the actual expenses incurred by it towards investment that would earn exempt income and disallow the same. In the case of the assessee, such computation is neither made nor the expenditure towards earning exempt disallowed by the assessee. Therefore we are of the view that the Ld.AO was right in his realm to invoke the provisions of Section 14A r.w.r.8D of the Rules. Further it is pertinent to mention that there is no correlation between the dividend income earned by the assessee and the expenditure incurred by the assessee towards investment that earns exempt income. For example:- during a particular year the assessee would not have earned any dividend income though it has made heavy investments during the previous year or the earlier years, but the assessee is bound to 7 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 incur cost for acquiring / maintaining /dis-investing such investments. Hence it cannot be inferred that the dividend income would be directly proportional to the expenditure incurred on the investment earning exempt income. Therefore we do not find any merit in the order of the Ld.CIT(A) for having restricted the disallowance U/s.14A of the Act to the extent of exempt income earned by the assessee. However since the assessee has not computed its actual expenditure incurred towards the investment that earns exempt income, in the interest of justice, we remit back the matter to the file of Ld.AO for both the assessment years thereby affording one more opportunity to the assessee to work out the actual expenditure incurred by it towards the investment that earn exempt income and disallow the same. We further hereby direct the Ld.AO to verify the computation submitted by the assessee for both the assessment years and thereafter decide the matter in accordance with law and merit.
Assessee’s Cross Objection:- 6. Assessment year 2011-12: Ground No. 3(A): Partly confirming the addition made by the Ld.AO by invoking the provisions of Section 14A of the Act.
8 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 Since we have remitted back the issue of disallowance U/s.14A r.w.r.8D of the Rules with certain directions herein above in the Revenue’s appeal, the ground raised by the assessee in its cross objection for the assessment year 2011-12 does not survive.
Assessment year 2012-13 : 7. Ground No. 3(B)(i): Partly confirming the addition made by the Ld.AO by invoking the provisions of Section 14A of the Act:- Since we have remitted back the issue of disallowance U/s.14A r.w.r.8D of the Rules with certain directions herein above in the Revenue’s appeal, the ground raised by the assessee in its cross objection for the assessment year 2012-13 also does not survive.
Ground Nos.3 (B) (ii) to (v) :- The Ld.CIT(A) had confirmed the order of the Ld.AO with respect to addition on account of unsecured loans and unexplained sundry creditors because the assessee could not discharge its onus with respect to the genuineness of the loan and the genuineness of the sundry creditors. Similarly the Ld.CIT(A) had 9 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 confirmed the order of the Ld.AO with respect to the addition made on account of administrative expenses because the assessee could not substantiate the same with necessary supporting bills and vouchers. Further the Ld.CIT(A) had confirmed the order of the Ld.AO with respect to addition on account of undisclosed investment because the assessee had omitted to record the same in its books of account.
8.1 At the outset the Ld.AR submitted before us that at the time of assessment proceedings and the first appellate proceedings, the necessary documents and records in order to establish the claim of the assessee was not available, which are now in possession with the assessee. Hence it was pleaded that one more opportunity may be provided to the assessee to present the relevant documents before the Ld.Revenue Authorities. The Ld.DR vehemently opposed to the submission of the Ld.AR.
8.2 We have heard the rival submissions and carefully perused the materials on record. Though we do not appreciate the lethargic attitude of the assessee in not furnishing the requisite documents and records before the Ld.Revenue Authorities at the appropriate
10 & 1730/Chny/2017 & CO Nos.177 & 178/Chny/2017 time, in the interest of justice, we hereby remit all these issues back to the file of Ld.AO for de-nova consideration with direction to the Ld.Revenue Authorities to admit any fresh evidence produced by the assessee.
We further direct the assessee to promptly cooperate with the Ld.Revenue Authorities in their proceedings failing which the Ld.Revenue Authorities are at liberty to pass appropriate Orders based on the materials on record.
In the result the appeals of the Revenue are allowed for statistical purposes as indicated herein above, the cross objection of the assessee for the assessment year 2011-12 is dismissed and the cross objection of the assessee for the assessment year 2012- 13 is partly allowed for statistical purposes.