Loading judgment…
Facts
The assessee filed its return of income for AY 2020-21, which was selected for scrutiny. The Assessing Officer (AO) disallowed Rs. 1,72,46,980 under Section 14A of the Income Tax Act, 1961, read with Rule 8D, for expenses related to dividend income. The assessee had voluntarily disallowed Rs. 14,25,000.
Held
The Tribunal noted that the assessee's own funds were sufficient to cover its investments. Following the precedent set by the Bombay High Court in CIT vs. Reliance Utilities & Power Ltd., the Tribunal held that only investments yielding exempt income should be considered for disallowance. The suo moto disallowance of Rs. 14,25,000 was deemed sufficient.
Key Issues
Whether the disallowance under Section 14A read with Rule 8D for expenses related to dividend income was justified, considering the assessee's own funds and the nature of investments.
Sections Cited
14A, Rule 8D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI RAJ KUMAR CHAUHAN, HON’BLE
| आयकर अपीलीय अिधकरण "ायपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI RAJ KUMAR CHAUHAN, HON’BLE JUDICIAL MEMBER I.T.A. No. 4439/Mum/2024 Assessment Year: 2020-21 IndianOil Adani Ventures Limited Assistant Commissioner of (Formerly known as ‘Indian Oiltanking Limited’) Income Tax, Circle – 15(1)(2), Vs A 104, First Floor Mumbai Godrej Two, Pirojshanagar Eastern Express Highway Vikhroli Mumbai - 400079 [PAN: AAACI6794E] अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee by : Smt. Vasanti B. Patel, A/R Revenue by : Shri Uodal Raj Singh, Sr. D/R
सुनवाई की तारीख/Date of Hearing : 03/10/2024 घोषणा की तारीख/Date of Pronouncement : 10/10/2024 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order dated 03/07/2024 framed u/s 143(3) r.w.s. 144C(13) of the Act, pertaining to AY 2020-21. 2. The grievance of the assessee reads as under:- “1. On the facts and circumstances of the case and in law, the learned Assistant Commissioner of Income-tax - 15(1)(2), Mumbai ('learned AO') has erred in disallowing a sum of Rs. 1,72,46,980 under Section 14A of the Income Tax Act, 1961 ('Act') read with Rule 8D of the Income Tax Rules, 1962 ('Rules'). 2. Without prejudice to Ground 1, on the facts and circumstances of the case and in law, the learned AO having regard to the books of accounts of the Appellant, has erred in not recording any dissatisfaction with the correctness of the claim of the expenditure in relation to the income which does not form part of the total income under I.T.A. No. 4439/Mum/2024 2 the Act offered by the Appellant while disallowing a sum of Rs. 1,72,46,980 under Section 14A of the Act read with Rule 8D of the Rules. 3. Without prejudice to Grounds 1 and 2, on the facts and circumstances of the case and in law, the learned AO has erred in considering those investments that have not earned exempt income during the AY 2020-21 while computing the average value of investments yielding tax free income for computing disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Rules, without considering the fact that the amendment made to section 14A of the Act is prospective in nature (i.e., w.e.f April 01, 2022) and not retrospective.
On the facts and circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP') while issuing its directions under section 144(5) of the Act, has erred in not considering both the submissions dated May 06, 2024, and May 15, 2024, made by the Appellant, thereby vitiating principles of natural justice.
The Appellant wishes to raise an additional claim for the proportionate deduction amounting to Rs. 4,44,219 in respect of the expenditure on Right of Way, as decided by the co-ordinate bench of the Income Tax Appellate Tribunal, Mumbai, in Appellant's own case for AY 2002-03 vide order dated November 06, 2023. The Appellant craves leave to add, alter, amend, delete, modify or withdraw all or any ground or grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.” 3. Briefly stated, the facts of the case are that the assessee electronically filed its return of income on 13/02/2021 declaring total income of Rs.30,49,51,270/-. The return was selected for scrutiny assessment under CASS and accordingly statutory notices were issued and served upon the assessee. 3.1. On perusal of the details and financials, the AO noticed that the assessee received dividend income of Rs. 1,61,71,980/- from shares held in Katoen Natie IOT Logistic Ltd. and Rs.25,00,000/- from shares held in Zuari Indian Oiltanking Pvt. Ltd., totaling to Rs. 1,86,71,980/-. The assessee was asked to explain as to why the proportionate expenses should not be disallowed u/s 14A r.w.r. 8D. The assessee furnished detailed reply claiming that it has not incurred any expenditure for I.T.A. No. 4439/Mum/2024 3 earning dividend income. It was explained that the assessee company had engaged only two persons for investments out of surplus funds and no other expenditure is incurred. The assessee had suo moto disallowed Rs.14,25,000/- for earning exempt income. The reply of the assessee did not find any favour with the AO who proceeded by computing the disallowance as per Rule 8D and as the dividend income earned was Rs.1,86,71,980/-, the AO restricted the disallowance to Rs.1,86,71,980/- and deducting the suo moto disallowance of Rs.14,25,000/-, addition of Rs.1,72,46,980/- was made. 3.2. Aggrieved the assessee carried the matter before the ld. CIT(A) but without any success. 4. Before us, the ld. Counsel for the assessee pointed out that on identical set of facts, the Co-ordinate Bench in AY 2008-09, has held that the investments in shares were made by the assessee out of his own funds and drawing support from the decision of the Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Mum), the disallowance made was deleted. It is the say of the ld. Counsel that the own funds available with the assessee company is sufficient to cover the investments made in shares yielding tax free income and, therefore, no further disallowance should have been made. The ld. D/R strongly supported the findings of the AO. 5. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the own funds available with the assessee is to the tune of Rs. 12,68,29,83,577/- which is sufficient to cover the investment of Rs.5,66,40,28,750/-. Therefore, the ratio laid
I.T.A. No. 4439/Mum/2024 4 down by the Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities & Power Ltd. reported (supra), squarely applies. Moreover, in our considered opinion, only those investments need to be considered which yielded exempt income and in the present case, only two shares, namely, Katoen Natie IOT Logistic Ltd. and Zuari Indian Oiltanking Pvt. Ltd., have yielded dividend income. Therefore, considering the totality of facts, the suo moto disallowance of Rs.14,25,000/- should meet the ends of justice and no further disallowance need to be made. We accordingly direct the AO to delete the impugned addition of Rs. 1,72,46,980/-. Ground No. 1 with all its related grounds are allowed. 6. Vide Ground No. 5, the assessee has raised an additional claim for the proportionate deduction in respect of expenditure on Right of Way. Facts show that the Tribunal in AY 2002-03, has directed the AO to allow the proportionate deduction in respect of the expenditure of Right of Way. We, therefore, direct the AO to allow the claim as per the directions of the Co-ordinate Bench given in AY 2002-03. This Ground is allowed for statistical purposes. 7. In the result, appeal of the assessee is allowed partly for statistical purposes. Order pronounced in the Court on 10th October, 2024 at Mumbai. (RAJ KUMAR CHAUHAN) ACCOUNTANT MEMBER Mumbai, Dated 10/10/2024 *SC SrPs SC SrPs SC SrPs SC SrPs
I.T.A. No. 4439/Mum/2024 5
आदेश की "ितिलिप अ"ेिषत /Copy of the Order forwarded to : अपीलाथ" / The Appellant 1. ""थ" / The Respondent 2. संबंिधत आयकर आयु" / Concerned Pr. CIT 3. आयकर आयु" अपील 4. ( ) / The CIT(A)- िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 5. 6. गाड" फाई/ Guard file.
आदेशानुसार/ BY ORDER,