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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 10.03.2015 of ld. CIT(A)-18, New Delhi.
Following grounds have been raised in this appeal:” “1. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on facts in not considering the submissions made by the petitioner which were in turn based on the legal interpretation of the subject law contained in section 14A of the Act while holding that the Rule 8D of the Income tax Rules, 1962, are not applicable for the assessment year 2007-08 which Rule is applicable from the assessment year 2008-09 for the first time, thus failing to follow the mandate of law as laid down by the courts ,
2. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on 2 Sawhney Brothers facts in not following her own appellate order passed on 16-11-2010 in appeal no. 295/08-09, for the assessment year 2006-07 in the petitioner's own case, even though there being no change in the facts and circumstances and giving categorical findings to the fact that the investments had been made by the petitioner in earning tax free income, out of its own interest free funds already available with the petitioner firm.
3. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on facts in holding that the assesses has not shown any expenditure attributable to its exempted incomes aggregated to Rs.60,08,969, however in contrary to that, the learned CIT(A) has herself mentioned in the same paragraph, that the "assesses has itself added back Rs.9,39,077/- therefore only amount of Rs. 24,70,653/- is disallowed from business expenses claim by the assesses as per the provision of section 14A read with Rule 8D(2)(i)". Furthermore, the learned CIT (A) erred in law in failing to direct the learned assessing officer in deleting the disallowance of Rs. 939077 which had been made twice over, in computing the total income of the petitioner for the assessment year 2007-08.
4. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on facts in disallowing sum of Rs,999500 out of claim of interest paid on loans raised for business purposes, allegedly and by wrongly applying the provisions contained in section 14A of the Act read with rule 8(ii) of the Income tax Rules, 1962 which sub rule 8(ii) became applicable from the assessment year 2008-09 onwards.
5. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of 3 Sawhney Brothers income tax (Appeals) 18, New Delhi erred in law and on facts in upholding the disallowance of Rs.225831 under section 14A of the Act read with rule 8D(iii) of the Income tax Rules, 1962 which sub rule 8(iii) became applicable from the assessment year 2008-09 onwards.
6. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on facts in upholding the arbitrary and adhoc disallowances of, (a) Rs. 240025 being 20% of expenditure on vehicle running and maintenance expenses of Rs. 1200126, (b) Rs.100679 being 20% of depreciation on vehicles of Rs.503395 and (c) Rs. 12615 being 20% of interest on loan of Rs. 63074, all under section 37(1) of the Act without appreciating inter alia that the amount of depreciation on vehicles and interest on vehicles cannot be considered for disallowance under section 37(1) of the Act.
7. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on facts in not considering that there was no long term capital gains of Rs.394998 arising to the petitioner on the redemption of certain mutual funds during the year, instead there was long term capital loss of Rs.75466 (after indexation) in terms of section 112 of the Income tax Act, 1961.
8. That on the facts and in the circumstances of the petitioner firm's case, the learned Commissioner of income tax (Appeals) 18, New Delhi erred in law and on facts in upholding the disallowance of Rs. 25387 under section 40(a)(ia) of the Income tax, 1961.
9. That the assessment order made is bad in law.”
4 Sawhney Brothers 3. Vide Ground Nos. 1 to 5, the grievance of the assessee relates to the sustenance of addition made by the AO u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act) read with Rule 8D(iii) of the Income Tax Rules, 1962.
Facts of the case in brief are that the assessee filed the return of income on 21.11.2007 declaring a loss of Rs.19,15,353/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee earned income on the redemption of mutual fund as long term capital gains claimed as exempt u/s 10(38) of the Act amounting to Rs.35,77,604/- and the dividend income of the units of mutual funds of Rs.24,31,365/- exempt u/s 10(34) of the Act but had not shown any expenditure related to the exempt income of Rs.60,08,969/- (Rs.35,77,604/- + Rs.24,31,365/-). The AO also observed that the assessee had taken loan of Rs.3,67,84,674/- for the purpose of purchase of units of Templeton Mutual Fund from the American Express Bank. The AO asked the assessee to submit the details of interest paid on loan. In response, the submissions of the assessee was that the proportionate interest amounting to Rs.9,39,077/- has already been added back. The AO observed that the interest amounting to Rs.34,09,730/- has been specifically paid for the purchase of mutual fund. He, therefore, added the remaining amount of Rs.24,70,653/- by invoking the provisions of Section 14A of the Act read with Rule 8D(2)(i) of the Income Tax 5 Sawhney Brothers Rules, 1962. The AO also disallowed Rs.2,25,831/- being one-half percent of the average of value of the investment. The AO disallowed 20% of the expenses incurred on vehicle running & maintenance, depreciation and loan for vehicle purchased and accordingly, Rs.3,53,319/- was added to the income of the assessee. The AO observed that apart from the interest of Rs.34,09,730/- paid on the purchase of mutual fund, the assessee had also paid interest of Rs.46,96,760/- on the various loans. He calculated interest of Rs.9,99,500/- by invoking the provisions of Section 14A of the Act read with Rule 8D(ii) of the Income Tax Rules, 1962, the same was disallowed from interest expenditure and added back to the income of the assessee as “Income From Business”. The AO also observed that the assessee had paid a sum of Rs.25,387/- as professional charges on which no TDS was deducted. He, therefore, disallowed the said amount u/s 40(a)(ia) of the Act.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained the additions made by the AO.
Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the main additions were made by the AO by applying the provisions contained in Rule 8D of the Income Tax Rules, 1962 which is not applicable for the year under consideration because it was operated for the assessment year 2008-09. The reliance was placed on the 6 Sawhney Brothers judgment of the Hon’ble Jurisdictional High Court in the case of Maxopp Investment Ltd. Vs CIT reported in (2012) 347 ITR 272. It was also submitted that other additions were also made by the AO and sustained by the ld. CIT(A) without any basis.
In her rival submissions the ld. Senior DR strongly supported the orders of the authorities below and reiterated the observation made by them in their respective orders.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the AO while making the disallowance u/s 14A of the Act invoked the provisions contained in Rule 8D of the Income Tax Rules, 1962, which is not applicable for the assessment year under consideration as the same is applicable for the assessment year 2008-09 onward. In this regard, it is relevant to point out that the Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. Vs DCIT reported in (2010) 328 ITR 81 held that Rules 8D of the Income Tax Rules, 1962 inserted on 24.03.2008 is applicable from the assessment year 2008-09 prospectively which cannot be applied retrospectively. The same view had been expressed by the Hon’ble Delhi High Court in the case of Maxopp Investment Ltd. Vs CIT reported in (2012) 347 ITR 272 (supra). It is also noticed that the AO while making the disallowance out of the expenses has not given any basis for making 7 Sawhney Brothers the disallowance @ 20%. I, therefore, considering the ratio laid down in the aforesaid referred to decisions of the Hon’ble Bombay High Court and the Hon’ble Delhi High Court, deem it appropriate to set aside the impugned order and remand the case back to the file of the AO to be adjudicated afresh de novo in accordance with law after providing due and reasonable opportunity of being heard to the assessee. The AO should also decide the another issues which have been agitated by the assessee in its appeal alongwith the main issues relating to the disallowances of interest u/s 14A of the Act and the expenses while framing the de novo assessment.
In the result, the appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 22/03/2017)