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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-III’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 18.06.2015 of ld. CIT(A)-II, New Delhi.
The only effective ground raised
in this appeal reads as under: “1. The Ld. CIT (A) make a disallowance amounting to Rs 2, 64,823/- U/s 14A read with rule 8D (iii) Of Income Tax Act, 1961. As per section 14A of Income Tax Act in terms of Rule 8D that expenditure claimed in anticipation to exempt income are disallowed up to the specified amount. The addition made by Ld. CIT (A) is illegal, arbitrary, fallacious, conjectural and bad in law and face as well.”
3. Facts of the case in brief are that the assessee e-filed its return of income on 20.09.2012 declaring an income of Rs.3,55,460/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred 2 Concrete Technology Pvt. Ltd. to as the Act). Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had made investment in Equity Shares of Private Limited Company amounting to Rs.5,29,64,680/- as on 31.03.2012, income from which would be exempt u/s 10 of the Act. The assessee explained the AO that it did not have any exempt business income and never debited an expenditure to earn the exempt income, hence Rule 8D and Section 14A of the Act were not applicable.
4. However, the AO did not find merit in the submissions of the assessee and observed that as per the provisions of Section 14A of the Act, the proportionate disallowance of expenses was to be made by making the calculation under Rule 8D. He further observed that since the assessee had made investment to earn the dividend income, the disallowance u/s 14A of the Act r.w. Rule 8D was required and that in Section 14A of the Act, the word “income” of the year is not used but income under the Act is used. The AO made the disallowance of Rs.13,65,899/- as under: “Disallowance U/s 14 A read with rule 8D is computed as under:- (i) Amount of expenditure directly related to income which does not form part of total income Nil (ii) Amount of interest which is not directly attributable Interest Expenses Rs.26,26,317/- Average Investment Rs.5,29,64,680/- Average Assets Rs.12,63,32,849/- Rs.11,01,076/- (iii) Amount equal to ½ of Average Investment Rs. 2,64,823/- (5,29,64,680/- x.05%) Total Disallowance U/s 14A read with Rule 8 D Rs.13,65,899/-”
3 Concrete Technology Pvt. Ltd.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submissions which have been incorporated in para 3.1 of the impugned order, for the cost of repetition, the same is not reproduced herein. The ld. CIT(A), however, did not find merit in the submissions of the assessee by observing in para 3.2 of the impugned order as under: “3.2 I have perused the order of assessment and the submissions of the appellant's AR. In its final accounts for the year, the appellant has claimed interest expenses of Rs.26.26 lacs. As per the copy of loan sanction letter dated 23.09.2010 of ICICI Bank Ltd. (copy of which was also filed before the Assessing Officer), the appellant was sanctioned loan of Rs.2.20 crores bearing interest @ 10.75% for a term of 96 months, for purchase of property no. JA-926, 9th Floor, DLF Tower-A, Jasola, Delhi. It was submitted that interest has been paid by the appellant on this loan amount, implying that no part of the interest expenses can be said to be attributable to the earning of exempt income. Therefore, the addition made as per Rule 8D (2) (ii), by calculating the proportionate interest out of total interest expenses, is directed to be deleted. However, the disallowance made as per Rule 8D (2) (iii) @ 0.5% of the average investment of the appellant is upheld because the appellant was admittedly having investments in shares worth Rs.5.29 crores at the beginning as well as at the end of the year under appeal and it cannot be denied that certain amount of resources, expertise and time of the management and employees of the appellant must have been expended in order to monitor investments of such large magnitude and to decide whether or not to make fresh investments as well as whether or not to hold on to the earlier investments. Similarly, irrespective of whether dividend income was earned during the year under appeal or not, the 4 Concrete Technology Pvt. Ltd. words of section 14A mention "income which does not form part of the total income under this Act" and it is not necessary that the exempt income had to be earned during the year itself. In these circumstances, the disallowance made as per Rule 8D (2) (iii) is upheld. Ground no. 1 of the appeal is partly allowed.”
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that there was no exempt income earned by the assessee during the year under consideration. Therefore, the disallowance made by the AO u/s 14A of the Act r.w. Rule 8D and sustained by the ld. CIT(A) was not justified. The reliance was placed on the following case laws: � DCIT Vs Teenlok Advisory Services Pvt. Ltd. in order dated 08.06.2016 � DCIT Vs Shriram Investments in ITA No. 1690/Mds/2013 order dated 27.11.2013 � M/s Balarampur Chini Mills Ltd. Vs DCIT in ITA No. 504/Kol/2011 order dated 29.07.2011 � CIT Vs Taikisha Engineering India Ltd. in ITA No. 115/2014 & 119/2014 order dated 25.11.2014 � M/s Daga Global Chemicals Pvt. Ltd. Vs ACIT in ITA No. 5592/Mum/2012 order dated 01.01.2015 � Joint Investment Pvt. Ltd. Vs CIT in ITA 117/2015 order dated 25.02.2015 7. In his rival submissions the ld. DR supported the orders of the authorities below.
5 Concrete Technology Pvt. Ltd.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that neither the AO nor the ld. CIT(A) appreciated the facts of the assessee’s case in right perspective. Particularly this contention of the assessee that there was no exempt income earned during the year under consideration requires the verification at the level of the AO. I, therefore, deem it appropriate to set aside the impugned order and restore the issue under consideration back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 25/11/2016)