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Income Tax Appellate Tribunal, Kolkata Bench, Kolkata
Before: SHRI A. T. VARKEY & SHRI WASEEM AHMED
ORDER
PER WASEEM AHMED, AM
This appeal is preferred by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-2 [in short the ‘CIT(A)’] vide Appeal No.24/CIT(A)-2(08-09)/14-15 dated 06.01.2015. Assessment framed u/s 143(3) of the Income Tax Act 1961 (hereinafter referred to as the ‘Act’) for the A.Y 2009-10.
M/s. TMT Viniyogan Ltd. Assessment year 2008-09 S.K. Agarwal, Ld. Authorized Representative appeared on behalf of assessee and Saurabh Kumar, Ld. Departmental Representative represented on behalf of Revenue. 2. The assessee has raised the following grounds of appeal: “1. That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the disallowance of Rs.19,23,063/- u/s 14A r.w.r 8D(2)(iii) in as much as the actual expenses debited to P/L A/c & claimed is Rs.51,669/-.
2. That on the facts & circumstances of the case the ld. CIT(A) erred in confirming the addition of Rs.19,52,849/- to book profit u/s 115JB.
3. That on the facts and circumstances of the case and without prejudice to Ground No.2. The addition to Book Profit should not exceed the actual expenses of Rs.51,669/- debited to P/L A/c.
4. That the appellant craves leave to add additional ground and or modify/substitute any of the grounds.”
3. The first issue raised by the assessee in this appeal is that the ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining disallowance of Rs.19,23,063/- u/s 14A r.w.r 8D(2)(iii) of I.T Rules 1962 whereas actual expenses were claimed to the tune of Rs.51,669/- only.
4. The brief stated facts are that the assessee is a private limited company and engaged in the activity of investment. The assessee during the year has earned dividend income of Rs. 29,78,576/- which was claimed as exempted income u/s 10(34) of the Act. However, the assessee did not make any disallowance of the expenses incurred in relation to such exempted income. Thus, the Assessing Officer invoked the provision of 14A r.w.r 8D and made the following disallowances: Sl. No. Rule Particulars Amounts(in Rs.) 1 8D(2)(i) Direct expenses 29,786/- 2 8D(2)(ii) Interest expenses NIL 3 8D(2)(iii) Disallowance 1923063/- Total 1952849/- M/s. TMT Viniyogan Ltd. Assessment year 2008-09 The above expenses were disallowed as per Rule 8D and added to the total income of the assessee.
The assessee filed an appeal before the ld. CIT(A) where it submitted details of actual expenses claimed by the assessee in his profit & loss a/c for Rs. 51,699/- as detailed under: Rent & Rates Rs.5800/- Filing Fees Rs.3168/- Professional Fees Rs.10551.00 Miscellaneous Expenses Rs.15296/- Auditors remuneration Rs.16854/- Total Rs.51669/- Thus, the assessee submitted that the expenses under Rule 8D(2)(iii) of I.T Rules cannot exceed the expenses actually claimed by it in the P & L A/c. However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of Assessing Officer by observing as under: “4.2 I am not in agreement with the views of the AR of the appellant. In his written submissions the AR has stated that the appellant has incurred a total expenditure of only Rs.51,699/- and he has cited case laws to argue that any disallowance cannot be made u/s 14A over and above the expenses claimed. In this context, I have examined the P&L account of the appellant for the period ending 31.03,2008 and I find that apart from the expenditure of Rs.51,699/- pointed out by the AR of the appellant, a net interest of Rs.4,73,43,908/- has also been claimed as expenditure. I have further examined the Balance Sheet of the appellant company for the period ending 31.03.2008 and I find that the appellant had an investment of Rs.26.23 crores as on this date. The sources of fund could be share capital (Rs.1,10,63,500/-), reserve and surplus (Rs.7,82,67,108/-) and 0% fully convertible bonds (Rs.13,00,00,000/-). However, together such fund amount to only Rs.21.93 crores which is insufficient for making investment of Rs.26.23 crores. Obviously, the balance fund have come from unsecured loans of Rs.9,87,15,386/-. Therefore, it can be held that investments on which dividend has been earned have been partly met out of interest bearing unsecured loans which brings the appellant within the purview of section 14A r.w.r 8D. Therefore, the action of the Assessing Officer to make a disallowance of Rs.19,52,849/- u/s 14A is confirmed and Ground Nos.2&3 are dismissed.” Being aggrieved by the order of the ld. CIT(A), the assessee filed second appeal before us.
The ld. AR filed a paper book which is running Page 1 to 19 and reiterated the submissions that were made before the ld. CIT(A) whereas the ld. DR vehemently supported the order of lower authority. Page | 3 M/s. TMT Viniyogan Ltd. Assessment year 2008-09 7. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the disallowance made by the AO u/s 14A r.w.r 8D(2)(iii) of the I.T Rules which was subsequently confirmed by ld. CIT(A).
From the above discussion, we note that Assessing Officer can resort to make the disallowance u/s 14A of the Act r.w.r. 8D of the IT Rules, 1962 after having regard to the accounts of the assessee and feels dissatisfied with the correctness of the claim of the assessee. Thus, it is clear that the AO can make the disallowances of the expenses incurred in relation to exempt income in pursuance to the provisions as specified u/s 14A of the Act. On perusal of the facts of the present case, we note that the assessee has claimed indirect/administrative expenses during the year to the tune of Rs.51,669/- only. Thus, it is undoubtedly clear that actual expenses claimed by the assessee are much less then the expenses disallowed under Rule 8D(2)(iii) of the I.T. Rules by the AO. In the backdrop of the present case we are of the view that the expenses to be disallowed under Rule 8D(2)(iii) cannot exceed the actual expenses incurred by the assessee. However, the AO has made the disallowance of the expenses under rule 8D(iii) exceeding the actual expenses.
The act of making the disallowance by the AO under rule 8D(iii) shows that no reference has been made to the books of accounts of the assessee. In such a situation we are of the view that the disallowance u/s 14A viz a viz Rule 8D of the I.T Rules has been made without complying the provisions of law. Thus the addition cannot be sustained in the instant case. Thus, we direct the Assessing Officer to delete the impugned addition. Thus, first issue in grounds of appeal
filed by the assessee is allowed.
10. The second issue raised by the assessee (in Ground Nos.2 & 3) in this appeal is that ld. CIT(A) erred in confirming the addition of Rs.19,52,849/- u/s 115JB of the Act.
M/s. TMT Viniyogan Ltd. Assessment year 2008-09 11. The Assessing Officer in the instant case had made the disallowance u/s 14A r.w.r 8D for Rs.19,52,849/- while computing income under normal computation of income. The Assessing Officer, further, disallowed the same amount while computing the income under section 115JB of the Act.
Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CTI(A) submitted that the disallowance made u/s 14A r.w.r 8D under the normal computation of income cannot be imposed to the computation of income determined u/s 115JB of the Act. However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the AO by observing as under: 6.2 I have examined the submission of the AR of the appellant and perused the assessment order. The case laws quoted above by the AR of the appellant are relevant. However, in a subsequent decision, the ITAT Mumbai at and ITA No.6678/Mum/2011 for Assessment Year 2008-09 in the case of ITO vs. RBK Share Broking dated 24/07/2013 has held that the amount disallowable u/s 14A was always a part of expenses specifically debited to P&L Account and hence covered under the clause (f) of Explanation 1 to section 115JB(2). Similar views have also been expressed by the ITAT Mumbai in the case of Esquire (P) Ltd ITA No.5688/Mum/2011 for Assessment Year 2008-09. I am therefore of the view that the action of the Assessing Officer to add a sum of Rs.19,52,849/- to the Book Profit of the appellant company u/s 115JB is justified. Ground No.5 of the appeal is dismissed. T Being aggrieved by the order of ld. CIT(A), the assessee is in second appeal before us.
The ld. AR before us submitted that that disallowances made under normal computation of income cannot be applied while determining the income u/s 115JB of the Act. The ld. AR alternatively submitted that if the disallowances u/s 115JB of the Act is required to be made then it should not exceed the actual expenses claimed by the assessee in its books of accounts i.e. Rs.51,669/-. On the other hand, ld. DR vehemently supported the order of lower authorities. Page | 5 M/s. TMT Viniyogan Ltd. Assessment year 2008-09 14. We have heard the rival submissions and perused the materials available on record. The issue in the instant case relates to the disallowances made by Assessing Officer u/s 14A r.w.r 8D of the Income Tax Rules while determining the income under normal computation of income. The disallowance of the same was also made while determining the profit u/s 115JB of the Act. However, we note that in recent judgment of Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. Relevant portion of the said order is reproduced below: “In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.” The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 of section 115JB of the Act. However it is also clear that the disallowance needs to be made in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so we draw our support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance in relation to exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- “we find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. Page | 6