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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@ITA. No. 38/JP/2022
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR MkWa- ,e- ,y- ehuk] ys[kk lnL; ,oa MkWa- ,l- lhrky{eh] U;kf;d lnL; ds le{k BEFORE: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@ITA. No. 38/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2014-15 cuke Dy. Commissioner of Income-tax, Jai Narayan Agarwal Circle-2, Vs. Near Agarsen Bhawan Street, Ajmer. Mandangaj, Kishangarh. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAPPA1532J vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Ms. Monisha Choudhary (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Nikhelesh Kataria (C.A.) a lquokbZ dh rkjh[k@ Date of Hearing : 15/06/2022 mn?kks"k.kk dh rkjh[k@Dated of Pronouncement : 16/08/2022 vkns'k@ ORDER
PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee directed against the order of the National Faceless Appeal Centre, Delhi [(hereinafter referred to as ‘NFAC’)] dated 29.11.2021for the Assessment year 2014-15.
The assessee raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the cases, the learned CIT(A) NFAC, Delhi was justified in allowing the appeal of the assessee by deleting the disallowance of Rs. 9,53,227/- made by the AO disallowance u/s 14A for expenditure relating to exempt income. 2. The appellant craves to add, amend, alter, delete or modify the above ground of appeal before or at the time of hearing.”
2 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
Apropos sole ground no.1, the assessee challenged confirmation of the disallowance of Rs. 9,53,227/- made by the AO disallowance U/s 14A for expenditure related to exempt income.
The brief facts of the case are that the assessee is proprietor of M/s Agarwal Iron & Steel Industries engaged in the business of steel blades and has declared total income of Rs. 41,87,940/- on 10.09.2013. Later assessment order u/s 143(3) of the Income Tax Act [(hereinafter referred to as ‘Act’)] was passed on 01.02.2016 at an assessed income of Rs. 41,87,940/-. A show cause noticed u/s 148 was issued on 27.02.2019 and served on the assessee. The assessee filed return of income in response to this notice on 27.02.2019 at total income of Rs. 41,87,940/-. The reasons recorded for re-opening were supplied to the assessee on 05.03.2019. The assessee filed objections to reasons recorded for reopening of assessment on 11.03.2019 which were disposed of by a speaking order on 07.06.2019. Notice u/s 143(2) was issued on 07.06.2018. Notice u/s 142(1) along with the questionnaire was also issued on 07.06.2019 to which the assessee furnished the reply.
In the aforesaid order, the AO issued notice to the assessee u/s 143(3) of the I.T. Act, 1961 on 01.02.2016. The relevant part of the assessment order is reproduced as under:-
“ Thus, the position is very clear that even it' there is no exempt income earned during the year under consideration, still Section 14A may apply. This is so because what is relevant is not the earning of exempt income but having expenditure relatable to exempt income (in whichever year it may actually be earned). Therefore proportionate interest pertaining to investment for earning of dividend is disallowable even if no exempt income is earned during the year.
3 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
Therefore disallowance to be made for expenditure incurred in earning exempt income as per Rule 8D is as under:- Total payment of interest =Rs. 40,87,961/- Average value of investment =Rs. 1,87,04,852/-{ 1,73,09,617+20100087)/2} Average value of total assets = Rs. 8,89,43,193/- {(80665498+97220888)/2} (i) Amount of expenditure directly relating to income which does not form part of total income = Nil (ii) In case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- A*B/C Where A= amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average value of investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee, on the first and last day of the previous year; C=the average value of total assets as appearing in the balance sheet of the assessee, on first day and last day of the previous year; =4087961*18704852/88943152 =859703 (iii) an amount equal to one-hal percent of the average of the value of investment, income From which does not or shall not Form part of the total income, as appearing in th..._oalanee-sheet of the assessee, on the lirst day and the last day of the previous year. =18704852*0.5% =93524 Thus, a disallowance of Rs. 9,53,227/- was to be made u/s I 4A of the Act.
4 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
The assessce was show caused vide notice dated 25.06.2019 as to why expenditure as calculated above should not be disallowed. The reply of the assessee to this show cause notice received on ITBA on 26.06.2019 has been examined but has not been found acceptable. 6. In the light of the above discussion after considering and circumstances of the case, a disallowance of Rs 9,53,227/- is made as per the provisions of Rule 8D and Section 14A the Act. [Rs. 9,53,227/-] Moreover, penalty proceedings u/s 271(1)(c) are initiated separately for furnishing inaccurate particulars of income. 5. Subject to the above, the total income of the assessee is computed as under:-
Total income declared by the assessee 41,87,940/- in the ROI
Add:- 1. Disallowance u/s 14A for 9,53,227/- 9,53,227/- expenditure related to exempt income
Total 51,41,157/-
Assessed at Rs. 51,41,157/- u/s 143(3)/147 of the Income-tax Act, 1961 as above. Give credit For prepaid taxes. Charge interest as may be applicable. Issue demand notice and challan. Issue penalty notice u/s 274 r.w.s. 271(1)(c) of the Act.
Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:-
“ 5.1. Ground No. 3 of the revised grounds filed by the appellant is on the merits of the case. The appellant has contended that the AO
5 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
has erred on facts and in law in making disallowance of Rs.9,53,227/ u/s. 14A of the Act, as against exempt income of Rs.4278/- only, ignoring the settled position of law that disallowance u/s. 14A cannot exceed the exempt income. Therefore, according to the appellant, the disallowance deserves to be restricted to Rs.4278/- only. 5.2. I have carefully considered the assessment order, written submissions filed online by the appellant. The AO computed disallowance u/s 14A read with Rule 8D at Rs.9,53,227/-. The appellant had submitted that no investment was made for the period 01.04.2013 to 31.03.2014 and the exempt income was 'dividend' income of Rs.4,278/- only and no expenditure was incurred during the previous year for earning such exempt income. The appellant further submitted that the AO erroneously considered even those investments on which the company had not earned any exempt income to compute the disallowance and no expenditure either direct or indirect was actually incurred during the year for earning the dividend income. 5.3. The Hon'ble Delhi Bench of the ITAT in the case of M/s Ganga Kaveri Credit & Holding (P) Ltd. vs. ACIT, Circle 12(1), New Delhi in ITA No. 919/Del/2014 has held that disallowance u/s 14A cannot exceed the amount of dividend income. The Hon'ble Delhi High Court in the case of Joint Investment (P) Ltd., 372 ITR 694 has held that expenditure on account of tax exempt income cannot exceed the amount of exempt income. The Hon'ble Court held as under: “....in the opinion of this Court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." 5.4. In the case of Brindavan Beverages Pvt. Ltd. Vs DCIT (ITAT Bangalore)/ ITA No. 2001/Bang/2016/Dated: 20/10/2020/ AY 2010- 11, 2013-14, it has been held as under:-
6 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
"...The recent order of the Bangalore Benches of the Tribunal in the case of M/s. Century Real Estate Holdings Pvt. Ltd. v. ACIT [ITA No.284/Bang/2020 — order dated 24.06.2020] had held disallowance u/s 14A of the I.T.Act cannot exceed the exempt income. The Bangalore Benches of the Tribunal had relied on the judgment of the Hon'ble Delhi High Court in the case of PCIT v. Caraf Builders & Constructions (P) Ltd. [(2019) 101 Taxmann.com 167 (Delhi)] and the order of the Mumbai Benches of the Tribunal in the case of Future Corporate Resources Limited v. DCIT [ITA No.4658/Mum/2015 — order dated 26.07.2017]. The relevant finding of the Bangalore Benches of the Tribunal in the case of M/s. Century Real Estate Holdings Pvt. Ltd. v. ACIT (supra), reads as follow:- "10. In ground no.7, the assessee is contending that the disallowance made by the tax authorities u/s 14A of the Act is much more than exempt income. Before us, the Ld. A.R. submitted that the quantum of disallowance u/s 14A of the Act should not exceed the amount of exempt income. In support of this proposition, the Ld. A.R. placed reliance on the decision rendered by Hon'ble High Court of Delhi in the case of Joint Investment Private Limited Vs. CIT 372 ITR 694 and also the decision rendered by Mumbai bench of Tribunal in the case of Future Corporate Resources Limited Vs. DCIT (ITA No.4658/Mum/2015 dated 26.7.2017). 11. The Hon'ble Delhi High Court has considered an identical issue in the case of PCIT vs. Caraf Builders & Construction (P) Ltd (2019)(101 taxmann.com 167) and has held as under:- "25. Total exempt income earned by the respondent-assessee in this year was Rs. 19 lakhs. In these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from Rs. 75.89 crores to Rs. 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year." The Mumbai bench of Tribunal has also taken an identical view in the case of Future Corporate Resources Ltd (supra) and the relevant observations made by the Tribunal in the above said case are extracted below:- "10. Coming to the second argument of the assessee, the assessee argued that it had earned meager dividend income of Rs. 24,138 as against which, the assessing officer disallowed a sum of Rs. 3,36,28,000 which is more than the exempt income. The assessee further argued
7 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal that dis-allowance under section 14A cannot exceed amount of exempt income. The assessee relied upon case laws in support of its arguments. We find that the Hon'ble Delhi High Court in the case of Joint Investments (P.) Ltd. (supra) held that the window for dis allowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to tax exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. We further notice that the Hon'ble Delhi High Court in the case of CIT v. Holcim India (P.) Ltd. (2014) 272 CTR 282 (Delhi) has held that there can be no dis allowance under section 14A in the absence of exempt income. ...Therefore, considering the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the view that dis allowance under section 14A cannot exceed the exempt income..." 5.5. Reliance is also placed on the following judicial pronouncements: 1. I.T.A. No. 245/AHD/2013 dated 27.03.2015 Chudgar Ranchodlal Jethalal vs. DCIT 2. ITA No.5592/MUM/2012 dated 01.01.2015 M/s Daga Global Chemicals Pvt. Ltd. vs. Asst. CIT 3. ITA No.986/De1/2012 dated 18.03.2015 HT Media Ltd. vs. ACIT 4. 148 ITD 336 (Del) Sahara India Financial Corpn. Ltd. vs. DCIT 5. ITA No. 548/Chd/2011 dated 30.09.2011 ACIT vs. Punjab State Coop & Marketing Fed. Ltd 6. ITA No.4320/Del/2014 dated 21.10.2015 Asst. IT vs. M/s Kajaria Ceramics Limited 7. ITA No. 1027/Del/2013 dated 23.10.2015 Hema Engineering Industries Ltd. vs. ACIT 8. ITA No.3763/De1/2013 dated 29.04.2015 Indus Valley Investment & Finance Pvt. Ltd. vs. DCIT 9. 18 SOT 390 (MUM) ACIT vs. Claridge Investments & Finance (P) LTD 5.6 In the case of Appellant, it is seen that provisions of Section 14A of the Act have been rightly invoked to disallow expenditure attributable to exempt income earned. However, it is seen that the
8 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal quantum of disallowance exceeds the exempt income during the year, a proposition against the ratio of the decisions referred in para 5.3 to 5.5 above. Respectfully following the ratio of the decisions discussed in paras 5.3 to 5.5 above; the Assessing Officer is directed to restrict the disallowance u/s 14A read with rule 8D to Rs.4,278/- (quantum of exempt income earned) and delete the balance amount of Rs.9,48,949/-. This ground of appeal is partly allowed.”
Being aggrieved by the assessment order, the Department/Revenue preferred an appeal before us. The Ld. AR for the assessee has reiterated its arguments in written submission for sole ground. In support, reliance was placed on the following orders which read as under:-
• Mount Malt Bru Ltd. vs. ITO in ITA No. 69/JP/2019 dated 27.10.2020. • Pr. CIT vs. Envestor Ventures Ltd. in ITA No. 16of 2021 dated 18.01.2021 ( Madras H.C.) • M/s GMR Enterprises Pvt. Ltd. vs. DCIT in IT(TP) A No. 2310/Bang/2019 dated 28.10.2021.
The Ld. DR, on the other hand strongly supporting the order of the CIT(A). In support, reliance was placed on the following orders:-
• Nahar Spinning Mills Ltd. vs. CIT 82 taxmann.com 154 ( P.& H. H.C.) • Lally Motors India (P.) Ltd. vs. Pr.CIT 93 taxmann.com 39 (Amritsar- Trib.) • Punjab Tractors Ltd. vs. CIT 78 taxmann.com 65 (P.&H. H.C.) • Vipin Malik vs. ACIT 88 taxmann.com 415 (Delhi Trib.)v
The Ld. DR for the revenue, he is confirming the order of the AO making disallowance of Rs. 9,53,227/- u/s 14A of the Act. The ld. DR for the
9 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
revenue submitted that the assessee has filed returns of Rs. 41,87,940/- and the assessment was completed u/s 143(3) on 01.02.2016. The ld. DR submitted that there was an audit objection raised regarding the sale consideration of long term capital gains and scrutiny of profit and loss account uncomputation of income revealed that the assessee has not shown any amount disallowable u/s 14A and which was based on the audit objection. The Assessing Officer accepted the same however it was observed that the assessee has invested in shares and exempt income of Rs. 4,278/- was earned during the year. On the other hand the ld. AR for the assessee submitted that the AO has computed disallowance u/s 14A read with rule 8D at Rs. 9,45,672/- where it is erroneous and unjustifiable on the part of the Assessing Officer. The AR for the assessee submitted that income investment was made for the period 01.04.2013 to 13.03.2014 and the exempt income was dividend income of Rs. 4,278/- only. The ld. AR for the assessee submitted that income expenditure was incurred during the relevant year earnings which is in the form of exempt income. The AR for the assessee submitted that AO has erroneously considered those investments on which the company had not earned to compute the disallowance and income expenditure as direct and indirect actual during the year dividend income earned. The disallowance u/s 14A cannot be exceeding the amount of dividend income. The ld. CIT(A) has rightly allowed the provisions of section 14A of the Act to disallow expenditure attributable to the exempt income earned . The Ld. AR for the assessee has reiterated its arguments in submission for case laws submitted by department, which are distinguishable on the facts of the present case which are as under:-
“1.1 Case laws submitted by the department are distinguishable: We are submitting herewith the table highlighting that the case laws as has been submitted by the department are distinguishable on the facts of the present case
10 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
Sr. Name of decision Deptt. paper Our submission book page
Nahar Spinning Mills 1-7 The facts of the case are narrated at para 2 Ltd. vs. CIT, Ludhiana of the order 1. The facts are completely contrast and clearly distinguishable: It is to be noted that in that case the assessee has erred dividend income of Rs. 28544745/- (para2) and the disallowance stood at only Rs. 135270/- (para 2) thus exempt income is for higher than the expenses disallowed. The ground of challenge in that matter was that no expenses were incurred in relation to earning of dividend income but assessing authority disallowed administrative expenses. However in the present case expenditure are higher than the exempt income and the ld. CIT(A) has allowed relief on the basis that the disallowance cannot be higher than the dividend income. 2. The decision is not of jurisdictional bench or high Court.
M/s Lally Motors India 8-31 The question under dispute is appearing at (P) Ltd. vs. PCIT, para 2 of the order. Jalandhar 1. Facts are distinguishable: The issue in that matter was in relation to whether the ld. CIT was right in initiating revisionary proceeding by invoking of sec. 263 and hence distinguishable. Though hon’ble ITAT has discussed the issue on merits also but it cannot be said final finding and laying down of any law. Sustaining of order of ld. CIT u/s 263 cannot be said to be finding on merits. 2. The facts of the case are narrated at para 2 of the order.
M/s Punjab Tractors 32-62 The facts of the case are narrated at para 2 Ltd. Vs. CIT, Patiala of the order. 1. The facts are completed contrast and
11 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal
clearly distinguishable: It is to be noted that in that case the assessee has earned dividend income of Rs. 225.72 lacs (para 4) and the disallowance stood at only Rs. 114.03 lacs (para 4) this exempt income is higher than the expenses disallowed. The ground of challenge in that matter was that certain expenditure were not incurred in relation to the same (para 4). However in the present case expenditure are higher than the exempt income and the ld. CIT(A) has allowed relief on the basis that the disallowance cannot be higher than the dividend income. 2. The decision is not of jurisdictional bench or high court.
Sh. Vipin Malik vs. 63-84 The facts of the case are narrated at para ACIT, Circle 37(1), 17,18, & 19 of the order New Delhi 1. The facts are entirely different and clearly distinguishable: It is to be noted that there the assessee has earned dividend income of Rs. 1802899/- (para 19) and the disallowance stood at Rs. 311043/- (para 18). Further the ground of challenge by the assessee in that case was that the AO has not recorded the satisfaction of incurring of expenditure in relation to earning of income and quantum of disallowance was not under challenge. However in the present case expenditure are higher than the exempt income and the ld. CIT(A) has allowed relief in respect of quantum of expenditure not on legal issue. 2. The decision is not of jurisdictional bench or high court.
Thus all the decisions cited by the Id. DR are clearly distinguishable and not applicable on the facts of the present case. Without prejudice to above 1.2 Decision of hon'ble jurisdictional bench: It is submitted that the facts of the present case are identical to the case of Mount Malt Bru Limited vs. ITO in ITA no.69/JP/2019 dt.27-10-2020 (Jp)(ITAT) (PB 1-7) (see page 5 para 7) wherein
12 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal it has been held that disallowance of expenditure cannot exceed the amount of exempt income. Thus the matter being covered by the decision of Hon'ble bench, the order of ld. CIT(A) is prayed to be sustained. 1.3 Other case laws: 1.3.1 Pr. Comm. of In-come Tax vs. Envestor Ventures Ltd. in tax appeal no.16 of 2021 dt.18-1-2021 (Mad)(HC) (PB 8-35) (see page 34 para 22) 1.3.2 GMR Enterprises Private Limited vs. DCIT in ITA no.2310/Bang/2019 dt.28-10-2021 (Bnag)(ITAT) (PB 36-56) (see page 42 para 3.6) In above facts and circumstances of the case, the appeal of the department may please be dismissed while sustaining the order of ld. CIT(A).”
We are of the opinion that the Assessing Officer is directed to restrict the disallowance u/s 14A read with rule 8D to Rs. 4,278/- (quantum of exempt income earned) delete the balance amount of Rs. 9,53,279/-. The expenditure are higher than the exempt Income, The Ld CIT(A) has allowed relief on the basis that the disallowance cannot be higher than the dividend income.
We are of the considered view that the quantum of disallowance exceeds the exempt income during the year. On the proposition against the ratio of decisions referred in this decisions as under:- • Mount Malt Bru Ltd. vs. ITO in ITA No. 69/JP/2019 for A.Y 2013-14 • Pr. Comm. of Income Tax vs. Envestor Ventures Ltd. in Tax Appeal no. 16 of 2021 dt. 18.01.2021 • GMR Enterprises Pvt. Ltd. vs. DCIT in ITA no. 2310/Bang/2019
Taking into facts and circumstances of the case and the reliance placed by both ld. AR for the assessee and ld. DR. The decisions cited by the Ld DR are not relevant and applicable to the present case.,wherein it has been held that
13 ITA No. 38/JP/2022 DCIT vs. Jai Narayan Agarwal disallowance of expenditure cannot exceed the amount of exempt income. Taking reliance on the Honble jurisdictional Bench in the case Mount Malt Bru Ltd. vs. ITO in ITA No. 69/JP/2019 for A.Y 2013-14,The matter is been covered and which are identical to the facts of the present case.We dismiss the appeal of the Revenue and uphold the orders passed by the ld. CIT(A). In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on 16/08/2022. Sd/- Sd/- ¼MkWa- ,l-lhrky{eh½ ¼ MkWa- ,e- ,y- ehuk ½ (Dr. M.L. Meena ) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 16/08/2022. *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- DCIT, Circle-2, Ajmer. izR;FkhZ@ The Respondent- Jai Narayan Agarwal, Kishangarh. 2. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. xkMZ QkbZy@ Guard File { ITA No. 38/JP/2022} 6. vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत