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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-2’, NEW DELHI
Before: Sh. N. K. Saini
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC-2’, NEW DELHI Before Sh. N. K. Saini, Accountant Member Asstt. Year : 2010-11 M/s Sucon India Ltd., Vs Addl. Commissioner of Income RRA Taxindia, D-28, South Tax, Range-II, Extension, Part-I, Faridabad New Delhi-110049 (APPELLANT) (RESPONDENT) PAN No. AAGCS9603L Assessee by : Sh. Somil Agarwal & Abhishek Anand, Advs. Revenue by : Sh. Amrit Lal, Sr. DR Date of Hearing : 22.08.2016 Date of Pronouncement : 26.08.2016 ORDER
This is an appeal by the assessee against the order dated 27.10.2014 of ld. CIT(A)-2, Faridabad.
Following grounds have been raised in this appeal:
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding disallowance of Rs. 12,15,407/- out of total disallowance made by Ld. A.O. of Rs. 17,27,021/- u/s 14A r.w.r. Rule 8D of the Income Tax Act, 1961. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of 2 Sucon India Ltd. Rs.12,15,407/- is bad in law and against the facts and circumstances of the case.
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in not allowing the exemption of Rs.7,27,361/- under section 10(34) of the Income Tax Act, 1961 on account of dividend income earned on the shares out of total dividend income on shares amounting to Rs. 8,07,361/-.
4. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. A.O in making the impugned additions are bad in law and against the facts and circumstances of the case.
6. That the appellant craves the leave to add, alter or amend the grounds of appeal
at any stage and all the grounds are without prejudice to each other.”
3. From the above grounds it is gathered that only grievance of the assessee relates to the sustenance of addition of Rs.12,15,407/- out of the total addition of Rs.17,27,021/- made by the AO u/s 14A of the Income Tax Act, 1961 r.w.r. 8D of the Income Tax Rules, 1962.
3 Sucon India Ltd.
The facts of the case in brief are that the assessee filed the return of income on 30.09.2010 electronically declaring Nil income after adjusting brought forward business loss of Rs.19,61,592/-, the said return 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 had declared dividend income of Rs.80,000/- received in respect of shares and claimed the said income as exempt from tax. The AO asked the assessee to show-cause as to why disallowance as per the provisions of Section 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962 be not made in taxable income. The assessee explained that no expenditure was incurred to earn the exempt income and that the dividend income was merely incidental to its share holding business. The AO did not find merit in the submissions of the assessee and made the disallowance of Rs.17,27,021/-.
5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained the disallowance to the extent of Rs.12,15,407/- by observing in para 5.4 of the impugned order as under: “5.4 As regards invoking of provision of Rule 8D(2)(iii) of the Income Tax Rules, the AO simply applied the formula as per which 1/2 % of average value of investment is to be disallowed. The average value of investment at the beginning of the year was NIL which increased to Rs. 15,70,85,836/- at the end of the year. Thus the average value of investment comes to Rs.7,85,42,918/-, 1/2% of which is Rs.3,92,715/-. Thus, the total disallowance u/s 14A read along with Rule 8D 4 Sucon India Ltd. gets restricted to Rs.12,15,407/-. This results in a relief of Rs.5,11,615/- to the appellant. Accordingly, Ground No. 3 of the appeal is partly allowed.”
Now the assessee is in appeal. The ld. Counsel for the assessee submitted that in this case the total dividend income on shares earned by the assessee was at Rs.8,07,361/-. Therefore, the disallowance, if any, to be made was to be restricted to the extent of Rs.8,07,361/-. The reliance was placed on the judgment of the Hon’ble Jurisdictional High Court in the case of Joint Investments Pvt. Ltd. Vs CIT in ITA 117/2015 order dated 25.02.2015 (copy of the said order was furnished which is placed on record).
In his rival submissions the ld. DR supported the orders of the authorities below.
I have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the issue under consideration is squarely covered vide aforesaid referred to order dated 25.02.2015 of the Hon’ble Jurisdictional High Court in the case of Joint Investments Pvt. Ltd. Vs CIT (supra) wherein relevant findings have been given in para 9 which read as under: “9. In the present case, the AO has not firstly disclosed why the appellant/assessee’s claim for attributing Rs.2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and 5 Sucon India Ltd. rejection if any of the assessee’s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and 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.” 9. I, therefore, by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court restrict the disallowance to the extent of Rs.8,07,361/- which is the total dividend income claimed to have been received by the assessee.
In the result, the appeal filed by the assessee is partly allowed. (Order Pronounced in the Court on 26/08/2016)