M/S. RATHI GRAPHICS TECHNOLOGIES LTD.,NEW DELHI vs. DCIT, NEW DELHI

Although the assessee has raised as many as five grounds in this appeal but except ground no. 1, other grounds are argumentative and supportive to the main ground which reads as under :- “1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals)-XVIII, New Delhi [briefly “the CIT(A)”] has erred in upholding the disallowance of Rs. 20,82,723/- made under section 14A of the Income tax Act, 1961 (briefly “the Act”) read with Rule 8D of Income Tax Rules, 1962.”

We have heard arguments of both the sides and carefully perused the relevant material placed on record, the Ld. Counsel of the assessee submitted that the order passed by the CIT(A) upholding the disallowance u/s 14(A) of the Income tax Act, 1961 (for short the Act), is not in accordance with the ratio of the judgment of Jurisdictional High Court in the case of Maxopp Investment Ltd. vs. CIT 347 ITR 272 (Del), that disallowance u/s 14A of the Act can only be out of actual expenditure. The ld. Counsel further pointed out Rule 8D of the IT Rules, 1962 is applicable only in a case where the assessing officer is not satisfied with the correctness of the claim of the assessed. The ld. Counsel also pointed out that the CIT(A) Has erred in not appreciating that in absence of nexus between borrowed funds and investments disallowance u/s 14A of the Act cannot be made on presumption without granting any dissatisfaction about the ./2012 3 Rathi Graphics Technologies Ltd. claim of the assessed regarding expenses and interest paid on borrowed funds. The ld. Counsel lastly pointed out that in view of recent judgment of Hon’ble Jurisdictional High Court of Delhi in the case of Cheminvest Ltd. vs. CIT 378 ITR 33 (Del) the disallowance u/s 14A of the Act read with Rule 8D of the rules cannot be more than exempt income earned by the assessee during the relevant financial period and in the present case as noted by the AO in para 3 it is amply clear that the assessed has shown dividend receipt amounting to Rs. 12,456/- and the amount of disallowance cannot be made ground this exempt income.

Replying to the above the ld. DR strongly supported the action of the AO as well as the first appellate order. However, he could not controvert that as per ratio of the recent decision of Hon’ble High Court of Delhi in the case of Cheminvest Ltd. vs. CIT (Supra) the disallowance u/s 14A relevant rule 8D cannot be made more than exempt income claimed by the assessee. 5. In view of the above, we are of the considered opinion that the assessing officer has not recorded any dissatisfaction for making impugned disallowance. The AO has relied on the decision of ITAT Delhi in the case of Cheminvest Ltd. vs. ITO reported as (2009) 317 ITR (AT) 0086 for making impugned disallowance but as we have noted above that this judgment of Tribunal has been reversed by Hon’ble Jurisdictional High Court of Delhi. Hence, in order to humble ./2012 4 Rathi Graphics Technologies Ltd. opinion the disallowance cannot be made more than exempt income declared by the assessed i.e. 12,456/-. Respectfully, following ratio of the decision of Hon’ble High Court of Delhi in the case of Cheminvest Ltd. Vs. CIT (Supra) the disallowance u/s 14A of the Act read with rule 8D of the Rules is restricted to Rs. 12,456/- and the AO is directed to delete the remaining part of addition. 6. Accordingly appeal of the assessee is partly allowed in the manner as indicated above. Order Pronounced in the Court on 11/07/2016.