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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S.SUNDER SINGH
आदेश / O R D E R
PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the Order dated 26.03.2014 of Commissioner of Income Tax-iv, Chennai, in C.No.1321(1)/CIT-IV/2013-14 for the AY 2009-10 and raised the following grounds:
ITA No.1224/Mds/2014 :- 2 -:
The order of the Commissioner of Income Tax, Chennai-IV dated 26th March, 2014 passed under Section 263 of the Act directing the Assessing Officer to disallow a sum of Rs.12,51,353/- under Section 14A of the Act as against the disallowance of Rs.4,32,426/- made by the appellant, thus directing further disallowance of Rs.8,18,927/- is without jurisdiction, against the provisions of law and contrary to the facts and circumstances of the case.
The Commissioner of Income Tax should have found that even after introduction of Section 14A of the Act and the conditions prescribed under Rule 8D introduced subsequently, unless a specific finding is given that expenditure have been incurred for earning tax-free income, no disallowance can be made by taking recourse to Section 14A of the Act a has been held in a number of decisions, both by High Courts as well as Tribunal.
The Commissioner of Income Tax should have found that in the appellant’s case, the financial cost represents interest on working capital loan which is directly relatable to the income from business chargeable to tax and consequently, no disallowance in respect thereof should have been made by taking recourse to Section 14A of the Act read with Rule 8D of the Income Tax Rules.
The Commissioner of Income Tax should have found that in the light of the decision of the ‘C’ Bench of this Hon’ble Tribunal dated 7th November 2013 in also relating to assessment year 2009-2010, it is not permissible to make any disallowance under Section 14A of the Act unless the Assessing Officer proves that there a direct nexus between the investment and the expenditure.
Without prejudice to the above contention, the Commissioner of Income Tax should have found that in the light of the decision of the Supreme Court in the case of Malabar Industrial Company Limited vs. CIT [243 ITR 83] and CIT vs. Max India Limited [295 ITR 282], where there are two possible views, the Commissioner cannot assume jurisdiction under Section 263 of the Act to revise the order of the Assessing Officer which has been made after detailed enquiry.
It is submitted that in the light of the above submissions, the order of the Commissioner of Income Tax, Chennai-IV dated 26th March 2014 passed under Section 263 of the Act, is without jurisdiction, against the provisions of law and contrary to the facts and circumstances of the case.
For these reasons and for any other reason that may be adduced at the time of hearing, it is prayed that the Hon’ble Tribunal may be pleased to direct that the order of the Commissioner of Income Tax (Appeals) to the extent agitated herein is not in accordance with law and facts and circumstances of the case and allow the appellant’s contention.
2.0 All the grounds of the appeal are related to the orders passed by the Commissioner of Income Tax (in short “CIT”) u/s.263 of Income Tax Act (in short ‘the Act’). In this case, the assessee has filed the return of income admitting total income of Rs.33,69,191/- on 26.09.2009. The case was selected for scrutiny and the assessment was completed u/s.143(3) accepting income returned. Subsequent to the completion of assessment, the CIT perused the records and found that the assessee was ITA No.1224/Mds/2014 :- 3 -: in receipt of dividend income of Rs.1,93,96,172/- and it had disallowed 2% of dividend income amounting Rs.4,36,426/- towards expenditure u/s.14A of the income tax act. For the AY 2009-10, Rule 8D is applicable in relation to earning of the exempted income. The disallowance u/s.14A r/w Rule 8D worked out to Rs.12,51,353/- as against the disallowance made by the assessee Rs. 4,36,426/-. Therefore, Ld.CIT held that the assessment framed u/s.143(3) by the AO is erroneous and prejudicial to the interest of the Revenue and accordingly, issued notice u/s.263 of the Act to protect the interest of the Revenue. The Ld CIT considered the Explanation submitted by the assessee and passed orders u/s.263 holding that the Assessment Order dated 01.10.2004 was erroneous and prejudicial to the interest of the Revenue and accordingly, set-aside the orders of the AO and directed the AO to conduct fresh inquiries and re- compute the disallowance u/s.14A in accordance with the Rule 8D after giving opportunity to the assessee. Against the order passed by the CIT u/s.263, the assessee is in appeal before us.
3.0 Appearing for the assessee, the Ld.AR argued that even after introduction Rule 8D the disallowance is not permissible u/s.14A unless specific finding is given by the AO that the expenditure incurred for earning the tax free income is not satisfactory. Further, the Ld.AR argued that disallowance u/s.14A is permissible when there is an expenditure incurred directly or indirectly for earning the exempted income. Having completed the assessment u/s.143(3) accepting the return of income, the ITA No.1224/Mds/2014 :- 4 -: quantum of disallowance u/s.14A is a debatable issue where two views are possible and no case for revision u/s.263. The Ld.AR vehemently argued that the order u/s.263 lacks jurisdiction required to be quashed.
On the other hand, the Ld.DR relied on the orders of the Ld.CIT.
4.0 We heard the rival submissions and perused the material placed on record.
We have gone through the Assessment Order. AO completed the assessment accepting the returned income. There was no indication from Assessment Order that whether the AO has called for the details of expenditure relatable to earning of dividend income. It is not clear from the Assessment Order, whether the AO has examined the issue of expenditure relatable exempted income. The Rule 8D has mandatory application from the A.Y 2008-09 onwards and estimated disallowance is not permitted. The Ld.CIT has taken up the case for revision and found that there were huge investments of Rs.15,33,50,317/- and financial charges debited to the Profit & Loss A/c was Rs.6,81,581/-. The expenditure relatable to earning of dividend income as per Rule 8D worked out to Rs.12,51,353/- according to the Ld.CIT. From the Assessment Order, the Ld.CIT found that the AO has not conducted any enquiries and completed the assessment. Therefore, the CIT held that the assessment was erroneous and prejudicial to the interest of Revenue.
From the Assessment Order, no details are available and for the AY 2009-10 onwards the disallowance required to be made as per Rule 8D of ITA No.1224/Mds/2014 :- 5 -:
Income Tax Rules. The Ld.AR has not made out a case that the AO has verified the expenditure and accepted the disallowance made by the assessee. The Ld.CIT relied on the decision of Special Bench ITAT, Chennai in Rajalakshmi Mills Ltd. v. ITO 121 ITD 343 (Chennai). Since the AO has not made any inquiries in respect of the expenditure incurred for earning the exempted income the assessment passed by the AO was erroneous and prejudicial to the interest of the Revenue and accordingly, we uphold the order of the Ld.CIT and dismiss the appeal of the assessee.
5.0 In the result, the appeal of the assessee is dismissed.
Order pronounced in the Open Court on 3rd May, 2017, at Chennai.