SIGNET INDUSTRIES LTD. ,MAHARASHTRA vs. NFAC, DELHI
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 31.10.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 28.03.2016 passed by learned ACIT, Central-1, Indore [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2013-14, the assessee has filed this appeal on following grounds: Page 1 of 8
Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
“(1) The Ld. CIT(A) in effect erred in confirming the addition made by the AO u/s 14A of Rs. 22,35,581/-. That on the facts and in the circumstances of the case and in law the addition made is wrong, bad in law and is prayed to be deleted. (2) The Ld. CIT(A) in effect erred in confirming the addition made by the AO u/s 36(1)(va) of Rs. 99,564/-. That on the facts and circumstances of the case the addition made is wrong, bad in law and is prayed to be deleted.” 2. The background facts leading to present appeal are such that the
assessee-company filed its return of income for AY 2013-14 declaring a total
income of Rs. 7,46,61,430/- which was subjected to scrutiny assessment
through notices u/s 143(2)/142(1). Ultimately, the AO passed assessment-
order u/s 143(3) assessing total income at Rs. 7,72,71,844/- after making
certain additions. Aggrieved, the assessee carried matter in first-appeal and
succeeded partly. Still aggrieved, the assessee has come in next appeal
before us on the grounds mentioned earlier.
Ground No. 1:
In this ground, the assessee challenges the disallowance of Rs.
22,35,581/- made by AO u/s 14A read with Rule 8D.
The AO has made this disallowance through Para 4 of assessment-
order. The AO noted that the assessee-company earned an exempted
dividend of Rs. 29,800/- from shares which was not included in total
income and at the same time incurred expenses which have been claimed in
P&L A/c, therefore disallowance was attracted u/s 14A. The AO worked the
amount of disallowance at Rs. 22,35,581/- in terms of Rule 8D consisting of
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Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
disallowance of interest of Rs. 18,50,877/- under Rule 8D(2)(ii) (+) 0.50%
standard disallowance of Rs. 3,84,704/- of administrative/overhead
expenses under Rule 8D(2)(iii). The AO, however, accepted, a voluntary
disallowance of Rs. 1,066/- made by assessee under Rule 8D(2)(i) on
account of expenses directly related to exempted income. During first-
appeal, the CIT(A) upheld disallowance of Rs. 22,35,581/- made by AO.
Before us, Ld. AR for assessee raised following relevant contentions:
(i) He drew our attention to the audited Balance-Sheet of assessee filed
in Paper-Book to show that as on 31.03.2013 (end of current year) as
well as on 31.03.2012 (end of immediate preceding year), the assessee
had investment of Rs. 7,69,40,880/- in shares/mutual funds which
clearly shows that there is no fresh investment made in current year
and the entire investment is brought forward from earlier year. Ld. AR
submitted that the department has not made any disallowance u/s
14A in earlier year. Hence, there is no justification in making
disallowance in current year.
(ii) So far as the disallowance of interest element of Rs. 18,50,877/-
under Rule 8D(2)(ii) is concerned, Ld. AR carried us to the very same
audited Balance-Sheet filed in Paper-Book to show that as on
31.03.2013 and 31.03.2012, the assessee-company was having
interest-free funds consisting of share capital, reserve and surplus of
Rs. 47,75,85,384/- and Rs. 35,03,44,622/- respectively which are
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Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
much higher than the investment of Rs. 7,69,40,880/- made by
assessee in shares/mutual funds. He relied upon HDFC Bank Ltd.
(2014) 366 ITR 505 (Bom) and CIT Vs. Reliance Utilities and
Power Ltd. (2009) 313 ITR 340 (Bom) to contend that it is an
acceptable judicial view that if the assessee has both types of funds,
namely interest-bearing and interest-free, then the presumption
would arise that the investment had been made out of interest-free
funds available, if the interest-free funds are sufficient to meet the
investment. Therefore also, Ld. AR contended, it can be safely
presumed that the assessee made investment from interest-free funds
and no disallowance was called for in terms of Rule 8D(2)(ii).
(iii) So far as the standard disallowance of Rs. 3,84,704/- made by AO
under Rule 8D(2)(iii) is concerned, Ld. AR submitted that the assessee
has not incurred any expenditure of administrative or general nature
for earning exempted dividend and all expenses debited in P&L A/c
were for the purpose of regular business of assessee which was
taxable. Ld. AR submitted that the major chunk of investment
amounting to Rs. 7,50,00,000/- was made by assessee in shares of
associated company for which no administration or monitoring was
required at all. Therefore, the AO is wrong in making a standard
disallowance merely following the prescription of Rule 8D(2)(iii)
without looking into the facts of assessee.
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Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
(iv) Having submitted thus, Ld. AR made an alternative pleading that even
if the disallowance is made invoking Rule 8D(2)(ii)/(iii), the same
should be restricted to the extent of actual exempted income of Rs.
29,800/- earned by assessee. He submitted that the disallowance
made by AO is Rs. 22,35,581/- which has to be restricted to Rs.
29,800/- being the amount of actual exempted income. In support of
his contention, he relied upon decisions in Joint Investment Pvt.
Ltd. Vs. CIT, ITA No. 117/2015 dated 25.02.2015 (Delhi HC) and
Pr. CIT Vs. Empire Package Pvt. Ltd. (2017) 81 taxmann.com 108
(P&H HC).
Per contra, Ld. DR for revenue re-iterated the same contention that
the investments in shares/mutual funds are brought forward from earlier
year and there is no fresh investment during the year but while making this
submission, he raised a different contention. He drew our attention to Para
4.2 of assessment-order wherein the AO has re-produced following
submission made by assessee in response to the questionnaire dated
16.10.2015 u/s 142(1):
“That the assessee company has investments in the form of quoted as well as unquoted shares of certain companies for Rs. 19,05,880/- and Rs. 7,50,00,000/- respectively. It is submitted that these investments were made in earlier years out of the available own capital and reserves and no borrowed funds were used for the purpose of making these investments.” Referring to same, Ld. DR submitted that the assessee has made only a
statement that no borrowed funds were used in earlier years for making
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Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
investment but the assessee has not substantiated his submission by filing
facts/figures. Therefore, Ld. DR contended, in absence of exact details
neither it can be said that the assessee has not utilized borrowed funds nor
the assessee’s reliance on twin decisions of Bombay High Court is proper.
We have considered rival contentions of both sides and perused the
orders of lower-authorities as well as the material held on record to which
our attention has been drawn. The core issue involved in the ground raised
by assessee is with respect to the disallowance of Rs. 22,35,581/- made by
AO in terms of Rule 8D(2)(ii) and (iii). The AO has already accepted the
voluntary disallowance of Rs. 1,066/- made by assessee in terms of Rule
8D(2)(i) on account of expenses directly related to exempted income. In so
far as the disallowance of Rs. 18,50,877/- made by AO under Rule 8D(2)(ii),
the same is relatable to interest on borrowed funds. As admitted by both
sides, it is fact that the entire investment in shares/mutual funds
generating exempted dividend was brought forward from earlier year and
there is no fresh investment in current year. It is a further fact that the
department has neither made any disallowance under Rule 8D(2)(ii) in
earlier year. During hearing, when we raised a pointed query to the learned
Representatives to clarify whether the department has re-opened assessee’s
case for earlier year on this count, we got a reply in negative. That means,
the department has not re-opened assessee’s assessment of earlier year for
making any disallowance. Thus, it is very much clear that there is no
disallowance made by AO in earlier year, the adverse action of disallowance
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Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
has been taken in current year only. At the same time, we also find that the
AO has no information that the assessee actually utilized any part of
interest-bearing funds in earlier year for making investment. When it so, we
find it difficult to accept that the AO had any justification in making
disallowance in current year. Therefore, the disallowance made under Rule
8D(2)(ii) by AO is not sustainable. Going further, we also find a strong merit
in Ld. AR’s argument that the disallowance cannot exceed the amount of
exempt income of Rs. 29,800/- as per decisions in Joint Investment Pvt.
Ltd. Vs. CIT, ITA No. 117/2015 dated 25.02.2015 (Delhi HC) and Pr. CIT
Vs. Empire Package Pvt. Ltd. (2017) 81 taxmann.com 108 (P&H HC).
Thus, taking into account all aspects, we restrict the disallowance to Rs.
29,800/-. The AO is directed to modify his assessment-order to delete excess
disallowance. The assessee succeeds partly in this ground.
Ground No. 2:
This ground relates to the disallowance of Rs. 99,564/- made by AO
u/s 36(1)(va) read with section 2(24)(x) on account of employees’
contributions to Provident Fund collected by assessee but not deposited to
Provided Fund upto due dates prescribed under relevant law. Ld. AR has
chosen not to press this ground perhaps realizing that the issue is already
settled by Hon’ble Supreme Court against assessee in Checkmate Services
(P) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC). Therefore, this ground
is dismissed.
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Signet Industries Limited, Thane ITA No. 525/Ind/2023 – AY 2013-14
Resultantly, this appeal is partly allowed.
Order pronounced in open court on 30.07.2024
Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 30.07.2024 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore
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