Loading judgment…
No AI summary yet for this case.
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 – 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.
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 Signet Industries Limited, Thane – 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 Signet Industries Limited, Thane – 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.
Signet Industries Limited, Thane – 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, 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
Signet Industries Limited, Thane – 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
Signet Industries Limited, Thane – 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, 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.
Signet Industries Limited, Thane – AY 2013-14
Resultantly, this appeal is partly allowed.
Order pronounced in open court on 30.07.2024