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Income Tax Appellate Tribunal, DELHI BENCHES “A” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI L.P. SAHU
This appeal by assessee has been directed against the order of the Ld. CIT(A), Ghaziabad, dated 26.02.2014, for the A.Y. 2010-2011 on the following grounds :
That the order of Ld. Lower Authority is bad in law as well as is against the facts and circumstances of the case.
2 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. 2. That, learned CIT (A) failed to appreciate that neither Ld.
AO has recorded any satisfaction about the expenses related to exempted income nor he found any specific actual incurrence of such alleged expenses and hence erred in sustaining the addition of Rs.10,15,931/- made u/s 14A read with Rule 8D.”
Briefly, the facts of the case are that on perusal of the P & L A/c and balance sheet, it reveals that assessee-company had made investment for the purpose of earning dividend income/income of Rs.75,61,104/- which is exempt not chargeable to tax under the Income Tax Act. The assessee was asked to explain as to why the expenditure in relation to earning/intended earning of exempt income be not disallowed as provided under section 14A of the I.T. Act applying Rule 8D duly notified for the purpose.
2.1. The assessee raised the objections of the proposed addition and submitted that (i) the activity of investment/earning of dividend income does not involve
3 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. incurring of any specific or substantial expenditure. (ii) There is no basis or justification for apportionment of composite expenditure being incurred for the purpose of earning primarily taxable income. The A.O. did not accept the contention of assessee and disallowed Rs.10,15,931/- under section 14A of the I.T. Act.
Learned Counsel for the Assessee submitted that identical issue has been decided by ITAT, Delhi, A-Bench, in the case of same assessee for A.Y. 2009-2010 in ITA.No.6827/Del./ 2014 vide order dated 20.11.2017 and appeal of assessee has been allowed. The findings in paras 9 to 14 of the order of the Tribunal in the case of the assessee for the A.Y. 2009-2010 (supra) are reproduced as under :
“9. After hearing both the parties, we find that none of the authorities below has controverted the facts put forward by assessee. Obviously when dividend is directly credited to fund by way of credit entries and then such credit by fund does not require any effort by assessee which is the major portion of 4 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. dividend. Other Amount is directly collected by bank through e-transfer example of which is placed on record at pages 3-4.
Besides, the authorities below have not indicated any specific amount/item which is considered as related to above income.
Ld. CIT(A) misdirected himself in stating about the decisions for investment that too on a probabilistic view but not for exempt income more so when funds etc. itself provided sufficient services as explained by assessee before AO.
Investments are admittedly out of own funds for which no addition is made. Ld. AR also took us to the order for AY 2011- 12 of assessee with identical facts on the issue which is on pages 15 to 19 of paper book where ld. AO has recorded in para 4 that, ‘…. It is evident that there is no expenditure which is directly attributable to exempt income (dividend). However , it cannot be ruled out that certain element of indirect expenses cannot be remotely attributable to the exempt income…..’. It is also stated that disallowance is made to maintain consistency and keep issue alive. Such specific findings proves that factually no incurrence of expenditure is found even in a subsequent year
5 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. though revenue is making addition merely to keep issue alive.
Hence we do find force in the claim of assessee about non- incurrence of expenditure and upheld same.
Beside above, basis of invoking s.14A as is stated above is not in terms of said provision read with rule 8 D. There is absolutely no satisfaction except rejection of explanation of assessee. There is no reference to any item of expenses found related to exempt income. There is no reference to accounts in relation to this issue either or even any material/basis in AO order. With the development of law, now we have series of decisions on this issue. The Ld. AR cited following cases on the issue:
A) H.T.MEDIA LIMITED V PCIT –ITA NO 548/2015—order dt. 23.08.2017 (Delhi) B) CIT V Taikisha Engineering India Ltd. [2015] 54 taxmann.com 109 (Delhi) Priya Exhibitors (P.) Ltd. v. [2012] 27 taxmann.com 88 C) (Delhi) D) Eicher Motors Ltd. v CIT (2017) 86 Taxmann.com 49 (DEL)
6 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. 11. In the case of HT MEDIA, AO had invoked 14A almost on the same basis i.e. after stating that explanation on no expenditure is no acceptable and that making, continuing, exiting from investment etc. are coordinated management decision and so expenditure is embedded in indirect expenses( from para 36) and so s.14A invoked. Hon’ble court after relying on Godrej & Boyce Mfg. Co. Ltd. 394 ITR 449(SC) held that AO failed to record proper satisfaction. In the case of Taikisha Engineering, hon’ble court has relied on hon’ble Bombay HC decision in above case of Godrej reported in 328 ITR 81 for the proposition that that satisfaction has to be recorded with respect to accounts in terms of ss. (2)/(3) of s. 14A and the provisions does not ipso facto enable AO to apply method prescribed in rules. This satisfaction must be on an objective basis having regard to claim of assessee. Rule 8 D(1) itself start with the words, ‘where the assessing officer, having regard to the accounts of the assessee…….’ in the absence of proper satisfaction.
7 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. 12. In the most recent case of Eicher [supra] it is held in para 13 that AO merely conjectured that, “there is inbuilt cost even in passive investment as also incidental expenditure like collection, telephone, follow up etc, Thus concluding that expenses are embedded in as indirect expenses. This is not as
per requirement of rule 8D. There is no satisfaction recorded based on the accounts of assessee. The AO simply presumes that since exempt income exists ………………..’
In the present case AO has not even identified any specific item of expense he merely says that explanation of assessee is not correct as huge investment is made. As per above discussion respectfully following above authorities which are binding on us it is held that there is no satisfaction of terms of s. 14A read with Rule 8 D. Copy of order for AY 08-09 is also placed on pages20-21 of paper book as per which no disallowance u/s 14A was made, hence assessee is right in submitting that disallowance is also against the principle of consistency in the absence of any facts.
8 ITA.No.1790/Del./2015 Bio Med Private Limited, Ghaziabad. 14. Grounds 2 and 3 are allowed and addition of Rs.8,88,490/- is hereby deleted.”
Ld. D.R. however, relied upon the orders of the authorities below.
After considering the rival submissions, we are of the view that the issue is covered in favour of the assessee in view of the order of the ITAT, Delhi Bench, in the case of same assessee for the A.Y. 2009-2010 vide order dated 20.11.2017.
Following the order of the Tribunal in the case of same assessee, we set aside the orders of the authorities below and delete the addition. Appeal of assessee is allowed.
In the result, appeal of assessee is allowed.