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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S.V. MEHROTRA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed against the order dated 19/08/2013 passed by CIT (A) XXXIII, New Delhi.
The grounds of appeal is as follows:
That the orders passed by the Assessing Officer and Commissioner of Income Tax (Appeals)-XXXIII, New Delhi are bad in law and void ab-initio.
2. That on the facts and circumstances of the case and in law the CIT(A) erred in sustaining the disallowance of Rs.1,14,610/- made by the Assessing Officer u/s 14A of the IT Act.
The appellant craves permission to add, amend, alter or vary all or any grounds of appeal on or before the date of hearing of the appeal.
3. The assessee is a group company of M/s. BPTP Ltd., which is the flagship company. It had earned dividend income of Rs. 47,43,750/- from the shares of BPTP Ltd. acquired in earlier years. As per annual accounts the investment in these shares was shown at Rs. 8,25,00,000/-. The assessee has not carried out any business activity during the FY 2008-09. The Assessee claimed exemption under Section 10 of the Income Tax Act, 1961. Therefore, the questionnaire dated 15/07/2011, the assessee was asked to furnish and justify the claim of various expenses debited by it in its P&L account, as per the provisions of Section 14A of the Act r/w Rule 8D of the Income Tax Rules, 1962. The Assessee submitted reply dated 16/11/2011 as under: “8. Regarding the explanation sought by your good self as to why disallowance of expenses claimed by the company in the profit & loss account be made as per the provision of Section 14A of the Income Tax Act r/w rule 8D of the Income Tax Rules, 1962, we wish to submit that the company has received dividend income of Rs. 47,43,750/- in July, 2008 from M/s. BPTP Limited on investment made in 94,87,500/- equity shares of said company. The assessee has not incurred any expenses wholly and exclusively either by way of payment of interest or other expenses for the earning of said exempt dividend income. Therefore, no disallowance out of expenses incurred of called for. Details of expenses claimed have already been filed.”
4. The Assessing Officer observed in para 2.7 of the Assessment Order that: “2.7 In the present case, the assessee has earned dividend income of Rs.47,43,750/- and has claimed it exempt u/s 10 of the Act. An income does not come from nowhere. Certain expenses are always incurred for earning an income. Therefore, this contention of the assessee that it has not incurred any expenditure on earning the exempt income is not accepted. The assessee has shown taxable income of Rs.7,77,673/- in the FY 2008-09 and has debited total expenses of Rs. 1,37,083/- in its P& L account. 2.7.1 As per rule 8D(iii), the total disallowance comes to Rs. 4,12,500/- (being 0.5% of average value of investments i.e. 0.5% of Rs. 8,25,00,000/- ). On pro-rata basis the expenses attributable to taxable income comes to Rs. 22,473/- (777673/4743750 X 137083) and expenses attributable to exempt income comes to Rs. 1,14,610/- (137083 – 22473), hence the disallowance is restricted to amount of Rs. 1,14,610/-.”
Thus Assessing Officer made addition of Rs.1,14,610/-.
Being aggrieved by this order the Assessee preferred appeal before the CIT(A). The CIT(A) held as under: “I have perused the Profit & Loss account filed in the P/B by Ld. AR. Out of total receipt credited in P & L a/c for Rs. 55,22,423/- exempt income in form of dividend constitutes 86%. Similarly Investment in shares of M/s. BPTP Ltd. is for Rs. 8,25,00,000/- which constitutes almost 74% of total asset. Therefore, effectively the appellant company is an investment company, which has made investment in shares, the dividend income from which does not form part of total income. I have examined the nature of expenses debited under Profit & Loss account, the expenditure are mainly administrative in nature. As the major activity of the appeal is investment in shares, these administrative expenditure includes the expense in maintaining investment. The arguments of Ld. AR that the dividend is received in the month of July does not change the facts of the case, as the appellant is maintaining such shares even after July, during the remaining period of financial year. Considering these facts, in my view disallowance u/s 14A read with Rule 8D can be made. The assessing officer has computed disallowance under rule 8D (iii) which is higher than total expenditure claimed in P&L account. Therefore, the assessing Officer has made disallowance on pro-rata basis of exempt income to total income by excluding the expense pertaining to taxable income. The action of the assessing officer appears to be fair & proper. Accordingly, I confirm the addition made this ground of appeal is dismissed.”
6. Aggrieved by the said order the assessee is before us. The Ld. AR submitted that before proceeding to invoke Rule 8D of the Income Tax Rules, the Assessing Officer has to record a finding that he is not satisfied with the correctness of the claim of the assessee. Such finding has to be given after the examination/scrutiny of the accounts. The said finding has to be arrived at on objective satisfaction, in good faith, on relevant consideration. The finding is to give after giving assessee reasonable opportunity to show cause on the connection of the claimed by him. The reasons for giving the finding have to be given. No disallowance can be made if no expenditure is incurred in relation to the exempt income. But in assessee’s case the Assessing Officer has not followed the same. The Ld. AR relied on the following case laws: i) Maxopp Investment Vs. CIT (2011) 15 Taxmann.com 390 (Delhi) ii) CIT Vs. Taikisha Engineering India Pvt. Ltd. in & 119/2014 dated 25.11.2014 (Delhi)
iii) Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT 328 ITR 81 (Bom) iv) M/s Joint Investment Pvt. Ltd. Vs. CIT in dated 25.02.2015 (Delhi) v) UP Electronics Corporation Ltd. Vs. DCIT, Lucknow ITAT “A” Bench in ITA No. 538/LKW/2012 dated 23.01.2015.
The Ld. DR relied upon the orders of the Assessing Officer and CIT(A).
We have heard both the parties and perused all the documents. Out of total receipt credited in P & L a/c for Rs. 55,22,423/- exempt income in form of dividend constitutes 86%. The Assessee has made investment for Rs. 8,25,00,000/- which constitutes almost 74% of the total asset. Thus assessee is mainly an investment company which has made investment in shares, the dividend income from which does not form part of total income. The expenses incurred were also that of administrative expenses which is part of the investment made by the Assessee. The Assessing Officer has given proper satisfaction and reasons while applying Section 14A read with Rule 8D (iii). The CIT(A) was right in holding that as the major activity of the assessee is investment in shares, these administrative expenditure includes the expense in maintaining investment. The arguments of Ld. AR that the dividend is received in the month of July does not change the facts of the case, as the assessee is maintaining such shares even after July, during the remaining period of financial year. The assessing officer has computed disallowance under Rule 8D (iii) of the Income Tax Rules which is higher than total expenditure claimed in P&L account. Therefore, the assessing Officer has made disallowance on pro-rata basis of exempt income to total income by excluding the expense pertaining to taxable income. The action of the assessing officer appears to be fair & proper. The judgments/orders relied upon by the Ld. AR will not apply in the present case. In fact, in Maxopp Investment Vs. CIT, the Hon’ble Delhi High Court has held that while rejecting the claim of the assessee with regard to the expenditure and no expenditure, as the case may be in relation to exempt income the Assessing Officer have to indicate cogent reasons for the same. In the present case the Assessing Officer has clearly pointed out that the assessee has earned dividend income of Rs. 47,43,750/- and claimed it exempt u/s. 10 of the Income Tax Act. Income does not come from nowhere. Certain expenses are always incurred for earning an income. Therefore, the Assessing Officer rejecting the contention of the assessee that it has not incurred any expenditure on earning the exempt income. The CIT(A) also noted that the nature of expenses debited under Profit and Loss account, the expenditure are mainly administrative in nature. Thus the applicability of Rule 8D (2)(iii) is just and proper. In light of this, there is no necessity to interfere with the findings of the Assessing Officer as well as that of CIT(A).
In result, the appeal of the Assessee is dismissed.
The order is pronounced in the open court on 17th of October, 2016.