DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(2)., AHMEDABAD vs. M/S. D.B.CORPORATION LTD., AHMEDABAD

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ITA 1306/AHD/2015Status: DisposedITAT Ahmedabad22 November 2017AY 2010-115 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that a prerequisite for disallowance under Section 14A is the identification of exempt income. Since no exempt income was earned, the disallowance made by the Assessing Officer was not justified.

What were the facts?

The Assessing Officer disallowed expenses of Rs. 3,35,93,617/- under Section 14A for earning exempt income. The assessee argued that no exempt income was earned during the year and investments were made from own funds.

What were the issues?

Whether disallowance under Section 14A can be made in the absence of any exempt income earned by the assessee.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD

Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD

For Respondent: Shri Dhiral Shah, AR
Hearing: 11/10/2017

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER : This is an appeal by the department against the order of the Commissioner of Income Tax(Appeals)-1, Ahmedabad, dated 25/02/2015 for the Assessment Year (AY) 2010-11, on the following Grounds: The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.3,35,93,617/- made u/s.14A of the Act without considering the fact

ITA No.1306/Ahd/2015 DCIT vs. M/s. D.B. Corporation Ltd. Asst.Year –2010-11 - 2 - that the assessee must have incurred administrative expenses to earn the exempt income. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. 2. The relevant facts as culled out from the materials on record are as under:- The assessee company has made investment for earning the exempt income. It is seen that the assessee has investment to the tune of Rs.94,32,86,000/- as at 31/03/2009 while the value of investment was Rs.91,07,86,000/- as at 31/03/2010. The issue of expenses incurred for earning exempt income was discussed with the assessee and show caused notice was issued to the assessee. Assessee replied the company over the last few years has been growing rapidly. The turnover increased to Rs.1026.14 crores (approximately a 10 percent increase over AY 2009- 10). This increase can be attributed to the massive expansion programs undertaken by the company. For the purpose of business expansion, the company has availed loans from various banks. During the subject assessment year, the company has incurred an interest expense of Rs.30.96 cores to service the loans taken by the company. The said loans have been used for the purpose of purchase of fixed assets and expansion/setup of business units. The same is also evident from various loans sanction letters. It is also submitted that during the subject assessment year, DBCL has not

ITA No.1306/Ahd/2015 DCIT vs. M/s. D.B. Corporation Ltd. Asst.Year –2010-11 - 3 - earned dividend income from the investments made in shares and securities. It is further submitted that disallowance u/s.14A of the Act cannot exceed the exempt income. Since DBCL has not earned any exempt income during the said financial year, there can be no disallowance u/s.14A of the Act and also stated that all investments made by the company are from the company’s own funds. As per the audited accounts, the company had average owned funds of Rs.526 crores vis-à- vis an average total investment of Rs.92.7 crores as on 31/03/2010. But ld. AO was not convinced with the plea of the assessee. Hence he made disallowance of Rs.3,35,93,617/-.

3.

Against the said order assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the assessee.

4.

We have gone through the relevant record and impugned order. The AO invoked mandatory provisions of Rule 8D thereafter without considering any of appellant’s contention and worked out the disallowance of Rs.3,35,93,617/-. As per statement of computation of total income for the impugned previous year (submitted by appellant) there is not income which has been claimed as exempt by appellant. Audited financial account dated 27/05/2010 reflect investment as on 31/03/2009 at Rs.94.33 lacs while as on 31/03/2010 the same is Rs.91.08 lac. In the audited profit and loss a/c under the head other operating income (Schedule 17) of Rs.12,37,20,771/-, it does not have any exempt

ITA No.1306/Ahd/2015 DCIT vs. M/s. D.B. Corporation Ltd. Asst.Year –2010-11 - 4 - income. The reduction in investment is on account of conversion/redemption of debenture and diminution of investment. In our considered opinion AO was not justified in invocation of Rule 8D as per ratio of Hon’ble Gujarat High Court judgment in the case of Corrtech Energy (P) Ltd. (supra) and other judicial pronouncement, the first requirement for disallowance u/s.14A of the Act is to identify the income which is not forming part of total income i.e. exempt income. In the absence of the same, further requirement of identification of expenses relatable to such income and its disallowance cannot be proceeded. Therefore, in our considered opinion this ground of the revenue is deserves to be dismissed.

5.

In the result, appeal filed by the revenue is dismissed. This Order pronounced in Open Court on 22/11/2017

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ITA No.1306/Ahd/2015 DCIT vs. M/s. D.B. Corporation Ltd. Asst.Year –2010-11 - 5 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Gandhinagar, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy 1. Date of dictation 21/11/2017 (dictation-pad 3 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …21/11/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………

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