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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Date of concluding the hearing : February 10, 2016 Date of pronouncing the order : March 04, 2016
O R D E R Per Shri P.M. Jagtap :- This appeal is preferred by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-IV, Kolkata dated 28.02.2013 and ./2013 Assessment year: 2009-2010 & C.O. No. 88/KOL/2013 (arising out of Assessment Year : 2009-2010 Page 2 of 6 the same is being disposed of along with Cross Objection filed by the assessee being C.O. No. 88/KOL/2013.
The solitary issue involved in the appeal of the Revenue relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.57.68 lakhs made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income Tax Rules.
The assessee in the present case is a Non-Banking Finance Company. The return of income for the year under consideration was filed by it on 19.09.2009 declaring total income of Rs.28,11,100/-. In the said return, dividend income of Rs.13,28,290/- was claimed to be exempt by the assessee and a disallowance of Rs.5.76 lakhs was offered on account of expenditure incurred in relation to the earning of the said exempt income as required by the provisions of section 14A. The Assessing Officer, however, applied Rule 8D of the Income Tax Rules and worked out the disallowance to be made under section 14A at Rs.91,28,456/-. Since the total expenditure incurred by the assessee was only Rs.63,44,119/-, the Assessing Officer finally made a disallowance to that extent thereby making addition of Rs.57.68 lakhs.
The addition made by the Assessing Officer by way of a further disallowance made under section 14A was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said addition for the following reasons given in paragraph no. 4.2 of his impugned order:- “4.2. I have gone through the assessment order and submissions made by the appellant. From the facts it is evident that the appellant was mainly engaged in share trading business. As per profit & loss account, total expenses incurred exclusive of interest was Rs. 4.35 lakhs and interest paid was Rs.59.08 lakhs. The assessee himself disallowed ./2013 Assessment year: 2009-2010 & C.O. No. 88/KOL/2013 (arising out of Assessment Year : 2009-2010 Page 3 of 6
Rs.5.76 lacs u/s 14A while submitting the return. Therefore the applicability of section 14A read with Rule 8D is not in dispute. However the A.O. has applied all the provisions of Rule 8D(i)(ii)and (iii) mechanically. The A.O. has not brought on record any evidence to show that the loans funds were used in investment in the mutual funds securities. There was investment of Rs.17.95 crores mainly consisting of Rs.17.87 crores in the mutual funds. No disallowance out of interest was made upto A.Y. 2008-09 which shows that till that year it is accepted that the investment have come out of share capital and reserves. The share capital, reserve and surplus of the assessee were Rs.18.97 crores which was more than the amount of investment in mutual funds and securities. The A.O. has not brought on record any facts to suggest that loan funds were used for investment in shares and securities. There was no finding that any expenditure was directly related to the earning of the exempted income. Therefore the provision or Rule 8D(2)(i) were not applicable. It is also not the case of the A.O. that mixed funds were used for investment in mutual funds and securities. As found earlier till A.Y. 2008-09 no such disallowance was made and during the year no loan funds have been used for investment in shares and mutual funds. The appellant’s case is supported by judgement of the Hon'ble Supreme Court in the case of Munjal Sales Corporation reported in 298 ITR page 298, Mumbai High Court in the case of Reliance Utilities and Power Co. reported in 313 ITR page 340 and Mumbai Bench of the ITAT in the decision reported in 130 TTJ page 31. Therefore the provisions of Rule 8D(2)(ii) were also not applicable. In my considered opinion the assessee has duly disallowed Rs.5,76,737/- u/s 14A and no further disallowance was called for unless it was shown that the said disallowance by the assessee was not in conformity with the provisions of the I.T Act. It is worth noting that the expense disallowed by the assessee on proportionate basis were more than the expenses (exclusive of interest) claimed in the profit &, loss account since no evidence has been brought on record that the investments have come out of the loans taken by the assessee. In view of the above there is no necessity to deal with the calculation mistake made by the A.O. while taking out the average assets. The addition made by the A.O. is deleted”.
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal. ./2013 Assessment year: 2009-2010 & C.O. No. 88/KOL/2013 (arising out of Assessment Year : 2009-2010 Page 4 of 6
At the time of hearing before us, the ld. D.R. strongly relied on the order of the Assessing Officer in support of the revenue’s case on the issue under consideration, while the ld. Counsel for the assessee strongly supported the impugned order of the ld. CIT(Appeals) and also relied on the decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited –vs.- DCIT reported in 144 ITD 141, which is affirmed by the Hon’ble Calcutta High Court in ITAT No. 161 of 2013 dated 23.12.2013.
We have considered the rival submissions and also perused the relevant material available on record. It is observed that in the computation of total income, disallowance of Rs.5.76 lakhs was offered by the assessee under section 14A of the Act on account of expenditure incurred in relation to the earning of exempt dividend income and there was no reason given by the Assessing Officer, having regard to the accounts of the assessee, to show his dissatisfaction with the correctness of quantum of expenditure disallowed by the asseessee under section 14A. In the case of REI Agro Limited (supra) cited by the ld. Counsel for the assessee, it was held by the Coordinate Bench of this Tribunal that where the assessee makes a claim that only a particular amount is to be disallowed under section 14A and if the Assessing Officer proposes to invoke section 14A, he has to record the satisfaction as to how the claim of the assessee is not correct having regard to the accounts of the assessee. It was also held that if there is no satisfaction recorded by the Assessing Officer, no disallowance could be made by him by invoking the provisions of section 14A. Keeping in view this decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited (supra), which has been affirmed by the Hon’ble Calcutta High Court, we hold that in the absence of requisite satisfaction recorded by the Assessing Officer showing how the disallowance offered by the assessee under section 14A was not correct having regard to its books of account, it was not permissible to the Assessing Officer in law to invoke section 14A and ./2013 Assessment year: 2009-2010 & C.O. No. 88/KOL/2013 (arising out of Assessment Year : 2009-2010 Page 5 of 6 make a further disallowance. We, therefore, uphold the impugned order of the ld. CIT(Appeals) deleting such disallowance made by the Assessing Officer under section 14A although on different grounds and dismiss this appeal of the Revenue.
In the Cross Objection, the assessee has merely supported the impugned order of the ld. CIT(Appeals), whereby he deleted the disallowance made by the Assessing Officer under section 14A. Since we have already upheld the order of the ld. CIT(Appeals) giving relief to the assessee on this issue while dismissing the appeal of the Revenue, the Cross Objection filed by the assessee has become infructuous and the same is accordingly dismissed.
In the result, the appeal of the Revenue as well as the Cross Objection filed by the assessee both are dismissed.
Order pronounced in the open Court on March 04, 2016.