NAHAR INDUSTRIAL ENTERPRISES LIMITED,LUDHIANA vs. DCIT, CIRCLE-1, LUDHIANA

Briefly the facts of the case are that the case of the assessee was selected for compulsory scrutiny to examine expenditure incurred in relation to income not included in total income and applicability of Section 14A of the Act. Thereafter, notices under section 143(2) and 142(1) of the Act were issued calling for necessary information/documentation and explanation from the assessee which was considered but not found acceptable. As per AO, the assessee has made substantial investment in shares of company and income on such investment is prima facie exempt from tax and not includable in the taxable income. Therefore, the provisions of Section 14A are attracted. It was further stated by the AO that he is not satisfied with the correctness of the claim of the assessee that no expenditure have been incurred in relation to the exempt income and invoking provisions of Rule 8D, he worked out the amount of disallowance at Rs. 80,33,860/- which has since been confirmed by the Ld. CIT(A) and against the said findings, the assessee is in appeal before us.

During the course of hearing, the Ld. AR submitted that the assessee filed its return of income declaring total income of Rs. 1.51 Crores which include dividend income of Rs. 20.50 lacs received from the investment made by the assessee company in earlier years. It was submitted that under the amended law as applicable for the impugned assessment year, the dividend income was no more exempt under section 10(34) of the Act, hence the assessee while filing its return of income has declared the dividend income of Rs. 20.50 lacs as part of taxable income and such dividend income has not been claimed as exempt under any provision of the Act. It was accordingly submitted that where the dividend income so received on investment has already been offered to tax in the return of income and not been claimed as exempt, the question of invocation of Section 14A of r.w. Rule 8D does not arise at first place. It was submitted that the fact that the dividend income has been duly offered as part of the return of income has not been disputed by either the AO or by the Ld. CIT(A), however under the mistaken understanding of the provision of Section 14A r.w. Rule 8D read with the explanation thereto, the said provision have still been invoked and disallowance have been made to the tune of Rs. 80,33,860/-. It was accordingly submitted that the disallowance so made be directed to be deleted.

Per contra the Ld. DR is heard who has relied on the order of the lower authorities. It was submitted that on perusal of the assessee’s financial statements, it can be seen that the assessee has made substantial investment in shares of the company wherein the opening balance is Rs. 80,24,21,718/- and the closing balance is Rs 82,51,71,718/- and income on investment in share was prima facie exempt from tax and hence not includable in the taxable income thus attract the provision of Section 14A of the Act. It was further submitted that the AO was not satisfied with the correctness of the claim of the assessee having regard to the account of the assessee and hence Rule 8D was invoked to compute the amount of disallowance under Section 14A of the Act read with explanation thereto. At the same time, it was fairly admitted by the Ld DR that the assessee has received dividend income of Rs. 20.50 lacs and taxes thereon has been paid and the same has been duly offered as part of the return of income by the assessee and not been claimed as exempt in the return of income.

We have heard the rival submissions and purused the material available on record. Admittedly and undisputedly, the assessee has made investments in shares and has received dividend income of Rs. 20.50 lacs on such investments during the financial year relevant to impugned assessment year. It is also not in dispute that the assessee has offered the whole of the dividend income so received to tax in its return of income and has paid due taxes thereon and the same has been assessed and not disputed by the AO as well as by the ld CIT(A). Therefore, where the dividend income actually received during the year under consideration has been offered to tax (and not claimed as exempt) and forms part of the total income of the assessee, the question of applicability of Section 14A and the disallowance of any expenditure incurred in relation thereto invoking Rule 8D doesn’t arise for consideration. In the instant case, the factual position is that the dividend income has actually accrued and received during the year and which form part of the total income and even as per the explanation to Section 14A, the provisions of section 14A cannot be invoked in the instant case. In the result, the disallowance so made by the AO invoking Section 14A r/w Rule 8D and sustained by the ld CIT(A) is hereby directed to be deleted.

In the result, the appeal of the assessee is allowed.

In view of the aforesaid, where the matter has been decided on merits in favour of the assessee, the stay application has become infructious and the same is accordingly dismissed. Order pronounced in the open Court on 25/09/2024. परेश म. जोशी िव"म िसंह यादव (PARESH M. JOSHI) ( VIKRAM SINGH YADAV) "ाियक सद" / JUDICIAL MEMBER लेखा सद"/ ACCOUNTANT MEMBER

""यथ"/ The Respondent 3. आयकर आयु"/ CIT 4. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड" फाईल/ Guard File