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

“1. That Ld. CIT(A)/ National Faceless Appeal Centre (NFAC) erred in law and on facts in not deleting the addition of Rs.80,33,8607- wrongly made by AO u/s 14A r.w.r 8D on the dividend income which was not exempt during the year but taxable and tax was paid by the appellant on the dividend income as per law relevant to the year.

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.