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Income Tax Appellate Tribunal, DELHI BENCH : H : DELHI
Before: SHRI SAKTIJIT DEY & SHRI M. BALAGANESH
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER Assessment Year: 2015-16 Karun Carpets (P) Ltd., Vs Addl. CIT, 801-803, Tower-B, Spl. Range-05, Global Business Park, New Delhi. Mehrauli-Gurgaon Road, Gurgaon. PAN: AAACK2331D (Applicant) (Respondent) Assessee by : Shri G.S. Grewal, CA; Ms Harsimran Grewal, CA & Shri Jaspal Singh, CA Revenue by : Ms Sapna Bhatia, CIT-DR Date of Hearing : 02.05.2023 Date of Pronouncement : 08.05.2023 ORDER
PER M. BALAGANESH, AM:
This appeal in for AY 2015-16 arises out of the order of the Commissioner of Income Tax (Appeals)-36, New Delhi, [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.13/18-19 dated 19.02.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.11.2017 by the ld. Income-tax Officer, Special Range-5, New Delhi (hereinafter referred to as ‘ld. AO’).
The only issue on merits to be decided in this appeal is as to whether the ld. CIT(A) was justified in restricting the disallowance u/s 14A of the Act to Rs 19,71,549/- in the facts and circumstances of the case.
We have heard the rival submissions and perused the materials available on record. We find that assessee is a company engaged in rendering services for procurement of maize and making investment in group companies. The major source of income derived during the year was from dividends, interest income, profit/loss on sale of investments etc. We find that the assessee had earned both taxable as well as exempt income. We find that the assessee had made investment in shares of group companies for obtaining controlling interest thereon and also made investment in mutual funds. We find that the assessee had earned dividend income of Rs 22,76,36,026/- during the year and claimed the same as exempt in the return of income. The assessee had made suo moto disallowance of expenses in the sum of Rs 15,17,995/- u/s 14A of the Act as expenses incurred for the purpose of earning such exempt income. The assessee had duly identified specific expenses debited in the profit and loss account which are attributable to the investment activity and accordingly had disallowed the same in the return of income. We find that the ld. AO had completely disregarded the basis of suo moto disallowance made by the assessee and directly proceeded to apply the computation mechanism provided in Rule 8D(2)(ii) and (iii) of the Income Tax Rules (hereinafter referred to as the ‘Rules’) and arrived at the disallowance figure thereon at Rs 68,67,298/-. The ld. AO after reducing the suo moto disallowance made by the assessee in the sum of Rs 15,17,995/-, made disallowance of Rs 53,49,303/- u/s 14A of the Act read with Rule 8D(2) of the Rules in the assessment.
Before the ld. CIT(A), the assessee submitted that no satisfaction was recorded by the ld. AO in terms of section 14A(2) of the Act read with Rule 8D(1) of the Rules as to why the disallowance made by the assessee in the return of income was 2 incorrect. The assessee also submitted a table before the ld. CIT(A) that the assessee had already disallowed more than 50% of the total expenditure debited in the profit and loss account in the return of income as under:-
Based on the aforesaid table, the ld. CIT(A) proceeded to disallow the remaining indirect expenses of Rs 19,71,549/- u/s 14A of the Act read with Rule 8D(2) of the Rules. Aggrieved, the assessee is in appeal before us and no appeal has been preferred by the revenue before us.
We find that the ld. AO in his assessment order had not recorded any objective satisfaction with cogent reasons as to why the suo moto disallowance made by the assessee in the return of income was incorrect, having regard to the accounts of the assessee. This is the mandate provided in Section 14A(2) of the Act read with Rule 8D(1) of the Rules. When this is violated, then the disallowance of expenses u/s 14A of the Act would have no legs to stand in the eyes of law. Our view is fortified by the decision of Hon’ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640 (SC). Hence we have no hesitation in directing the ld. AO to delete the disallowance made u/s 14A of the Act. However the suo moto disallowance of expenses made by the assessee in the return of income would prevail. Hence the Ground No. 4 raised by the assessee is allowed.
In view of our aforesaid decision, the adjudication of other legal grounds raised by the assessee becomes academic in nature and hence not adjudicated upon herein. No opinion is given herein for the said grounds (i.e Grounds 1, 2, 3(i), 3(ii) and 3(iii)) and they are left open.