TMI Blog2018 (5) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Thus, this ground of appeal is partly allowed for statistical purposes. Taxability of perquisite in the hands of the Director of the company for being allowed possession/use of the assessee’s property at rates lower than the market value - Held that:- CIT(A) has not issued any direction to make addition in the case of directors and only made an observation for need to examine the issue in the hands of the Director. Certainly, the Assessing Officer of the directors of the company will have to examine the issue in accordance with law and for which the affected third-parties will get due opportunity of being heard. The Ld. CIT(A) has though allowed relief to the assessee on the issue in dispute, but has not directed the Assessing Officer of the directors of the assessee company to tax the said amount in their hands and observed a need to examine issue in their hands. Since the Ld. CIT(A) has not concluded on taxability on the issue in hands of the directors or issued directions under-section 150(1) of the Act, it is merely an observation and, thus, in our view, Ld. CIT(A) has not exceeded his authority. - Decided against assessee - ITA No. 2249/Del/2015 - - - Dated:- 25-4- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 4,82,238/- under section 14A of the Act. 3.1 The facts in respect of issue in dispute are that the Assessing Officer observed disallowance of ₹ 74,017/- made by the assessee in computation of total income for disallowance of expenses related to exempt income. On being repeatedly asked by the Assessing Officer to submit the detail computation of disallowance of ₹ 74,017/-, the assessee filed computation on 06/11/2012 applying the provisions of Rule 8D(2)(iii) of Income- tax Rules, 1962 (in short the Rules ) i.e. disallowance equal to 0.5% of the average investment. The disallowance worked out according to the said Rule, was of ₹ 61,017.49 and the assessee further added ad-hoc disallowance of ₹ 13,000/- to make the total disallowance to ₹ 74,017/- i.e. disallowance made in return of income. Further, while working out the average investment, the assessee did not include investment of ₹ 69,30,000/- in equity shares of M/s Gwalior Steel Private Limited both in the opening as well as in closing amount of investment. The assessee explained that said investment in assessee s subsidiary, did not rise to any exempt income and, therefore, same was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Opening value of investment Rs.1,89,83,137.27 Closing value of investment ₹ 1,92,83,850.31 Average value of investment ₹ 1,91,33,498.80 C Opening value of assets ₹ 2,15,37,69,752.39 Closing value of assets ₹ 3,15,87,09,045.45 Average value of assets ₹ 2.65,62,39.398.92 3.3 Thus, the Assessing Officer computed disallowance for proportionate interest expenses under rule 8D(2)(ii) at ₹ 3,86,571/- and disallowance for administrative expenses at the rate of 0.5% of average value of investment at ₹ 95,667/-. In this manner, he has made disallowance of ₹ 4,82,238/- under section 14A of the Act and after subtracting the suo-moto disallowance of ₹ 74,017/- made by the assessee, he made addition for the balance amount of ₹ 4,08,221/- 3.4 Before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g SLR requirements and had borrowed funds for making such investments. The Hon'ble High Court held that even though the investment was made for meeting SLR requirements which was essential for the assessee s banking business, the interest and other expenditure incurred on borrowings for investment was disallowable u/s 14A. Similarly in Maxopp investment Ltd. 1203 taxman 185 (Del)] Sec. 14A disallowance was held to be applicable to the interest paid on the borrowings used for strategic investments, even though earning of dividend income was only incidental. In the following cases. Hon ble Courts have held the view that disallowance u/s 14A would still need to be made even though no dividend income was earned during the year:- a) Cheminvest Ltd. [121 ITD 318 2009 (DEL)] b) Siva Industries Holding Ltd. [TS-438-ITAT-2011 (CHNY) and TS-317- ITAT-2012 (CHNY)J c) Technopack Advisors P. Ltd. [(2012) 50 SOT 31 (Delhi) (URO)] d) Relaxo Footwear P. Ltd. [(2012) 50 SOT 102 (Delhi)] 5.2.3 The language of section 14A, which deals with disallowance of expenditure incurred relation to earning of exempt income, as well as of Rule 8D which provides how the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 8D(2)(iii), 0.5 % of the average value of investment yielding exempt income is computed. The aggregate amount of these three limbs is the amount of expenditure in relation to the exempt income or income not includable in total income, for the purpose of section 14A of the Act. 3.9 In the facts of the instance case, it is evident that the assessee itself has followed Rule 8D of Rules for computation of the disallowance against exempt income subject to following: 1. Investment in shares amounting to ₹ 69,30,000/- in shares of M/s Gwalior Steels Private Limited should not be considered for working out average value of investment for the purpose of rule 8D of Rules. 2. Proportionate disallowance of interest under Rule 8D(2)(iii) of Rules should not be made as the entire interest was for the purpose of business and no borrowed money has been utilised for investment in shares. 3.10 After exclusion of shares of M/s Gwalior Steels Private Limited, the disallowance for administrative expenses as per Rule 8D(2)(iii) has been worked out by the assessee at ₹ 61,017.49 as against the disallowance after inclusion investment in shares of M/s Gwalior Steels Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total income, then the related expenditure is outside the ambit of the applicability of section 14A. XXX XXX XXX The theory of apportinonment of expenditure between taxable and non-taxable has, in principle, has been now widened under Section 14A. 3.12 Respectfully, following the above judgment of the Hon ble Supreme Court, we uphold the finding of the Ld. CIT(A) in considering the investment in shares of M/s Gwalior steels private limited for working out average value of investment required for rule 8D(2)(ii) and 8D(2)(iii) of the Rules. 4. The next issue is whether the interest amount of ₹ 5,36,66,400/- considered by the Assessing Officer for proportionate disallowance of ₹ 3,86,571/- under Rule 8D(2)(ii) was corresponding to money borrowed and utilized towards investment in shares. 4.1 We find that before the Ld. CIT(A) the assessee failed to demonstrate utilization of the borrowed money towards purposes other than investment in shares. Thus, according to the learned CIT(A), the fund utilized by the assessee being mixed funds, he upheld invoking of Rule 8D(2)(ii) and apportioned the interest in the ratio of average value of investment to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer on this account is directed to be deleted. This ground of appeal is allowed. However, the Assessing Officer of the director(s) to whom the property at Prithvi Raj Road was let out needs to examine the taxability of the perquisite arising to the director(s) on account of being allowed possession/use of the property at rates lower than the market value. 5.1 Before us, the Ld. counsel of the assessee submitted that it was beyond the power of the Ld. CIT(A) to issue such kind of direction for considering the addition in another case not before him for adjudication. 5.2 The Ld. DR, on the other hand, submitted that Ld. CIT(A) has not issued any direction under section 150(1) of the Act to the Assessing Officer and, therefore, there is no requirement to expunge the above observation made by the Ld. CIT(A). 5.3 We have heard the rival submission and perused the relevant material on record. The CIT(A) as power coterminous with the power of the Assessing Officer and he can direct the Assessing Officer to do what he has failed to do as held in the case of [CIT Vs. Kanpur Coal Syndicate 53 ITR 225(SC)]. However, the jurisdiction of the CIT(A) u/s. 251 is strictly confi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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