TMI Blog2022 (1) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... see company for the purpose of its business, therefore, no part of the said interest expenditure could therein be attributed to the activity of earning of exempt income, and disallowed u/s.14A r.w. Rule 8D(2)(ii). See Bharti Overseas Pvt. Ltd. [ 2015 (12) TMI 1423 - DELHI HIGH COURT] no infirmity in the view taken by the CIT(A), who in our considered view had rightly vacated the disallowance of the interest expenditure made by the AO u/s. 14A r.w. Rule 8D(2)(ii). Enhancing the book profits u/s 115JB for Addition u/s 14A r.w.r. 8D - As is discernible from the order of the CIT(A), we find that he had by drawing support from case of ACIT vs. Vireet Investment Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] ,had observed, that no adjustment as regards the disallowance determined u/s. 14A r.w. Rule 8D could have been made for the purpose of determining the book profit u/s. 115JB of the Act. In our considered view, as the order passed by CIT(A) on the aforesaid issue does not suffer from any infirmity, therefore, the view therein taken by him is upheld. The Ground of appeal No. 3 raised by the revenue is dismissed. Mandation of recording satisfaction- as per assessee AO had determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the lower authorities. As the assessee company had already offered a disallowance in reference to the administrative expenses, therefore, we herein direct the AO to restrict the further disallowance. - I.T.A. Nos. 183/DEL/2019 and 603/DEL/2019 - - - Dated:- 31-12-2021 - G.S. Pannu, President And Ravish Sood, Member (J) For the Appellant : V.P. Gupta and Anunav Kumar, Advocates For the Respondents : Yagyasaini Kakkar, CIT-DR and Sumit Kumar Varma, Sr. D.R. ORDER Per Ravish Sood, JM The present cross-appeals are directed against the order passed by the Commissioner of Income Tax (Appeals)-34, New Delhi [for short CIT(A) ], dated 20.11.2018, which in turn arises from the order passed by the AO u/s. 143(3) of the Income Tax Act, 1961 (for short the 'Act'), dated 14.03.2016 for A.Y 2013-14. The assessee has assailed the impugned order on the following grounds before us. 1. That the CIT(A) erred in upholding disallowance of ₹ 35.11 lacs u/s. 14A read with Rule 8D of income tax Rules in respect of administrative expenses calculated at 0.5% of average amount of investment determined by the AO without appreciating that the AO had not proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... linked, or in fact interwoven, therefore, we shall take up and dispose off the same by way of a consolidated order. 2. Controversy involved in the present appeals primarily hinges around the disallowance made by the AO u/s. 14A r.w. Rule 8D of the Income-tax Rules, 1962, substituting the amount of disallowance that was on a suo motto basis offered by the assessee-company in its return of income. Also, the revenue is aggrieved with the dislodging of the disallowance of ₹ 22.32 lac that was made by the A.O. u/s. 36(1)(iii) of the Act. 3. Shorn of unnecessary details, the assessee-company had on 28.08.2013 filed its return of income for AY 2013-14, declaring an income of ₹ 36,34,22,190/-. Original assessment was framed by the AO vide his order passed u/s. 143(3) of the Act, dated 14.03.2016 at an income of ₹ 42,26,56,849/-, wherein he had, inter alia, determined the disallowance u/s. 14A r.w. Rule 8D at an amount of ₹ 287.82 lac. As is discernible from the record, the assessee company had in its return of income offered a suo motto disallowance u/s. 14A of ₹ 4 lac. On being confronted by the AO that as to why the disallowance u/s. 14A may not be wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of business. Details in this regard are given in the statement enclosed herewith as Annexure-I. Since interest debited to Profit Loss Account is wholly related to loans taken for the purpose of business, no disallowance on proportionate basis as per Rule 8D is to be worked out. In this regard, we may invite your kind attention to language of clause (ii) of Rule 8D(2), which provides that disallowance on account of Interest is to be proportionately determined where the assessee has incurred expenditure by way of interest which is not directly attributable to any particular Income or receipt. Accordingly, disallowance on proportionate basis is to be calculated only with reference to interest expenditure which is not directly attributable to any particular income or receipt. Since whole of the interest expenditure is attributable in the case of our company which income from business activities is chargeable to tax, no disallowance on proportionate basis is to be determined as per clause (ii) of Rule 8D(2) of Income Tax Rules. Total Investments of the company in shares in the last year have been to the tune of ₹ 70.20 cr. During the year, a further small investment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to above contentions the references may please be made on the following decisions. CIT v. Oriental Structural Engineers Pvt. Ltd. (2013) 216 Taxman 92 Del. Dy. CIT v. REI Agro Ltd. ITA No. 1811/Kol./2012 decided on 14.05.2013 - (upheld by High Court In ITA No. 161/2013 decided on 23.12.2013.) M/s. JM Financial Limited v. Addl. CIT, ITA No. 4521/Mum/2012 decided on 26.03.2014 - ITAT. Interglobe Enterprises Ltd. v. DCIT, ITA Nos. 1362 1032/Del/2013 and ITA Nos. 1580/Del/2013 decided on 04.04.2014 - ITAT. Carware Wall Ropes Ltd. v. ACIT - ITA No. 5408/Mum/2012 dated 15.01.2014 As regards disallowance on account of administrative expenses is concerned, we may submit that during the year our company has received dividend income of ₹ 0.50 lacs from SRF Ltd. and ₹ 451.50 lacs from DCM Engineering Ltd. (subsidiary of DCM Ltd.) Dividend was directly credited to our company account through ECS. Accordingly, no administrative efforts were involved in collecting the dividend warrants and depositing the same in the company's account. Therefore, no disallowance on account of administrative expenditure is called for. Even if disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 4 lac on the said count, however, in the course of the proceedings before him he had revised the disallowance as per Sec. 14A r.w. Rule 8D(2)(iii) at ₹ 21.03 lac, i.e., @ 0.5% of the average value of investments that had yielded exempt dividend income during the year under consideration. Observing, that the disallowance of the administrative expenses u/s. 14A r.w. Rule 8D(2)(iii) was not to be determined on the basis of the 'average value' of the investments that had yielded exempt income during the year, but was to be worked out with reference to the 'average value' of the investments which does not or shall not form part of the total income of the assessee, the CIT(A) worked out the disallowance u/s. 14A r.w. Rule 8D(2)(iii) at an amount of ₹ 35.11 lac. As the assessee had in its return of income already offered a suo motto disallowance of ₹ 4 lac u/s. 14A of the Act, therefore, the CIT(A) restricted the addition to an amount of ₹ 31.11 lac. In so far the claim of the assessee that the Assessing Officer had wrongly considered the disallowance u/s. 14A r.w. Rule 8D for the purpose of computing the 'book profit' of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to disallowance of interest on the outstanding loan to the DCM Employees Welfare Trust. We find that CIT(A) following the order of his predecessor for A.Y. 2012-13 had deleted the addition. We further find that identical issue arose before the Co-ordinate Bench of Tribunal in Revenue's appeal for A.Y. 2011-12. The Co-ordinate Bench of Tribunal by following the order of Tribunal in assessee's own case for A.Y. 2010-11 had dismissed the appeal of the Revenue. Before us, no distinguishing feature in facts of the case for the year under consideration and that for earlier years, has been pointed out by the Revenue, We therefore find no reason to interfere with the order of CIT(A). Thus the ground of Revenue is dismissed. As the facts and the issue involved in the present appeal qua the aforesaid issue in question remains the same as were therein involved in the assessee's own case for the aforementioned preceding and succeeding years, therefore, respectfully following the view therein taken by the Tribunal, we finding no infirmity in the order of the CIT(A) who had rightly vacated the disallowance of interest expenditure of ₹ 22.32 lac (supra) made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the said investments were made out of its self-owned funds was accepted while disposing off the assessee's appeal for the said preceding years by the then CIT(A) and no disallowance of any part of the interest expenditure therein survived. As regards the small investment of ₹ 5 lac that was made by the assessee in the shares of M/s. DCM Data System during the year under consideration, the same too can safely be held to have been sourced out of the substantial self-owned funds that were available with the assessee during the year under consideration. In the backdrop of the aforesaid factual matrix, we are of the considered view, that as no infirmity emerges from the view taken by the CIT(A) that no disallowance of any part of the interest expenditure was called for in the hands of the assessee u/s. 14A of the Act, we, therefore, uphold his order to the said extent. Our aforesaid view that in case an assessee has sufficient self-owned funds which are more than the amount of investments made in the exempt income yielding assets, then, no disallowance of any part of the interest expenditure is warranted is supported by the following judicial pronouncements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de for the purpose of determining the book profit u/s. 115JB of the Act. In our considered view, as the order passed by CIT(A) on the aforesaid issue does not suffer from any infirmity, therefore, the view therein taken by him is upheld. The Ground of appeal No. 3 raised by the revenue is dismissed. 9. The Ground of appeal no. 4 raised by the revenue being general in nature is dismissed as not pressed. 10. We shall now advert to the grievance of the assessee that the CIT(A) had erred in upholding the disallowance of ₹ 35.11 lac out of the administrative expenses u/s. 14A r.w. Rule 8D. Before us the ld. AR had assailed the disallowance sustained by the CIT(A) u/s. 14A r.w. Rule 8D(2)(iii) on two fold grounds, viz, (i) that as the AO had failed to record his satisfaction as to why the suo motto disallowance of ₹ 4 lac offered by the assessee u/s. 14A was not to be accepted, therefore, he had by mechanically triggering the mechanism contemplated in Rule 8D(2)(iii) invalidly assumed jurisdiction and determined the disallowance at an amount of ₹ 35.11 lac; and (ii) that the CIT(A) had erred in concluding that the disallowance of the administrative expenditure u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earning of the exempt dividend income as per Section 14A r.w. Rule 8D(2)(iii) is concerned. Controversy qua the aforesaid issue lies in a narrow compass, i.e., as per the assessee the disallowance of the administrative expenses as per Rule 8D(2)(iii) is to be worked out with reference to the 'average value' of the amount of investments on which dividend income was actually received during the year, while for the CIT(A) was of the view that as per the mandate of law the said disallowance was to be determined with reference to the 'average value' of the investments which does or shall yield exempt income. After deliberating at length on the issue in question, we are of the considered view that there is substance in the claim of the ld. AR that the disallowance out of the administrative expenses u/s. 14A r.w. Rule 8D(2)(iii) is to be determined with reference to the 'average value' of the investments on which dividend income was actually received by the assessee during the year, and the same cannot be stretched to the extent to bring within its sweep such investments which though had not yielded exempt income during the year, but shall yield such exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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