AI Insights
L & T Finance Holdings Ltd. appealed against the order of the Commissioner of Income-tax (Appeals) which confirmed the disallowance made under section 14A of the Income-tax Act, 1961. The disallowance was initially made by the Assessing Officer invoking Rule 8D due to the assessee's failure to make any suo moto disallowance out of the expenses related to exempt income. The Tribunal noted that the disallowance under Rule 8D(2)(iii) should be restricted to the amount of administrative expenses actually incurred for earning exempt income, and not exceed the total administrative expenses claimed in the profit and loss account.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 123102 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
10 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-08-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
16-07-2023
Assessment Year
2014-2015
Appeal Filed On
17-10-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 2633/MUM/2022 Assessment Year: 2014-15 L & T Finance Holdings Ltd., Brindavan Plot No. 177 CST Road, Kalina Santacruz (East), Mumbai-400098. Vs. DCIT-2(2)(1), M.K. Road, New Marine Lines Mumbai-400020. PAN NO. AABCL 5046 R Appellant Respondent Assessee by : Mr. Jeet Kamdar Revenue by : Ms. Sanyogita Nagpal, (CIT-DR) Date of Hearing : 17/07/2023 Date of pronouncement : 24/07/2023 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 04.02.2019 passed by the Ld. Commissioner of Income-tax (Appeals) – 5, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds : That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and grossly erred in confirming the disallowance u/s 14A. 2. Briefly stated, facts of the case are return of income declaring current year loss at Rs.( on 30.11.2014. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the with. During the course of assessment proceedings, the Assessing Officer noted that the assessee earned dividend income of Rs.2,19,68,85,793/- funds and claimed the entire dividend the assessee did not expenses in profit and loss account related to exempted income. It was claimed by the assessee that investment in subsidiary or group companies was made with the object o subsidiary company and not for earning dividend income. The Assessing Officer recorded the dissatisfaction on the claim of the assessee of incurring no expenses for earning exempted income and accordingly invoked Rule 8D of the I Rules) and made disallowance of Rs.14,58,76,907/ under: Rule 8D(2)(ii) 2. Amount of the Interest expense indirectly attributable to such income, in accordance with the formula AxB/C, where A. Total Interest expenditure on such income. B. Average on such Investment on the first and last day of previous year 25410800910+329399619910 2 L & T Finance Holdings Ltd.. ITA No. Briefly stated, facts of the case are that the assessee filed return of income declaring current year loss at Rs.(- on 30.11.2014. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the tax Act, 1961 (in short ‘the Act’) were issued and complied with. During the course of assessment proceedings, the Assessing Officer noted that the assessee earned dividend income of from investment in equity shares and mutual the entire dividend income as exempt. However, the assessee did not make any suo moto disallowance out of expenses in profit and loss account related to exempted income. It was claimed by the assessee that investment in subsidiary or group companies was made with the object of controlling sta subsidiary company and not for earning dividend income. The Assessing Officer recorded the dissatisfaction on the claim of the assessee of incurring no expenses for earning exempted income and accordingly invoked Rule 8D of the Income-tax Rules, 1962 (the Rules) and made disallowance of Rs.14,58,76,907/ 2. Amount of the Interest expense indirectly attributable to such income, in accordance with the formula AxB/C, where A. Total Interest Expenditure minus direct interest expenditure on such income. = Rs. Nil (A) B. Average on such Investment on the first and last day of 25410800910+329399619910 = (B) L & T Finance Holdings Ltd.. 2 ITA No. 2633/Mum/2022 that the assessee filed )22,78,49,240/- on 30.11.2014. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Act’) were issued and complied with. During the course of assessment proceedings, the Assessing Officer noted that the assessee earned dividend income of from investment in equity shares and mutual income as exempt. However, any suo moto disallowance out of expenses in profit and loss account related to exempted income. It was claimed by the assessee that investment in subsidiary or group f controlling stake in the subsidiary company and not for earning dividend income. The Assessing Officer recorded the dissatisfaction on the claim of the assessee of incurring no expenses for earning exempted income and tax Rules, 1962 (the Rules) and made disallowance of Rs.14,58,76,907/- computing as 2. Amount of the Interest expense indirectly attributable to such income, in accordance with the formula AxB/C, where Expenditure minus direct interest = Rs. Nil (A) B. Average on such Investment on the first and last day of C. Average of total assets on first and last day of previous year 55105652885+53334023479 2 AxB/C= Rule 8D(2)(iii) 3. 05.% of the average value of investment of (‘B’ above Rs.29175381410/- Total disallowance u/s 14A 3. On further appeal, the Ld. CIT(A) upheld the disallowance observing as under: “6.4.3 The Hon'ble Third Member Bench, ITAT, Mumbai in the case of D.H. Securities P Ltd reported in 41 taxmann.com 352 has held that: "There could be no quarrel with regard to the allocation of direct expenditure, which in fact states the obvious, and would in any case warrant a disallowance, i.e., even in the absence of the rule. Similarly, the part of the rule prescribing the ratio in respect of indirect expenditure (rule 8D(2) (ini)) cannot be altered on account of (say) hardship. This is as the rule prescribes the same as the ratio of indirect expenditure required to support an investment. In fact, the same, at 0.5%, is very nominal, recommending itself to an easy acceptance, eschewing the charge of being harsh. In view of the above, no fault can be found with the action of the Ld. AO in making disallowance under Rule 8D(2) (i). Hence, disallowance made under Rule 8D(2) (i) at Rs 14,58,76,907/ is CONFIRMED. Accordingly, the Ground No. I raised in appeal is DISMISSED. 4. At the outset, we find that this appeal has been filed with a delay of substantial number of assessee submitted that though the order u/s 250 was passed by the Ld. CIT(A) on 04.02.2019 neither received at the official address of the assessee not at the L & T Finance Holdings Ltd.. ITA No. Rs.29175381410 assets on first and last day of previous year 55105652885+53334023479 = Rs.54219838182 (C) 3. 05.% of the average value of investment of (‘B’ above - x 0.5% = Total disallowance u/s 14A On further appeal, the Ld. CIT(A) upheld the disallowance 6.4.3 The Hon'ble Third Member Bench, ITAT, Mumbai in the case of D.H. Securities P Ltd reported in 41 taxmann.com 352 that: "There could be no quarrel with regard to the allocation of direct expenditure, which in fact states the obvious, and would in any case warrant a disallowance, i.e., even in the absence of the rule. Similarly, the part of the rule prescribing io in respect of indirect expenditure (rule 8D(2) (ini)) cannot be altered on account of (say) hardship. This is as the rule prescribes the same as the ratio of indirect expenditure required to support an investment. In fact, the same, at 0.5%, inal, recommending itself to an easy acceptance, eschewing the charge of being harsh. In view of the above, no fault can be found with the action of AO in making disallowance under Rule 8D(2) (i). Hence, disallowance made under Rule 8D(2) (i) at Rs 14,58,76,907/-, being 0.5% of the average value of investment is CONFIRMED. Accordingly, the Ground No. I raised in appeal is DISMISSED.” At the outset, we find that this appeal has been filed with a substantial number of days. The the Ld. Co assessee submitted that though the order u/s 250 was passed by the Ld. CIT(A) on 04.02.2019, however the aforesaid order was neither received at the official address of the assessee not at the L & T Finance Holdings Ltd.. 3 ITA No. 2633/Mum/2022 Rs.29175381410 assets on first and last day of previous year Nil 3. 05.% of the average value of investment of (‘B’ above 14,58,76,907 On further appeal, the Ld. CIT(A) upheld the disallowance 6.4.3 The Hon'ble Third Member Bench, ITAT, Mumbai in the case of D.H. Securities P Ltd reported in 41 taxmann.com 352 "There could be no quarrel with regard to the allocation of direct expenditure, which in fact states the obvious, and would in any case warrant a disallowance, i.e., even in the absence of the rule. Similarly, the part of the rule prescribing io in respect of indirect expenditure (rule 8D(2) (ini)) cannot be altered on account of (say) hardship. This is as the rule prescribes the same as the ratio of indirect expenditure required to support an investment. In fact, the same, at 0.5%, inal, recommending itself to an easy acceptance, In view of the above, no fault can be found with the action of AO in making disallowance under Rule 8D(2) (i). Hence, disallowance made under Rule 8D(2) (i) at Rs. , being 0.5% of the average value of investment is CONFIRMED. Accordingly, the Ground No. I raised in appeal At the outset, we find that this appeal has been filed with a the Ld. Counsel of the assessee submitted that though the order u/s 250 was passed by aforesaid order was neither received at the official address of the assessee not at the official e-mail ID. It was further submitted that checking the e-filing department, noticed already uploaded on the Income application filed before us for condonation of the delay in filing appeal, the assessee has stated the date of knowing the order of ld CIT(A) on e-fling account as made a request for submission of the assessee, Thereafter, the appeal to assessee the order of the Ld. CIT(A) was served through e account only on 16.08.2022 and the within the period of 60 days and there was no deliberate the part of the assessee in delaying the filing of the appeal. 5. On the contrary, the Ld. Departmental Representative (DR) submitted that uploading assessee is one of the prescribed Rule 127 of the Income therefore, assessee cannot take the knowledge of the assessee only o through the e-filing account. He submitted that assessee to verify its e assessee is always intimated through SMS regarding uploading of the order on the e- L & T Finance Holdings Ltd.. ITA No. mail ID. It was further submitted that the assess filing account on the website of income department, noticed that order u/s 250 dated 04.02.2019 was already uploaded on the Income-tax e-filing account. In the application filed before us for condonation of the delay in filing appeal, the assessee has stated the date of knowing the order of ld fling account as on 16/08/22. Thereafter certified copy of the above but submission of the assessee, same has not been provided so far. , the appeal has been filed on 18.10.2022 to assessee the order of the Ld. CIT(A) was served through e account only on 16.08.2022 and thereafter appeal has been filed within the period of 60 days and there was no deliberate the part of the assessee in delaying the filing of the appeal. On the contrary, the Ld. Departmental Representative (DR) uploading the order on the e-filing account of the assessee is one of the prescribed mode of service Income-tax Rules, 1962 ( In short the Rules) therefore, assessee cannot take the plea that i knowledge of the assessee only on the 16.08.2022 while going filing account. He submitted that it is assessee to verify its e-filing account. He submitted that the always intimated through SMS regarding uploading of -filing account therefore the assessee cannot L & T Finance Holdings Ltd.. 4 ITA No. 2633/Mum/2022 the assessee while on the website of income-tax that order u/s 250 dated 04.02.2019 was account. In the application filed before us for condonation of the delay in filing appeal, the assessee has stated the date of knowing the order of ld hereafter, the assessee but as per the same has not been provided so far. filed on 18.10.2022, so according to assessee the order of the Ld. CIT(A) was served through e-filing reafter appeal has been filed within the period of 60 days and there was no deliberate attempt on the part of the assessee in delaying the filing of the appeal. On the contrary, the Ld. Departmental Representative (DR) filing account of the provided under , 1962 ( In short the Rules) and that it came to the n the 16.08.2022 while going it is the duty of the submitted that the always intimated through SMS regarding uploading of unt therefore the assessee cannot argue that the order of Ld 16.08.2022. According to him, the delay in filing to carelessness or negligence on the part of the assessee. 6. We have heard rival submis dispute and perused the relevant material on record. We find that the Ld. CIT(A) duly uploaded the order passed on 04.02.2019 on the Income-tax Portal as provided under Rule 127 of the Income Rules, 1962 therefore, d carelessness or negligence on the part of the assessee company. However, malafide purpose and delay is unintentional and assessee is not going to gain by way interest of the substantial justice merit, we condone the delay 7. Before us, the Ld. Counsel of the assessee containing pages 1 to 35 and bench of Tribunal in the case of Future Retails ltd Vs ACIT ( 5959/Mum/2016 dated 11/08/2020) and Tata Projects Ltd Vs ACIT ( ITA No. 459/Mum/2016 dated 22/10/2020) referred to Paper Book page No. 22 and submitted that the assessee has worked out suo exempted income. The ld page no. 34 and 35 of the paperbook, wherein breakup of common administrative expenses of rupees 246.78 L & T Finance Holdings Ltd.. ITA No. the order of Ld. CIT(A) came to the knowledge 16.08.2022. According to him, the delay in filing the appeal ness or negligence on the part of the assessee. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that the Ld. CIT(A) duly uploaded the order passed on 04.02.2019 on the tax Portal as provided under Rule 127 of the Income Rules, 1962 therefore, delay in noticing the said order is due to the ness or negligence on the part of the employee . However, this action of delay is not for any pose and delay is unintentional and assessee is not going to gain by way of delaying filing of appeal. T interest of the substantial justice and for the issue to be the delay in filing the appeal. us, the Ld. Counsel of the assessee filed containing pages 1 to 35 and relied on the decision in the case of Future Retails ltd Vs ACIT ( 5959/Mum/2016 dated 11/08/2020) and Tata Projects Ltd Vs 459/Mum/2016 dated 22/10/2020) eferred to Paper Book page No. 22 and submitted that the assessee suo-moto disallowance towards earning of The ld Counsel of the assessee has d 35 of the paperbook, wherein he has provided a kup of common administrative expenses of rupees 246.78 L & T Finance Holdings Ltd.. 5 ITA No. 2633/Mum/2022 . CIT(A) came to the knowledge only on the appeal is due ness or negligence on the part of the assessee. sion of the parties on the issue in dispute and perused the relevant material on record. We find that the Ld. CIT(A) duly uploaded the order passed on 04.02.2019 on the tax Portal as provided under Rule 127 of the Income-tax said order is due to the employees of the this action of delay is not for any pose and delay is unintentional and assessee is not of delaying filing of appeal. Therefore, in the to be decided on filed a paperbook relied on the decisions of Mumbai in the case of Future Retails ltd Vs ACIT ( ITA No. 5959/Mum/2016 dated 11/08/2020) and Tata Projects Ltd Vs 459/Mum/2016 dated 22/10/2020). He further eferred to Paper Book page No. 22 and submitted that the assessee disallowance towards earning of the assessee has referred to he has provided a kup of common administrative expenses of rupees 246.78 lakhs and other business expenses of to ₹ 2139.99 lakhs debited under the head administrative and other expenses. The learned counsel of the assessee submitted that the ratio of the exempt income income of ₹ 21, 968.86 lakhs/total income of Based on the above ratio disallowance should be restricted to 75.44% of rupees 246.78 lakhs i.e. 186. 17 lakhs, being the administrative expenses for earning dividend income. 8. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. the assessee earned dividend income of Rs. from investment in equity shares and mutual funds and claimed the entire dividend income as exempt, but did not make any suo moto disallowance before the lower authorities. T Officer recorded dissatisfaction invoked Rule 8D of the disallowance accordingly under the provisions of section 14A of t Act. In the case of Future Retail Ltd (supra) the disallowance worked out under rule 8D(2)(iii) being more than the actual administrative expenses incurred by the assessee and therefore the Tribunal has restored the matter back to the Assessing Officer. the case of Tata projects Ltd(supra) it is held tha under section 14A L & T Finance Holdings Ltd.. ITA No. lakhs and other business expenses of ₹ 1893.21 lakh 2139.99 lakhs debited under the head administrative and other expenses. The learned counsel of the assessee submitted that the of the exempt income to total income is 75.44% ( dividend 21, 968.86 lakhs/total income of ₹ 29, 122.67 lakhs). Based on the above ratio, the learned counsel submitted that disallowance should be restricted to 75.44% of rupees 246.78 lakhs i.e. 186. 17 lakhs, being the administrative expenses for earning We have heard rival submission of the parties on the issue in pute and perused the relevant material on record. the assessee earned dividend income of Rs. Rs.2,19,68,85,793/ from investment in equity shares and mutual funds and claimed the entire dividend income as exempt, but did not make any suo disallowance before the lower authorities. T recorded dissatisfaction as to the claim of the assessee and invoked Rule 8D of the income tax Rules,1962 and determined the disallowance accordingly under the provisions of section 14A of t In the case of Future Retail Ltd (supra) the disallowance worked out under rule 8D(2)(iii) being more than the actual administrative expenses incurred by the assessee and therefore the has restored the matter back to the Assessing Officer. the case of Tata projects Ltd(supra) it is held tha under section 14A of the Act has to be computed on a fair , L & T Finance Holdings Ltd.. 6 ITA No. 2633/Mum/2022 1893.21 lakhs aggregating 2139.99 lakhs debited under the head administrative and other expenses. The learned counsel of the assessee submitted that the is 75.44% ( dividend 29, 122.67 lakhs). the learned counsel submitted that disallowance should be restricted to 75.44% of rupees 246.78 lakhs i.e. 186. 17 lakhs, being the administrative expenses for earning We have heard rival submission of the parties on the issue in pute and perused the relevant material on record. We find that Rs.2,19,68,85,793/- from investment in equity shares and mutual funds and claimed the entire dividend income as exempt, but did not make any suo disallowance before the lower authorities. The Assessing as to the claim of the assessee and and determined the disallowance accordingly under the provisions of section 14A of the In the case of Future Retail Ltd (supra) the disallowance worked out under rule 8D(2)(iii) being more than the actual administrative expenses incurred by the assessee and therefore the has restored the matter back to the Assessing Officer. In the case of Tata projects Ltd(supra) it is held that disallowance has to be computed on a fair , reasonable and scientific basis where expenses related to composite activities was allocated in the ratio of the exempt in tax 8.1 We are of the opinion that once the Assessing Officer records the dissatisfaction as to the claim of the assessee made in books of accounts, there is no discretion with the Assessing Officer and he has to invoke Rule 8D for determining di disallowance computed under rule 8D(2)(iii) expenses in the nature of administrative expenses claimed in the profit and loss account, then disallowance should be restricted to that amount only as disallowance ca expenditure claimed against composite activities of earning exempt and taxable income. In the case of the head administrative expenses administrative expenses, the assessee has claimed amount of rupees 2139.99 lakhs which being m under Rule 8d(2)(iii) of any absurdity in disallowance which has been computed invoking rule 8D of rules. 8.2 Before us, the Ld. Counsel of the assessee has to have incurred some expenses toward income but no such disallowance has been computed by the assessee while filing return of income disallowance under section 14A of the Act for earning exem income, we feel it appropriate to restore the issue of disallowance under section 14A of the L & T Finance Holdings Ltd.. ITA No. reasonable and scientific basis where expenses related to composite activities was allocated in the ratio of the exempt in tax We are of the opinion that once the Assessing Officer records the dissatisfaction as to the claim of the assessee made in books of accounts, there is no discretion with the Assessing Officer and he has to invoke Rule 8D for determining disallowance. However if the computed under rule 8D(2)(iii) exceeds the total expenses in the nature of administrative expenses claimed in the profit and loss account, then disallowance should be restricted to that amount only as disallowance cannot be made more than the expenditure claimed against composite activities of earning exempt and taxable income. In the case of the head administrative expenses administrative expenses, the assessee has claimed amount of rupees 2139.99 lakhs which being more than the disallowance 8d(2)(iii) of ₹14,58,76,907/- and therefore we do not find any absurdity in disallowance which has been computed invoking efore us, the Ld. Counsel of the assessee has to have incurred some expenses toward earning of the exempted no such disallowance has been computed by the assessee while filing return of income. In view of the fresh claim of disallowance under section 14A of the Act for earning exem income, we feel it appropriate to restore the issue of disallowance under section 14A of the Act back to the file of the learned L & T Finance Holdings Ltd.. 7 ITA No. 2633/Mum/2022 reasonable and scientific basis where expenses related to composite activities was allocated in the ratio of the exempt in taxable income. We are of the opinion that once the Assessing Officer records the dissatisfaction as to the claim of the assessee made in books of accounts, there is no discretion with the Assessing Officer and he sallowance. However if the exceeds the total expenses in the nature of administrative expenses claimed in the profit and loss account, then disallowance should be restricted to nnot be made more than the expenditure claimed against composite activities of earning exempt and taxable income. In the case of the head administrative expenses administrative expenses, the assessee has claimed amount of ore than the disallowance and therefore we do not find any absurdity in disallowance which has been computed invoking efore us, the Ld. Counsel of the assessee has now admitted earning of the exempted no such disallowance has been computed by the . In view of the fresh claim of disallowance under section 14A of the Act for earning exempted income, we feel it appropriate to restore the issue of disallowance back to the file of the learned Assessing Officer for examining the correctness of the claim of the assessee and deciding the issue in dispute in accordan The ground of appeal of the assessee statistical purposes. 9. In the result, the appeal filed by the assessee is statistical purposes. Order pronounced in the open Court on Sd/ (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 24/07/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// L & T Finance Holdings Ltd.. ITA No. Assessing Officer for examining the correctness of the claim of the assessee and deciding the issue in dispute in accordan f appeal of the assessee is accordingly In the result, the appeal filed by the assessee is nounced in the open Court on 24/07/2023. Sd/- Sd/ CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai L & T Finance Holdings Ltd.. 8 ITA No. 2633/Mum/2022 Assessing Officer for examining the correctness of the claim of the assessee and deciding the issue in dispute in accordance with law. accordingly allowed for In the result, the appeal filed by the assessee is allowed for /07/2023. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai
Other Referred Cases
D.H. Securities P Ltd vs. ITAT, Future Retails Ltd vs ACIT, Tata Projects Ltd vs ACIT
Laws Referred To
Income-tax Act, 1961, Income-tax Rules, 1962
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