Mohsin Ali Vakil, New Delhi V. ACIT, circle-26(1), New Delhi

ITA 6763/DEL/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8743 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Appeal Filed On: 24-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJEEV KAPOOR
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 20

Judgement Text

I.T.A.No.6763/Del/2018 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER आ .अ.स ं /.I.T.A No.6763/Del/2018 /Assessment Year: 2015-16 Mohsin Ali Vakil D-36 (Basement), South Extension, Part-II, New Delhi. ब म Vs. ACIT Circle 26(1) New Delhi. PAN No. AAXPV2510R अ Appellant /Respondent िनधा रतीक ओरसे /Assessee by Sh. Sanjeev Kapoor, CA राज वक ओरसे /Revenue by Ms. Garima Sharma, Sr. DR स ु नवाईक तारीख/ Date of hearing: 06.06.2022 उ ोषणाक तारीख/Pronouncement on 10.06.2022 आदेश /O R D E R PER C.N. PRASAD, J.M. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-9, New Delhi dated 07.08.2018 for the AY 2015-16. The assessee in his appeal raised the following grounds: 1. “The order of the Ld. CIT(Appeals) is bad in law and on the facts of the case. 2. That the Ld. Assessing Officer can apply rule 8D only if he is not satisfied with the claim of expenditure made by the assessee or the correctness of the claim made by assessee that no expenditure has been incurred. 3. That the assessee company has it own non – interest bearing funds which can be utilized for tax free investment. I.T.A.No.6763/Del/2018 2 4. That the interest bearing loans of the assessee company have been utilized in various business assets of the company, other than investment in equity shares and mutual funds. 5. That the provisions of rule 8D cannot be applied in a mechanical way and facts of the case have to be analyzed before invoking them. 6. That if a very small and negligible amount of times, effort and expenditure is required to earn dividend income, disallowance of only a nominal amount is justified. a) Jubiliant Expro Ltd. vs. CIT (2007) 12 SOT 194 Delhi. b) CIT vs. Eicher Ltd. (2007) 160 Taxman 80 (mag). 7. That the assessee has voluntarily disallowance Rs.2,92,220/- u/s 14A of the Income Tax Act, 1961 @ 0.50% on the average investment in the AY 2015-16 on the following investments. Particulars 31.03.2015 31.03.2014 Equity shares (Quoted) 2,55,470 2,55,314 Mutual Fund 9,56,54,816 2,07,22,377 9,59,10,286 2,09,77,691 8. That no dividend was received on the unquoted following equity shares and the same should not have been considered for disallowance of expenditure u/s 14A of the Income Tax Act, 1961. 31.03.2015 31.03.2014 Unquoted Equity shares 8,35,72,163 8,35,72,163 9. That where assessee declared tax exempted income and voluntarily disallowed certain expenditures under section 14A, in absence of reason why assessee claim for disallowance under section 14A had to be rejected, Assessing Officer was not justified in re-computing disallowance. As such the additional disallowance of Rs.5,20,671/- is unjust and uncalled for. 10. The assessee craves leave to add, amend or withdraw any ground of appeal at the time or before the hearing of appeal.” I.T.A.No.6763/Del/2018 3 2. The Ld. Counsel for the assessee submits that the assessee has sufficient interest free funds more than the investments made at the beginning of the year as well as at the end of the year and, therefore, no disallowance is warranted under Rule 8D(2)(ii). Reliance was placed on the decision of the Hon’ble Supreme Court in the case of South Indian Bank Limited Vs. CIT (Civil Appeal No. 9606 of 2011 dated 09.09.2021) reported in 410 ITR 50. Referring to para 20 of the judgment the Ld. Counsel submits that the Hon’ble Supreme Court held that if investments in securities are made out of common funds and if non-interest bearing funds available with the assessee are more than the investments made in tax free securities disallowance under section 14A cannot be made. Ld. Counsel for the assessee referring to page 49 of the paper book which is the balance sheet of the assessee as on 31.03.2015 submits that assessee has opening capital of Rs.31.11 crores and the closing balance in capital account at 33.24 crores and the total investments at the beginning of the year stood at Rs.11.06 crores and at the end of the year at Rs.19.09 crores. Therefore, it is submitted that since the assessee has sufficient interest free funds for making investments no interest disallowance is warranted. 3. The Ld. Counsel further submits that the assessee has voluntarily disallowed Rs.2,92,220/- being 0.5% of average investments as expenditure attributable for earning dividend income of Rs.22,09,778/-. I.T.A.No.6763/Del/2018 4 4. On the other hand, the Ld. DR submitted that the investments were made over a period of time and the assessee has not provided the details of surplus funds and the investments made in earlier years. 5. Heard rival submissions, perused the orders of the authorities below and the balance sheet furnished before us. On perusal of the assessment order it is noticed that the assessee has earned dividend income of Rs.22,09,778/- and offered suo moto disallowance of Rs.2,92,220/- being 0.5% of average value of investments of Rs.5,84,43,989/-. It is noticed that the assessee has not considered investment in equity shares (un-quoted) for the purpose of computing the average value of investments while computing the disallowance at 0.5% thereon. The assessee has considered only the average value of investments in equity shares (quoted) and mutual funds for the purpose of computing the average value of investments and disallowance at 0.5% thereon under Rule 8D(2)(iii). Not convinced with the submissions of the assessee the Assessing Officer computed the disallowance u/s 14A read with rule 8D at Rs.8,12,891/- comprising of interest disallowance under rule 8D(2)(ii) of Rs.71,770/- and disallowance under rule 8D(2)(iii) being 0.5% of average investments at Rs.7,41,121/-. However, since the assessee himself disallowed Rs.2,92,220/- towards administrative expenses under rule 8D(2)(iii) the Assessing Officer restricted the disallowance to Rs.5,20,671/-. I.T.A.No.6763/Del/2018 5 6. On appeal the Ld. CIT(A) sustained the disallowance made by the Assessing Officer. 7. In so far as the interest disallowance of Rs.71,770/- is concerned we observe from the balance sheet of the assessee that the assessee has opening capital and closing capital of Rs.31.11 crores and Rs.33.24 crores respectively which is far more than the investments of Rs.11.62 crores at the beginning of the year and Rs.19.09 crores at the end of the year. Ratio of the decision the Hon’ble Supreme Court in the case of South Indian Bank Limited Vs. CIT (supra) squarely applies to the facts of the assessee’s case. Thus, respectfully following the said decision, we delete the disallowance of Rs.71,770/- made under rule 8D(2)(ii) towards interest. 8. Coming to disallowance under rule 8D(2)(iii) being 0.5% of average value of investment towards administrative expenses is concerned we observe that the assessee contended that no dividend was received on the unquoted equity shares of Rs.8,35,72,163/- which stood at the beginning as well as at the end of the year and, therefore, these unquoted shares should not have been considered as part of average value of investments for disallowance at 0.5%. We find force in the contention of the assessee. The Special Bench of ITAT Delhi in the case of ACIT vs. Vireet Investment Pvt. Limited (165 ITD 27) held that only those investments which yielded exempt income during the year are to I.T.A.No.6763/Del/2018 6 be considered for computing the average value of investments for the purpose of disallowance under rule 8D(2)(iii). Respectfully following the said decision, we direct the Assessing Officer to exclude the unquoted equity shares of Rs.8,35,72,163/- for the purpose of considering average value of investments and the consequential disallowance at 0.5% of such average investments. 9. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 10/06/2022 Sd/- Sd/- (G.S. PANNU) (C.N. PRASAD) PRESIDENT JUDICIAL MEMBER Dated: 10.06.2022 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order Assistant Registrar, ITAT: Delhi Benches-Delhi