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Income Tax Appellate Tribunal - Delhi

Bhartiya Samrudhi Investment And ... vs Cit(A)-2, New Delhi on 28 February, 2018

                                        1                      ITA No. 6033/Del/2015



                    IN THE INCOME TAX APPELLATE TRIBUNAL
                         DELHI BENCH: 'D' NEW DELHI

                 BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
                                       AND
                   MS SUCHITRA KAMBLE, JUDICIAL MEMBER

                      I.T.A .No. 6033/DEL/2015 (A.Y 2011-12)

       Bhartiya Samrudhi Investment and Vs          CIT(A) -2
       Consulting Services Ltd.                     Room NO. 102, Hall NO.1
       F-5, Ground Floor, Kailash Colony            Aayakar     Bhawan,   Laxmi
       Great Kailash Enclave-Part-1                 Nagar Distt, Centre,
       New Delhi                                    New Delhi
       AAACB5336R
       (APPELLANT)                                  (RESPONDENT)



                   Appellant by      Sh. Arvind Kumar, Adv
                   Respondent by     Sh. Sanjay Verma, CIT,DR
                                     & Sh. Amit Jain, Sr. DR


                    Date of Hearing             30.11.2017
                    Date of Pronouncement        28.02.2018

                                      ORDER

PER SUCHITRA KAMBLE, JM

This appeal is filed by the assessee against order dated 22/07/2015 passed by CIT(A)-2, New Delhi for Assessment Year 2011-12.

2. The grounds of appeal are as under:-

1. On the facts and circumstances of the case, the Commissioner of Income Tax Appeals has erred in law in not directing the Assessing officer, not to apply section 14A read with rule 8D of the Income Tax rules, as the company had full accounting in respect of its various divisions and projects, though presented, but was ignored.

2. On the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred in law in not interfering with the order of the Assessing officer on the application of section 14A as all the investments were made by the assessee in its subsidiary companies, for execution of operations, and such investments are not reckoned for disallowance under section 14A read with rule 8D. (refer case law: EIH Associated Hotels vs. DCIT) ITAT Chennai, I.T.A. No. 1503/Madras/20012: dated: 17-07-2013.)

3. On the facts and circumstances of the case, the Commissioner of Income Tax Appeals has erred in stating that the financial expenses of Rs. 4.74 crores are related to the investments, while the Assessing officer, has clearly found that none of the interest payment is attributable to the investments.

4. On facts of the case, the Commissioner of Income tax (Appeal) ought to have recognized the suo moto disallowance made by the Appellant assessee and directed the Assessing officer, to delete the additional disallowance of Rs.

1,97,03,392 as the same is based on wrong calculations.

Additional Grounds of appeal

1. That in the facts and circumstances of the case and in law the Ld. CIT (A) ought to have restricted the disallowance of expenditure u/s 14A to the extent of dividend income of Rs. 1,02,49,538/-, which has been claimed exempt by the appellant u/s 10 of the Income Tax Act, 1961.

2. That without prejudice to the above ground of appeal, in the facts and circumstances of the case and in law the Ld. CIT (A) ought to have held that for the purposes of disallowance to be calculated under Section 14A of the Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962 only those investments are to be taken into consideration which had yielded exempt income and not those investments, which did not yield any exempt income, during the period relevant to the assessment year.

For Bhartiya Samrudhi Investment and Consulting Services Ltd."

3. The assessee company is engaged in the business of Investment Company for holding shares and consultancy services in micro finance and rural livelihood promotion services. The return of income declaring an income of Rs.1,10,96,790/- under normal provisions of the Income Tax Act, 1961 and book profit of Rs.65,62,400/- under MAT provisions of the Income Tax Act, 3 ITA No. 6033/Del/2015 1961 was filed on 28/09/2011. The case was selected for scrutiny. Notice u/s 143(2) of the Act was issued on 24/09/2012 and served on the assessee. Subsequently, notice u/s 142(1) of the Act along with questionnaire was issued on 17/07/2013. In compliance thereto, the representatives of the assessee attended the assessment proceedings from time to time and filed necessary details as called for Assessing Officer which were examined and placed on record by the Assessing Officer. The assessee submitted before the Assessing Officer that the dividend income of Rs. 1,02,49,538/- received by assessee from M/s. Bhartiya Samruddhi Finance Ltd. during the year and the same was included by the assessee as taxable business income. Therefore, there was no question of disallowance u/s 14A, since the dividend was not shown as exempt income. The Assessing Officer observed that, as per the assessee's own submissions, this was only part of its investment in shares and from perusal of the final accounts of the assessee revealed that during the relevant assessment year, its investment in shares increased from Rs.21.86 crores to Rs.42.38 crores and the source of this investment was mainly the loans, it availed during the year to the tune of Rs. 20 crores apart from shares (worth Rs.23.73 crores) of M/s. Bhartiya Samruddhi Finance Ltd., on which the assessee earned dividend during the year, the assessee was having large shareholding/investments in shares of other companies as well running into crores of rupees. The Assessment was completed on 14.03.2014 and the Assessing Officer held that the total disallowance worked out as per the provisions of Rule 8D(2) of the Income Tax Rules amounting to Rs.4,30,39,547/- treated as expenditure incurred in relation to exempt income. Since the assessee company suo moto disallowed an amount of Rs.2,33,36,155/-, the amount of Rs.1,97,03,392/- was disallowed by the Assessing Officer.

4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

5. The Ld. AR submitted that the additional ground filed by the assessee be taken into account as the same are in respect of legal ground. The Ld. AR also relied upon the Hon'ble High Court decision in case of CIT Vs. Sam Global Securities Ltd. 2013 38 Taxman.com 129. The Ld. AR further submitted that the disallowance cannot be more than exempt income. The computation of the income was before the Assessing Officer as well as CIT(A) and the same should have been taken into consideration by the authorities. The Ld. AR relied upon the decisions in case of Joint Investment Pvt. Ltd. Vs. CIT 2015 59 Taxman.com 295 (Delhi High Court, ACB India Ltd. Vs. ACIT 2015 62 Taxman.com 71) (Delhi High Court) & Special Bench decision in case of ACIT Vs. Bireet Investment Pvt. Ltd. 2017 82 Taxman.com 415.

6. The Ld. DR submitted that the assessee failed to claim exemption under Section 10(35) of the Act. The Ld. DR further submitted that assessed income cannot be below the returned income. The Ld. DR further submitted that the decision of the Sam Global Securities will not be applicable in the assessee's case, but the DR could not differentiate the factual aspect of the present case and the decision of the Hon'ble High Court.

7. We have heard both the parties and perused the material available on record. The CIT(A) held as under:-

"3.2.2 Therefore, section 14A mandates that disallowance under the section is to be made on account of expenses incurred for earning of exempt income under the Act, not necessarily exempt income earned during the year. It cannot be denied that even though no dividend income was earned during the year on investments other than those in M/s. Bhartiya Samruddhi Finance Ltd., these investments must have been made after expending the time, effort and expertise of the management/experts regarding when and where to invest, how long to continue with the investments and which investments to exit from, besides other administrative expenses. Before the Assessing Officer as well as 5 ITA No. 6033/Del/2015 during the course of appellate proceedings before me, the appellant has not been able to establish that no expenditure was incurred by it on making these investments, more so in the light of the huge financial expenses of Rs. 4.74 crores incurred by it during the year. In view of the forgoing discussion, I uphold the action of the Assessing Officer in making the disallowance under rule 8D. Ground no. 1 of the appeal is dismissed."

It is a settled law that the disallowance cannot be more than exempt income. The Hon'ble High Court decision in case of CIT Vs. Sam Global Securities Ltd. (2013) 38 Taxman.com 129 held that the disallowance cannot be more than exempt income. The computation of the income was before the Assessing Officer as well as CIT(A) and the same should have been taken into consideration by the Revenue authority and appellate authority. The decisions of the Hon'ble Jurisdictional High Court relied by the Ld. AR that of Joint Investment Pvt. Ltd. and ACB India Ltd. and Special Bench decision in case of Bireet Investment Pvt. Ltd. are squarely covering the case of the assessee. In present assessee's case, the assessee has demonstrated that the assessee has not incurred any expenses to earn a dividend income in this particular Assessment Year and the Assessing Officer did not find any ambiguity regarding any expenditure directly or indirectly attributable to the investment made by the assessee. Thus, the Assessing Officer as well as the CIT(A) both have ignored this fact. Hence, the additional ground raised by the assessee is allowed. The Ld. DR relied on various decisions and submitted that the assessed income cannot be below the return income especially when assessee has computed disallowance suo moto and paid tax in self assessment. The Ld. AR could not controvert the aove contentions of the Ld. DR. We therefore, direct the Assessing Officer to take congnizance of the same and accordingly compute the income of the assessee. Therefore, the appeal of the assessee is partly allowed for statistical purpose.

8. In result, the appeal of the assessee is allowed for statistical purpose.

Order pronounced in the Open Court on 28th February, 2018.

     Sd/-                                                           Sd/-
(R. K. PANDA)                                                (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER                                            JUDICIAL MEMBER

Dated:         28/02/2018
R. Naheed *

Copy forwarded to:

1.                           Appellant
2.                           Respondent
3.                           CIT
4.                           CIT(Appeals)
5.                           DR: ITAT




                                                         ASSISTANT REGISTRAR

                                                           ITAT NEW DELHI



                                                  Date

1.    Draft dictated on                        30/11/2017 PS

2.    Draft placed before author               01/12/2017 PS

3.    Draft proposed & placed before               .2018    JM/AM
      the second member

4.    Draft discussed/approved        by                    JM/AM
      Second Member.
                                           7                        ITA No. 6033/Del/2015


5.    Approved Draft comes to the                          PS/PS
      Sr.PS/PS                    28.02.2018

6.    Kept for pronouncement on                            PS

7.    File sent to the Bench Clerk            28.02.2018   PS

8.    Date on which file goes to the AR

9.    Date on which file goes to the
      Head Clerk.

10.   Date of dispatch of Order.