Income Tax Appellate Tribunal - Mumbai
Dimple Drums Barrels (P) Ltd, Mumbai vs Dcit Cen Cr 6(2), Mumbai on 21 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "D", MUMBAI
BEFORE SHRI G.S. PANNU (VP) AND SHRI RAM LAL NEGI (JM)
ITA No. 1105/MUM/2017
Assessment Year: 2013-14
M/s Dimple Drums Barrels Pvt. Ltd., The Dy. Commissioner of
516, Maker Chambers-V, 5th Floor, Income -Tax,
221, Jamnlal Bajaj Marg, Central Circle-6(2),
Nariman Point, Vs. Air India Building,
Mumbai - 400021 Nariman Point,
PAN: AAACD4604L Mumbai - 400021
(Appellant) (Respondent)
Assessee by : Shri Beharilal (AR)
Revenue by : Shri Chaitanya Anjaria (Sr. DR)
Date of Hearing: 25/09/2018
Date of Pronouncement: 21/12/2018
ORDER
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against the order dated 29.12.2016 passed by the Commissioner of Income Tax (Appeals)-54 (for short 'the CIT(A), Mumbai, for the assessment year 2013-14, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed by AO u/s 143 (3) of the Income Tax Act, 1961 (for short the 'Act').
2. Brief facts of the case are that the assessee company engaged in the business of manufacturing of Drums and Barrels, filed its return of income for the assessment year under consideration declaring the total income of Rs. 18,24,49,090/-. Since the case was selected for scrutiny, the AO issued notices u/s 143 (2) and 142 (1) to the assessee. In response to the said notices, the authorize representative of the assessee filed the details called for. Since the assessee had shown dividend income of Rs. 7,23,452/- as exempt, the AO 2 ITA No. 1105/ MUM/2017 Assessment Year: 2013-14 asked the assessee to furnish working of disallowance u/s 14A of the Act. The assessee submitted that it has made suo motu disallowance of Rs. 1,73,297/- which was paid to one of the employees, who handled all investments. However, the AO rejecting the contention of the assessee worked out the total disallowance u/s 14A read with rule 8D of the Income tax rules (rules) at Rs. 11,36,111/-. Since, the assessee had made suo motu disallowance of Rs. 1,73,297/-, the AO added the balance amount of Rs. 9,62,814/- to the income of the assessee. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal of the assessee and restricted the disallowance to Rs. 8,88,482/-. Still aggrieved, the assessee is in appeal before the Tribunal.
3. The assessee has challenged the impugned order passed by the Ld. CIT(A) by raising the following effective grounds:-
"On the facts and in the circumstances of the case the learned Commissioner of Income Tax (Appeals), Mumbai, (CIT(A) erred in law as well as on facts, in confirming the disallowance of Rs. 8,88,488/- under section 14A read with Rule 8D(iii) of the Act.
1.2 The Commissioner of Income Tax (Appeals) was not justified in negativating the contentions of the Appellant by distinguishing the case laws cited on untenable ground. The Commissioner of Income Tax (Appeals) also erred in relying on judgments, which had no application to the facts.
1.3 The reasons assigned by Commissioner of Income Tax (Appeals) are wrong incorrect and denied as the same are based on conjecture and surmises.
2 The Commissioner of Income Tax (Appeals), while allowing the claim under section 14A, read with Rule 8D(ii) of Rs. 76.332/- erroneously directed Assessing Officer (A.O.) to verify the proved facts.3 ITA No. 1105/ MUM/2017
Assessment Year: 2013-14 2.2 The Commissioner of Income Tax (Appeals) failed to appreciate the contentions of the Appellant before A.O. were verified, examined and scrutinized by the A.O., before making generalized observations to make addition".
4. Before us, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has wrongly confirmed the addition of Rs. 8,88,482/- u/s 14A read with rule 8D. The assessee has filed the documentary evidence to establish that the borrowed funds were not utilized for earning exempt income. The shareholders funds and reserves and surplus were Rs. 35,00,000/- and Rs. 1,45,22,47,571/- respectively as against the investment of Rs. 17,76,96,304/- made for earning exempt income which is around 10%. Since, the AO has applied rule 8D(2) without satisfying mandatory requirements of section 14A (2) the Ld. CIT (A) ought to have set aside the findings of the AO and deleted the addition made by the AO. The Ld. counsel further submitted that the Ld. CIT (A) has wrongly sustained the addition of Rs. 8,82,482/-.
5. On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the Ld.CIT (A) submitted that in so far as the amount of disallowance under rule 8D (2)(ii) is concerned, since the Ld. CIT (A) has directed the AO to verify the details filed by the assessee to ascertain whether any interest bearing funds were utlilised for earning exempt income and to compute disallowance accordingly, there is no infirmity in the order of the Ld. CIT (A). As regards rule 8D (2) (iii), the Ld. DR submitted that since the AO has computed the amount of disallowance in accordance with the provisions of section 14A read with rule 8D of the Rules and the ratio laid down by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd. vs. DCIT another 234 CTR (Bom) 1, the Ld. CIT (A) has rightly upheld the disallowance made by the AO.
6. We have heard the rival submissions and also perused the material on record. The grievance of the assessee is that the Ld. CIT (A) has wrongly 4 ITA No. 1105/ MUM/2017 Assessment Year: 2013-14 confirmed the disallowance made by the AO under rule 8D (2) (iii) and further wrongly directed the AO to verify that no interest bearing funds were utilized for the purpose of making investment and earning exempt income. Section 14A (2) of the Act says that the AO shall determined the amount of expenditure incurred in relation to the income which does not form part of the total income in accordance with such method as may be prescribed, if the AO having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income. However, we notice that the AO has not recorded any satisfaction with regard to the correctness of the claim of the assessee. Admittedly, the assessee was having share capital of Rs. 35,00,000/- and reserve and surplus of Rs. 1,45,22,47,571/- as against the investment of Rs. 17,76,96,304/- . Hence, we relying on the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank 366 ITR 505 wherein the Hon'ble Court has held that where assessee's capital and profit reserves are higher than the investments in tax securities, it would have to be presumed that that the investment made by the assessee would be out of the interest free funds available with the assessee, set aside the direction given by the Ld. CIT (A) to the AO for re-computing the disallowance under rule 8D (2) (ii) and direct the AO to delete the addition made rule 8D(2)(ii) of the rules.
7. So far as the disallowance under rule 8D (2) (iii) is concerned the AO has determined the disallowance at Rs. 8,88,482/-, which is more than the exempt income earned by the assessee during the year relevant to the assessment year under consideration. In the case of the Cheminvest Ltd. vs. CIT 378 ITR 33 (Del), the Hon'ble Delhi High Court has held that in order to apply section 14A read with rule 8D, there should be an actual receipt of income which is not includible in the total income during the relevant previous year. In the case of Joint Investment Pvt. Ltd. vs. CIT 372 ITR 694 (Delhi), the Hon'ble Delhi High Court has held that section 14A and rule 8D cannot be interpreted to mean 5 ITA No. 1105/ MUM/2017 Assessment Year: 2013-14 that the entire tax exempt income can be disallowed. Since, in the present case, the disallowance confirmed by the Ld.CIT (A) under rule 8D (2)(iii) exceeds the exempt income earned by the assessee, we consider it appropriate to restrict the disallowance to the extent of the exempt income earned by the assessee i.e. Rs. 7,23,452/- in the light of the decisions of the Hon'ble Delhi High Court discussed above. Accordingly, we set aside the order passed by the Ld. CIT (A) and restrict the total addition under rule 8D(2)(iii) to Rs. 7,23,452/- We further direct the AO to give benefit of suo motu disallowance made by the assessee amounting to Rs. 1,73,297/-.
In the result, appeal filed by the assessee for assessment year 2013-2014 is partly allowed.
Order pronounced in the open court on 21st December, 2018.
Sd/- Sd/-
(G.S. PANNU) (RAM LAL NEGI)
VICE PRESIDENT JUDICIAL MEMBER
मुंबई Mumbai; दिन ुं क Dated: 21/12/2018
Alindra, PS
आदे श प्रतितिति अग्रेतिि/Copy of the Order forwarded to :
1. अपील र्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयक्त(अपील) / The CIT(A)-
4. आयकर आयक्त / CIT
5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai
6. ग र्ड फ ईल / Guard file.
आदे शानुसार/ BY ORDER, सत्य दपि प्रदि //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण, मुंबई / ITAT, Mumbai