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Income Tax Appellate Tribunal - Delhi

Benny Impex (P) Ltd, New Delhi vs Acit Circle-4(2), New Delhi on 18 July, 2022

             IN THE INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH "A" DELHI

        BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
                           &
      SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER

                         I.T.A. No.7398/DEL/2019
                         Assessment Years 2016-17


Benny Impex (P) Ltd.,              v.   ACIT,
B-209, Naraina Inds. Area,              Circle-4(2),
Phase-I,                                New Delhi.
New Delhi.
TAN/PAN: AAACB5411H
(Appellant)                             (Respondent)

Appellant by:                  Shri D.P. Agarwal, Adv.
Respondent by:                 Shri Kanav Bali, Sr.D.R
Date of hearing:               28 06 2022
Date of pronouncement:         18 07 2022

                                ORDER

PER PRADIP KUMAR KEDIA, A.M.:

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-II, New Delhi ['CIT(A)' in short] dated 28.06.2019 arising from the assessment order dated 17.12.2018 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2016-17.

2. As per its grounds of appeal, the assessee has challenged;

(i) disallowances of Rs.16,45,321/- under Section 14A of the Act;

(ii) disallowance of Rs.2,25,148/- by invoking provisions of Section 40(A)(3) of the Act.

3. In the instant case, the assessee is engaged in the business of import and supply of milk analyzers and automatic milk collection unit. The assessee filed return of income declaring total income of Rs.9,63,02,610/-. The return of income filed by the assessee was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer inter alia noticed that the assessee has shown Long Term Capital Gain (LTCG) of Rs. 16,57,684/- on account of sale of mutual fund units which have been claimed exempt under Section 10(36) of the Act. The Assessing Officer made disallowances under Section 14A r.w. Rule 8D of the Income Tax Rules on the ground where the assessee has claimed exempt income under Section 10(36) of the Act, obviously the assessee has incurred expenses to earn this income which does not form part of the taxable income. The Assessing Officer further observed that the assessee has incurred expenses in cash in excess of Rs.20,000/- in a single day aggregating to Rs.2,25,148/-. He accordingly disallowed the aforesaid amount for breach of Section 40(A)(3) of the Act out of sales promotion expenses.

4. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) restricted the disallowance to the extent of exempt income earned, i.e., Rs. 16,45,321/-.

5. As regards the disallowances made under Section 40(A)(3) of the Act, the CIT(A) observed that no evidence has been put forth by the assessee to rebut the allegation of the Assessing Officer in this regard. The action of the Assessing Officer was accordingly confirmed.

6. Further aggrieved, the assessee preferred appeal before the Tribunal.

7. We have heard the rival submissions on the grievances raised and perused the case records.

8. As regards disallowances under Section 14A attributable to profit arising from sale of mutual fund, it was pointed out on behalf of the assessee that the investment in mutual funds and Equity Investment stand at Rs.16.76 crore as on 31.03.2016 as against the corresponding interest free funds available with the assessee by way of General Reserve at Rs. 29.30 crore. It was thus submitted that in view of the judgment of the Hon'ble Supreme Court in South Indian Bank Ltd. vs. CIT (2021) 130 taxmann.com 178 (SC), the disallowance of interest amounting to Rs.13,52,462/- computed under Rule 8D(2)(ii) is uncalled for.

9. We find merit in the plea of the assessee for lack of justification of interest disallowance attributable to exempt income where the own funds is demonstrated to be in excess of corresponding investment. The assessee thus gets the relief of Rs.13,52,462/- out of disallowances of Rs.16,57,684/- carried under Section 14A of the Act.

10. Ground No.1 of the appeal of the assessee is partly allowed.

11. As regards disallowances under Section 40A(3) for incurring expenditure in cash in excess of threshold limit prescribed under Section 40(A)(3) of the Act, the assessee failed to offer any cogent explanation to warrant interference with the findings of the I.T.A. No.7395/DEL/2019 4 lower authorities. We thus decline to interfere with the order of the CIT(A).

12. Ground No.2 of the appeal of the assessee is dismissed.

13. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 18/07/2022.

                    Sd/-                                              Sd/-

             [KUL BHARAT]                               [PRADIP KUMAR KEDIA]
           JUDICIAL MEMBER                              ACCOUNTANT MEMBER
DATED: /07/2022

Prabhat