Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Nalwa Sons Investments Ltd., New ... on 15 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E' NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI L.P.SAHU, ACCOUNTANT MEMBER
ITA No. 6971/Del/2014
(ASSESSMENT YEAR: 2007-08)
DCIT, vs Nalwa Sons Investments Ltd.,
Circle-17(2), 28, Najafgarh Road, Moti Nagar
New Delhi. Industrial Area, New Delhi-110012.
PAN-AAACJ2734R
(Appellant) (Respondent)
Appellant by Sh. S.R.Senapati, Sr.DR
Respondent by Sh. Ashwani Kumar, Adv.
Date of Hearing 13.03.2018
Date of Pronouncement 15.03.2018
ORDER
PER BHAVNESH SAINI, JUDICIAL MEMBER
This appeal by the Revenue has been directed against the order of Ld.CIT(A)-16, XVI, Delhi dated 30.09.2014 for AY 2007-08.
2. We have heard Ld. Representatives of both the parties and perused the findings of the authorities below.
3. On Ground No.1, Revenue challenged the deletion of Rs.92,82,381/- u/s 14A of the Income Tax Act, 1961 (in short "Act"). The assessee submitted before Ld.CIT(A) that it has disallowed the expenditure of Rs.71,85,925/- u/s 14A of the Act. However, only on the basis of audit objection, AO has made further addition u/s 14A of the Act. Section 14A provides that no deduction shall be made in respect of expenditure incurred by the assessee in relation to income which does not form part of total income under the Act. The working of the provision and notes on clause of the Finance Bill shows that what was Page | 1 ITA No. 6971/Del/2014 proposed not to be allowed what expenditure incurred in relation to income not includable in the total income. No disallowance can be made on presumptive basis. Rule 8D is applicable from AY 2008-09. The assessee has made disallowance suo motu on reasonable basis. The assessee relied upon the decision of Delhi High Court in the case of Maxopp Investment Ltd. vs CIT 347 ITR 272 (Del.) wherein it has been held as under:-
"While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing officer would have to indicate cogent reasons for the same. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard."
4. It was, therefore, submitted that Rule 8D of the Act, is only prospective in nature from AY 2008-09 and that the AO proceeded to make disallowances by applying the method of calculation prescribed in Rule 8D on blanket basis without in any manner and without pointing out any short-comings in disallowances calculated by the assessee company.
5. Ld.CIT(A) considering the explanation of the assessee in the light of the relevant provision of law, deleted the addition. His findings in para 4.2 of the appellate order are reproduced as under:-
4.2. "Ground no. 2 of appeal is directed against disallowance of a sum of Rs.92,82,381/- by invoking the provisions of section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules, 1962 on account of expenditure incurred in relation to earning of tax-free income. The assessee has investment in shares of Rs. 175,11,66,000/- income from which in the nature of dividend will be exempt under the IT Act. Therefore, the assessee company had suo-moto disallowed Rs.71,85,229/- on account of expenses Page | 2 ITA No. 6971/Del/2014 attributable to the earning of exempt income being proportionate of personnel and administrative expenses related to earning of exempt income. The AO disallowed Rs. 1,64,67,610/- being expenditure incurred in relation to exempt income by applying rule 8D of IT Rules. Since, the relevant assessment year under consideration is AY 2007-08, therefore, AO has erred in making the disallowance by applying rule 8D. Further, from the balance sheet it is seen that no new investment was made during the year and interest bearing borrowed funds have decreased from Rs. 27.93 crores as on 31.03.2006 to Rs. Nil as on 31.03.2007. There was sufficient interest free own fund in the form of share capital and reserve and surplus to the tune of Rs. 255.20 crores and cash and bank balance of Rs. 2.04 crores as on 31.03.2007. As sufficient interest free own fund is available, therefore, AO has erred in making disallowance of interest expenditure being attributable to exempt income without giving cogent reason. Therefore, no disallowance of interest expenditure is called for. In view of the investments in shares only the administrative and managerial expenditures calls for disallowance u/s 14A. Since, rule 8D is not applicable in the A Y 2007-08 and appellant has made suo-moto disallowance of Rs.71.85 lacs on proportionate basis, therefore, disallowance of administrative and financial expenditures made by the AO by applying rule 8D is not sustainable. In view of the above, the addition made by the AO is deleted. The appeal is allowed in this ground."
6. After considering the rival submissions, we do not find any merit in the grounds of the appeal of the Revenue. The assessee suo motu disallowed Rs.71,85,229/- on account of expenses attributable to the earning of exempt income being proportionate of personnel and administrative expenses related to the earning of exempt income. The AO, however, disallowed the amount in question by applying Rule 8D which is not applicable to this AY under appeal. Ld.CIT(A) on perusal of balance sheet found that no new investment was made during the year and interest bearing borrowed funds have decreased from Page | 3 ITA No. 6971/Del/2014 Rs.27.93 crores as on 31.03.2006 to Rs. NIL as on 31.03.2007. There was sufficient interest free own fund in the form of share capital and reserve and surplus to the tune of Rs.255.20 crores in cash and bank balance of Rs.2.04 crores as on 31.03.2007 are available with the assessee. Since sufficient funds are available with the assessee, therefore, Ld. CIT(A) correctly held that disallowance is not permissible. Further, the assessee has suo motu disallowed Rs.71.85 lacs on proportionate basis on which no deficiency have been pointed out by the authorities below. Ld.CIT(A) on proper application of facts and material on record correctly deleted the addition. This ground of departmental appeal is dismissed.
7. On Ground No.2, Revenue challenged the order of Ld.CIT(A) in deleting the addition on account of disallowance of Prior Period Expenses amounting to Rs.67,000/-. The assessee challenged the addition of Rs.67,000/- on account of Prior Period Expenses before Ld.CIT(A). The assessee company claimed Prior Period Expenses amounting to Rs.24,58,028/- and prior period income of Rs.67,000/- and adjustment was made of Rs.23,91,028/- which have been deleted by Ld.CIT(A) in original appellate order. Ld.CIT(A), therefore, noted that since this addition is already deleted in original assessment order by Ld.CIT(A), therefore, the said addition is unwarranted.
8. After considering rival submissions, we do not find any merit in this ground of the appeal filed by the Revenue. Since in the original assessment order, this issue has been considered and Ld.CIT(A) deleted the addition, therefore, in re-assessment proceedings, same addition could be made. This ground of appeal filed by the Revenue is dismissed.
Page | 4 ITA No. 6971/Del/2014
9. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the open court on 15.03.2018.
Sd/- Sd/-
(L.P.SAHU) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date:- 15th March, 2018
*Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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