Income Tax Appellate Tribunal - Pune
Bosch Chassis Systems Ltd.,, Pune vs Assessee on 20 February, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member,
and Shri R.K. Panda, Accountant Member.
ITA.No.84/PN/2013
(Assessment Year 2008-09)
Bosch Chassis Systems Ltd.,
3rd Floor, Godrej Milennium,
9, Koregaon Park,
Pune - 411001 .. Appellant
PAN No.AAACK7312E
Vs.
ACIT, Range-1, Pune .. Respondent
Assessee by : Shri Sunil Pathak
& Shri Nikhil Pathak
Revenue by : Shri P.L. Pathade
Date of Hearing : 20-02-2014
Date of Pronouncement : 26-02-2014
ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 02-11-2012 of the CIT(A)-I, Pune relating to Assessment Year 2008-09.
2. Grounds raised by the assessee are as under :
"The following grounds are taken without prejudice to each other -On facts and in law, 1.1 The learned CIT(A) erred in confirming disallowance of Rs.16,72,870/- as incurred in relation to exempted dividend income u/s. 14A by applying Rule 8D while assessing total income as per regular provisions of the Income Tax Act, 1961.
1.2 The learned CIT(A) failed to appreciate that the learned Assessing Officer had not recorded any satisfaction in the assessment order about the incorrectness of the claim made by the assessee and hence, there was no reason to apply the provisions of rule 8D for making the disallowance u/s 14A and accordingly, the entire addition made of Rs. 16,72,870/- may kindly be deleted.
1.3 The learned CIT(A) failed to appreciate that the assessee company had not incurred any expenditure in relation to the exempt income and hence, there was no reason to make any disallowance u/s 14A of the Act.2
1.4 The learned CIT(A) erred in not appreciating the objective behind enactment of Section 14A which is to disallow expenditure incurred in relation to any income which is completely exempt. She erred in not appreciating that in the case of dividend income, the scheme of the Act is to collect tax at the time of distribution from the Company / Mutual Fund and the exemption u/s 10 to the investor in respect of Dividend is granted for administrative convenience.
2. Without prejudice to above grounds, the assessee submits that the disallowance sustained by the learned CIT(A) is very high and may be reduced substantially.
3. The Appellant Company craves leave to add to, alter, amend, modify and / or delete any or all of the above Grounds of Appeal."
3. Facts of the case, in brief, are that the assessee is engaged in the business of manufacture and sale of Hydraulic air and Air over Hydraulic Brake components and trading in Brake Fluids. It filed its return of income on 30-09-2008 declaring total income of Rs.66,21,00,152/-. During the course of assessment proceedings the Assessing Officer observed that assessee has received dividend of Rs.2,26,96,000/- and claimed the same as exempt u/s.10(34) of the I.T. Act, 1961. The Assessing Officer asked the assessee to explain as to why proportionate disallowance u/s.14A should not be made. The assessee submitted that it is a cash rich company. The share capital and free reserves and surplus of the company as on 31-03- 2008 stood at Rs.200.44 crores as against interest bearing loan of NIL. The unsecured loan disclosed in the balance sheet represents deferred sales tax liability and there was no interest bearing loans which was borrowed by the company as on 31-03-2008. It was submitted that all the investments yielding tax free as well as taxable income were out of own funds of the company and therefore there cannot be any disallowance of interest cost which is very negligible.
33.1 The assessee company further submitted that general administrative expenses cannot be attributed to earning of tax free dividend income. Relying on various decisions it was argued that no disallowance u/s.14A can be made since such disallowance can be made only when there is dominant and immediate connection between the expenditure incurred and income not forming part of total income.
4. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He accepted the contention of the assessee that there can be no disallowance of interest cost. However, he did not accept the contention of the assessee that no general and administrative expenses have been incurred on the ground that investment decisions are complex decisions and the assessee must have incurred certain administrative expenses. Applying the provisions of section 14A r.w. Rule 8D the Assessing Officer disallowed an amount of Rs.16,72,870/- which was upheld by the CIT(A).
5. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
6. The Ld. Counsel for the assessee at the outset submitted that no borrowed fund has been utilised by the assessee for investment in tax free dividend income. Before the Assessing Officer the assessee has also stated that no expenses have been incurred. Referring to the decision of the Pune Bench of the Tribunal in the case of Kalyani Steels Ltd. Vs. Addl.CIT vide ITA No.1733/PN/2012 he submitted that under identical facts and circumstances the disallowance made by the assessee suomoto at Rs.5 lakhs was upheld and the order of the CIT(A) enhancing the disallowance 4 u/s.14A r.w. Rule 8D to Rs.1,05,46,918/- against tax free dividend income of Rs.5.46 crores was deleted by the Tribunal. Referring to the order of the Tribunal in assessee's own case for A.Y. 2007-08, a copy of which is placed at pages 40 to 42 of the paper book he submitted that the Tribunal has directed the Assessing Officer to work out the disallowance at 1% of gross dividend income as expenditure disallowance u/s.14A of the I.T. Act. He accordingly submitted that the disallowance made by the Assessing Officer and upheld by the CIT(A) should be deleted.
7. The Ld. Departmental Representative on the other hand submitted that although no interest expenditure has been incurred by the assessee, however, it cannot be said that no administrative expenses has been incurred. He submitted that in the immediately preceding assessment year the Tribunal has directed the Assessing Officer to disallow 1% of the dividend income as expenditure incurred for earning such tax free dividend income. In the preceding year also there was no interest expenditure. He accordingly submitted that some reasonable disallowance should be made.
8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the assessee has earned tax free dividend income of Rs.2,26,96,000/- and claimed the same as exempt u/s.10(34). We find the Assessing Officer following the provisions of section 14A r.w. Rule 8D disallowed an amount of Rs.16,72,870/- as expenditure attributable to earning such exempt dividend income which has been upheld by the CIT(A).
58.1 It is the submission of the Ld. Counsel for the assessee that it has not incurred any interest expenditure and the entire investment is out of own capital and free reserves and surplus. It is also the submission of the Ld. Counsel for the assessee that no administrative expenses has been incurred since investment in mutual funds are made on the basis of advice given by the various mutual funds and most of the other investments are from old investments. Further, according to the Ld. Counsel for the assessee, no disallowance of expenditure u/s.14A can be made since there is no dominant and immediate connection between the expenditure incurred and income not forming part of total income and therefore there cannot be any adhoc disallowance out of general expenses.
8.2 From the order of the Tribunal in assessee's own case for A.Y. 2007- 08 we find the Tribunal following the order for A.Y. 2006-07 in assessee's own case has directed the Assessing Officer to disallow 1% of the dividend income of Rs.2,70,39814/- as expenditure for earning such tax free dividend income. In the preceding year also there was no interest expenditure and the Tribunal directed the Assessing Officer to disallow 1% of the dividend income. Similar was the case in A.Y. 2006-07. We find the Tribunal has directed the Assessing Officer to disallow 1% of the dividend income of Rs.2,06,96,973/-. Facts being similar for the impugned assessment year, therefore, following the order of the Tribunal in assessee's own case for the immediately 2 preceding assessment years, we direct the Assessing Officer to disallow 1% of the dividend income of Rs.2,26,96,000/- as expenditure attributable for earning dividend income. Thus, the disallowance works out to Rs.2,26,960/- as against 6 Rs.16,72,870/- disallowed by the Assessing Officer and upheld by the CIT(A). We hold and direct accordingly.
8.3 So far as the decision of the Tribunal in the case of Kalyani Steels Ltd. (Supra) is concerned, we find in that case the assessee has suomoto disallowed an amount of Rs.5 lakhs out of the dividend income of Rs.5.46 crores towards principal administrative expenses. However, in the instant case the assessee has not disallowed any such expenditure. Further, the Tribunal in assessee's own case in the preceding 2 assessment years has held that 1% of the dividend income can reasonably be disallowed towards principal administrative expenses. In this view of the matter, the decision relied on by the Ld. Counsel for the assessee cannot be accepted. The grounds raised by the assessee are accordingly partly allowed.
9. In the result, the appeal filed by the assessee is partly allowed Pronounced in the Open Court on 26-02-2014.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV ) ( R.K. PANDA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
satish
Pune, dated 26th February 2014
Copy of the order is forwarded to:
1. The Assessee
2. The Department
3. The CIT(A)-I, Pune
4. The CIT-I, Pune
5. The DR "A" Bench, Pune.
6. Guard File
By Order
// True Copy //
Senior Private Secretary,
Income Tax Appellate Tribunal, Pune