Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Pnb Gilts Ltd., New Delhi on 22 February, 2018
1 ITA No.810/Del/2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'F' NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No. 810/DEL/2015 ( A.Y 2010-11)
DCIT Vs PNB Gilts Ltd.
Circle-19(2) 5, Parliament Street
New Delhi New Delhi
AAACP7809B
(APPELLANT) (RESPONDENT)
Appellant by Sh. Atiq Ahmad Sr. DR
Respondent by Ms. Sana Bajaj, CA
Date of Hearing 04.01.2018
Date of Pronouncement 22.02.2018
ORDER
PER SUCHITRA KAMBLE This appeal is filed by the Revenue against the order dated 05/11/2014 passed by CIT (A)-XVII, New Delhi for Assessment Year 2010-11.
2. The grounds of appeal are as under:-
1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the disallowance of Rs.53,49,000/- made by A.O to Rs.12,50,000/- u/s 14A.
2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.22,87,000/- made by A.O on account of disallowance of interest expenses u/s 36(1)(iii) of the IT Act."
3. Assessee is a Non Banking Financial Corporation (NBFC). Assessee filed 2 ITA No.810/Del/2015 its return of income declaring income of Rs.59,33,81,810/- under normal provision of law and Rs.58,78,76,494/- under Section 115JB of the Income Tax Act, 1961. The Return was processed u/s 143(1) of the Act. Case was selected for scrutiny and accordingly, notice u/s 143(2) & 142(1) was issued.
The Authorised Representative of the assessee attended the hearing and submitted the documents. During the assessment proceedings, various claims were made by the assessee which was considered by the Assessing Officer. The assessee was required to show cause vide letter dated 30.11.2012 to furnish its explanation regarding disallowance to be made under Section 14A on account of expenses attributable to exempt income and to explain claim under Section 36(1)(iii) of the Act. The Assessing Officer observed that the assessee company itself computed the disallowance on account of expenses attributable to exempt income under Section 14A read with Rule 8D at Rs.12,50,000/- i.e. @ ½% of the average value of investments but did not compute any disallowance of interest though total interest payment debited in the profit and loss account at Rs.3456.51 lac. Therefore, the Assessing Officer disallowed Rs. 53,49,000/- as expenditure attributable to exempt income. As relates to claim under Section 36(1)(iii) of the Act, the Assessing Officer observed that the assessee company used substantial amount of funds as investments i.e. a purpose other than its business. Therefore, the amount of funds as interest paid on account of funds utilized as investments was considered as expense not eligible to be allowed u/s 36(1)(iii) of the Act. Thus, the Assessing Officer disallowed Rs.22,87,000/- as excessive interest payment to the tune of Rs. 22.87 lac by the company on account of funds not utilized for the purpose of earning taxable business income.
4. Being aggrieved by the said order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. DR submitted that the CIT(A) erred in restricting the disallowance of Rs.53,49,000/- made by Assessing Officer to Rs.12,50,000/-
3 ITA No.810/Del/2015u/s 14A and also in deleting the addition of Rs.22,87,000/- made by the Assessing Officer on account of disallowance of interest expenses u/s 36(1)
(iii) of the Act. The DR relied upon the Assessment Order.
6. The Ld. AR submitted that the CIT(A) after categorical finding has partly allowed the claim of the assessee.
7. We have heard both the parties and perused the material available on record. As relates to ground no. 1, the CIT(A) held as under:-
"6.12. The appellant has stated that all the scripts are held by it as stock in trade. This fact has been found to be correct. The appellant is an NBFC and dealing in securities is its main business. Therefore the scripts are held as stock in trade. However, the appellant has dividend income. The Hon'ble ITAT Kolkata Bench in the case of DCIT, Circle 6, Kolkata vs. Gulshan Investment Co. Ltd. has held that "Section 14A will apply in cases where shares are held as stock in trade or investment the disallowance to be made u/s 14A read with Rule 8b will be restricted to direct expenses incurred."
I shall now discuss the calculation as per Rule 8D.
6.13. Once there is no expenditure directed related to earning of exempt income, therefore 8D(i) is Nil.
6.14. Since all scripts are being held as stock in trade and not as investments therefore 8D(ii) is Nil. Since the appellant has some exempt income therefore only 8D(iii) would be applicable. The appellant has itself calculated Rs.12.5 lakhs as disallowance u/s 14A.
6.15. Since the appellant has not given any details of direct expenses incurred for earning exempt income, the only option is to take the option of 0.5% of average value of investments. Therefore the made under Rule 8D(2)(iii) 4 ITA No.810/Del/2015 is sustained. The ground of appeal is ruled partly in favour of the appellant."
As regards the Ground No. 2, the CIT(A) held as under:
7. Ground No. 3 is in respect of disallowance of interest expenses u/s 36(i)(iii).
7.1. As per section 36(l)(iii):
"36. Other deductions.--(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-
(ii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession •' Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not) ; for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction :
Explanation. - Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause l(iiia) the pro rata amount of discount on a zero coupon bond having: regard to the period of life of such bond calculated m the manner as may be prescribed."
7.2. The section is clear that the interest paid in respect of capital borrowed for the purpose of business or professional is to be allowed as a deduction.
5 ITA No.810/Del/2015The exception in the proviso is given. There is no concept of disallowance on account of interest on funds utilized in buying securities for earning exempt income. Only if interest is paid for on funds for none business purposes, can it be disallowed, The addition of Rs.22,87,000/- is deleted. The ground of appeal is ruled in favour of the appellant."
The assessee has proved that all the scripts were held as stock in trade and there was no investment, therefore, Rule 8D will not be applicable in the present case. From the records, it also reveals that the same is just and proper as related to disallowance of interest expenses u/s 36(1) (iii) interest on funds utilized in buying securities for earning exempt income is not there in the Income Tax Act only interest is paid for a funds for non business purposes can be disallowed. Thus, the CIT(A) has given a detailed finding and there is no need to interfere with the same. Therefore, the appeal filed by the Revenue is dismissed.
8. In result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 22nd February, 2018.
Sd/- Sd/-
(R. K. PANDA) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 22/02/2018
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
6 ITA No.810/Del/2015
Date
1. Draft dictated on 05/01/2018 PS
2. Draft placed before author 05/01/2018 PS
3. Draft proposed & placed before .2018 JM/AM
the second member
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the PS/PS
Sr.PS/PS 23.02.2018
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 23.02.2018 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.