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2020 (9) TMI 141 - AT - Income TaxDisallowance u/s 14A - Assessee reported dividend income as exempted under section 10(34) of the Act and made sumo disallowance against the said exempt income - HELD THAT - In view of decision MAXOPP INVESTMENT LTD. 2018 (3) TMI 805 - SUPREME COURT operation of the Rule 8D of the Rules , the action of the Assessing Officer of invoking Rule 8D of Income-tax Rules in the year under consideration (i.e. assessment year 2007-08), is not justified. Expenditure on assets which may yield exempt income as well as taxable income, need to be apportioned towards both the exempted and non-exempted income. Certain interest expenditure towards investment in mutual fund clearly needs to be disallowed, which the assessee has not considered in its suo-motu disallowance. No such breakup of proportionate expenses towards exempted and non-exempted income from investment in mutual funds has been provided either lower authorities or before us. In absence of any such working provided by the assessee, it is not possible for us to quantify the proportionate disallowance out of the interest expenditure incurred for investment in Mutual funds. Hon ble Delhi High Court in the case of Joint Investment Company Private Limited 2015 (3) TMI 155 - DELHI HIGH COURT has restricted the disallowance under section 14A to the extent of the exempted income. Following the finding above CIT(A) has restricted the disallowance u/s 14A of the Act in the case of the assessee to the extent of excepted income. Deemed dividend u/s 2(22)(e) - CIT- A deleted the addition - HELD THAT - It is undisputed that assessee is not a shareholder in RSL from which it has obtained a loan. The addition of deemed dividend can be made only in the hand of the shareholders and not otherwise. Thus, we do not find any infirmity in the finding of the Ld. CIT(A), where he has followed binding precedent of ANKITECH PVT LTD. OTHERS 2011 (5) TMI 325 - DELHI HIGH COURT . Accordingly, the finding of the Learned CIT(A) on the issue in dispute is upheld. The ground of the appeal of the Revenue is accordingly dismissed. Disallowance of expenses on Stock Appreciation Right (SAR) written off - HELD THAT - The issue-in-dispute of SAR expenses as revenue in nature is covered in favour of the assessee. Respectfully following the decisions of own case 2017 (5) TMI 59 - ITAT DELHI and M/S. RELIGARE SECURITIES LTD. 2018 (3) TMI 1529 - DELHI HIGH COURT we set aside the order of the learned CIT(A) and delete the addition of ₹ 50,29,087/- on the issue. The grounds of the appeal are accordingly allowed. Computation of disallowance under section 14A of the Act read with rule 8D - HELD THAT - Before the Ld AO, the assessee made disallowance according to its own method of disallowance , which was not accepted by the Ld AO and invoked the Rule 8D of the Rules. In our opinion, when he rejected the disallowance computed by the assessee, that in itself is dissatisfaction with the claim of the assessee of disallowance. It is not necessary that such dissatisfaction has to be recorded in explicit words, when the it is evident from the implied action of the Assessing Officer. Accordingly, we dismiss the plea of the assessee that dissatisfaction was not recorded by the Assessing Officer while invoking the Rule 8D of Rules.Accordingly, we reject the grounds raised by the assessee challenging the disallowance sustained by the Ld. CIT(A). As far as grounds of Revenue is concerned, in our opinion, the action of the Ld. CIT(A) in following the decision of the jurisdictional High Court is in accordance with law and we do not find any error in the same. Accordingly, we also reject the grounds raised by the Revenue challenging the disallowance under section 14A of the Act deleted by Ld CIT(A). Disallowance on account of provision for expenses - HELD THAT - Provisions of stock appreciation right (SAR) for which separate addition was also made by the Assessing Officer has been deleted in view of the issue covered in the favour of the assessee by the decision of the Coordinate bench of the Tribunal in and the Hon ble High Court. Therefore, in our opinion making further addition on the ground of unascertained liability is not justified. Provision made for leave travel allowance -The assessee has not provided any justification as how the estimate of ₹ 45,48,172/- was made for leave travel allowance of the employees, whereas actually amount paid to the employees was only of the ₹ 24,24,401/-. In view of the facts, we agree with the finding of the Ld. CIT(A) in disallowing the excess provision made by the assessee. Similarly, we agree with the finding of the Ld. CIT(A) in respect of the provision for medical reimbursement and other allowances. The alternative request of the assessee to delete the addition on the ground that the assessee has offered the same for tax in subsequent assessment year, is also rejected because the issue in dispute is to be decided in accordance with law and not according to the choice of the assessee when he offer for tax. However, the assessee is at liberty to make request for rectification in the subsequent assessment year in accordance with law. The ground No. 1 of the appeal of the Revenue is accordingly dismissed and the additional ground No.4 of the appeal of the assessee is also dismissed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Deemed dividend under Section 2(22)(e) of the Income Tax Act. 3. Disallowance of Stock Appreciation Rights (SAR) expenses. 4. Disallowance of provision for expenses. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The primary issue revolves around the disallowance under Section 14A related to exempt dividend income. The assessee reported a dividend income of ?35,09,948 and made a suo-motu disallowance of ?24,24,142. The Assessing Officer (AO) did not accept this calculation, arguing that interest costs were not considered and that the funds generating tax-free income were significant. The AO invoked Rule 8D of the Income Tax Rules, 1962, to compute a disallowance of ?1,80,83,891. The CIT(A) restricted this disallowance to the extent of the exempt income, i.e., ?35,09,948, and sustained the balance amount of ?10,85,806. The Tribunal upheld the CIT(A)'s decision, citing the Hon'ble Delhi High Court's precedent in Joint Investment Company Private Limited Vs. CIT, which restricts disallowance under Section 14A to the extent of exempt income. 2. Deemed Dividend under Section 2(22)(e) of the Income Tax Act: The assessee received a loan of ?10,94,00,000 from Religare Securities Ltd. (RSL), a subsidiary of Religare Enterprises Ltd. (REL). The AO treated this as deemed dividend under Section 2(22)(e) since both the assessee and RSL are subsidiaries of REL. However, the CIT(A) deleted the addition, noting that the assessee was not a shareholder in RSL, and thus, the provisions of Section 2(22)(e) were not applicable. The Tribunal upheld the CIT(A)'s decision, following the Hon'ble Delhi High Court's ruling in CIT Vs. Ankitech (P) Ltd., which was approved by the Hon'ble Supreme Court. 3. Disallowance of Stock Appreciation Rights (SAR) Expenses: The assessee claimed deductions for SAR expenses, which included the difference between the purchase price of SARs and the sale price at the time of exercise by employees, and loans written off given to the SAR trust. The AO disallowed these expenses, treating them as capital losses. The CIT(A) sustained the disallowance, considering them capital in nature. However, the Tribunal found that the issue was covered in favor of the assessee by previous Tribunal decisions and the Hon'ble Delhi High Court's ruling in Principal Commissioner of Income Tax vs. M/s. Religare Securities Ltd., which classified SAR expenses as revenue expenditure. Consequently, the Tribunal deleted the addition of ?50,29,087 related to SAR expenses. 4. Disallowance of Provision for Expenses: The assessee created provisions for expenses totaling ?1,63,83,690, which the AO disallowed, considering them unascertained liabilities. The CIT(A) restricted the disallowance to ?27,90,535, allowing deductions for provisions settled or paid subsequently. The Tribunal upheld the CIT(A)'s decision, agreeing that the excess provisions were rightly disallowed. The Tribunal also rejected the assessee's alternative plea to delete the addition on the ground that the amount was offered for tax in subsequent years, emphasizing that the issue must be decided according to the law applicable in the relevant assessment year. Conclusion: For the assessment year 2007-08, both the assessee's and the Revenue's appeals were dismissed. For the assessment year 2009-10, the assessee's appeal was partly allowed, whereas the Revenue's appeal was dismissed. The Tribunal's decisions were based on established legal precedents and a thorough examination of the facts and submissions presented by both parties.
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