2019 (6) TMI 1109 - AT - Income Tax

Disallowance u/s.14A - as argued by assessee that the dividend was not earned in respect of investment in shares but the dividend was earned in respect of those shares which were held by the assessee in course of assessee s business of dealing in shares and therefore, section 14A is not applicable in the present case - HELD THAT - Respectfully following the judgment of Hon ble Apex Court rendered in the case of Maxopp Investment Vs. CIT 2018 (3) TMI 805 - SUPREME COURT we reject this argument of ld. AR of assessee that no disallowance should be made u/s. 14A because the dividend income was earned in respect of those shares which were held by assessee in course of business and not as investment. Disallowance should not exceed the amount of exempt income in each of these 3 years, we find force in this alternative submission because the same is supported by various judicial pronouncements. As relying on M/S. WAY2WEALTH SECURITIES (P) LTD. VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7 (1) (2) , BANGALORE. 2018 (6) TMI 1627 - ITAT BANGALORE we direct the AO to restrict the disallowance u/s. 14A in each of these three years to the extent of exempt income earned by the assessee in each of these 3 years and such total disallowance to be made to the extent of exempt income should be inclusive of disallowance made by the assessee suo moto. On this issue, the ground of assessee is partly allowed for statistical purposes. Disallowance of professional charges - allowable business expenditure - HELD THAT - Categorical finding is given by CIT(A) that assessee is not able to substantiate the claim made and demonstrate that these payments were indeed made for the purpose of business. In spite of this categorical finding of CIT (A), nothing has been brought on record before us to establish that these payments were made for the purpose of business. As per the assessment order for Assessment Year 2009-10, it is seen that it is noted by the AO that year that AR was asked to specifically explain the actual services rendered by these parties and also provide necessary evidence to prove that the services rendered by these parties is of relevance to the business of trading. But assessee failed to explain the same despite giving sufficient opportunities. - Ground of the assessee s appeal for Assessment Year 2009-10 is rejected. Assessment Year 2011-12 - Disallowance of professional charges - the amount in question of ₹ 4.68 Crores paid by assessee to M/s. KKR Holdings Mauritius was for the purpose of arranging investments in M/s. Coffee Day Resorts (P) Ltd. by way of equity, preference and Debentures and therefore, by no stretch of imagination, it can be accepted that this expenditure is business expenditure for the present assessee. Hence, on this issue also, we find no reason to interfere in the order of CIT (A). Accordingly ground no. 11 in Assessment Year 2011-12 is also rejected. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Disallowance of professional charges.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The primary issue in all three assessment years (2009-10, 2010-11, and 2011-12) was the disallowance under Section 14A read with Rule 8D. The assessee argued that the investments considered for disallowance did not yield any exempt income and thus, no disallowance should be made. The assessee also contended that the disallowance should not exceed the amount of exempt income earned.

The Tribunal referred to the judgment of the Hon’ble Apex Court in the case of Maxopp Investment Vs. CIT, which stated that if expenditure is incurred on earning dividend income, that expenditure must be disallowed under Section 14A. The Tribunal also considered the judgments of the Hon'ble Delhi High Court in the cases of Joint Investments (P) Ltd. vs. CIT and CIT vs. Holcim India Pvt. Ltd., which held that disallowance under Section 14A cannot exceed the exempt income.

The Tribunal directed the Assessing Officer (AO) to restrict the disallowance under Section 14A to the amount of exempt income earned by the assessee in each of the three years, inclusive of any disallowance made by the assessee suo moto. Thus, the Tribunal partly allowed the assessee's appeal on this issue for statistical purposes.

2. Disallowance of Professional Charges:

For Assessment Year 2009-10, the assessee contested the disallowance of ?13 Lakhs in professional charges. The CIT(A) had sustained the disallowance, noting that the assessee failed to substantiate that these payments were made for business purposes. The Tribunal upheld the CIT(A)’s decision, as the assessee could not provide evidence to demonstrate that the expenditure was related to business activities.

For Assessment Year 2011-12, the issue revolved around the disallowance of ?4.68 Crores in professional charges paid to KKR Holdings Mauritius. The assessee argued that these charges were for services that helped raise substantial funds for M/s. Coffee Day Resorts Pvt. Ltd., in which the assessee had significant investments. The CIT(A) and AO found that the expenditure was not substantiated as business-related and appeared to be capital in nature. The Tribunal upheld this view, noting that the expenditure was related to arranging investments in another company and not the business of the assessee.

Conclusion:

The Tribunal concluded by partly allowing the appeals for Assessment Years 2009-10 and 2011-12 for statistical purposes, directing the AO to limit the disallowance under Section 14A to the amount of exempt income. The appeal for Assessment Year 2010-11 was also allowed for statistical purposes on similar grounds. The disallowances of professional charges for Assessment Years 2009-10 and 2011-12 were upheld.