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TMI Blog2015 (9) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of order of the Delhi High Court dated 20th May, 2010, wherein income not chargeable to tax has been earned has to be taken into account for the purpose of disallowance u/s 14A of the Income Tax Act, 1961. 3. That the learned Commissioner of Income Tax (Appeals) has further erred in not taking into account investment in fixed assets and investment against property for allocating expenses u/s 14A of the Income Tax Act, 1961. 4. That the learned Commissioner of Income Tax (Appeals) has further erred in also allocating statutory expenses in relation to earning of income not forming part of total income necessarily require to be incurred whether the income is earned or not. 5. That the learned Commissioner of Income Tax (Appeals) has erred in not appreciating the fact that for purposes of disallowance u/s 14A of the Income Tax Act, 1961 allocation has to be made only out of expenditure of Rs. 92,444/-. 2. The factual matrix, leading to the present appeal, is as follows :- 2.1 Assessee is a Non Banking Financial Institution, carrying on the business of purchase and sale of shares, advancing loans and investing funds in shares securities and units of Mutual Funds. The Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11,69,242/- (incurred by all the three companies), and capital increase expenses of Rs. 70,000/- in Mayuka investments Ltd. The Ld. Counsel for the Assessee submitted that out of some of the expenses, assessee had already added back in its computation of income capital increase expenses of Rs. 70,000/- and amalgamation expenses of Rs. 9,35,394/-. Salary of Rs. 2,59,835/- was incurred by the two amalgamating companies. Break up of Rs. 15,74,196/- was given at page 57 of the paper book. The Ld. Counsel submitted that total expenditure of Rs. 15,74,196/- and Rs. 2,22,728/- was incurred by M/s Kiran Securities Pvt. Ltd. and Rs. 3,17,679/- was incurred by Soarma Vinimay Pvt. Ltd. According to AR, there was neither any investment made, nor any dividend that was earned, in either of these two companies. Therefore, it was submitted that no part of expenses incurred by these two companies could be considered for disallowance u/s 14A of the Act. 3. The Ld. Counsel for the assessee submitted that expenditure of Rs. 10,33,789/- incurred in Mayuka Investments Ltd. before merger included Rs. 9,28,617/- amalgamation and capital increase expenses, therefore, any disallowance u/s 14A of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, recomputed the disallowance at Rs. 8,09,498/- in the manner hereunder :- "Total expenses x Investment in shares Capital employed i.e. Rs. 8,16,942 x 92.44 93.29 = Rs. 8,09,498/-" On appeal before the CIT (A), we find that the assessee had made the following submissions :- "3.2 In its computation of income placed at page 3 of the paper book appellant offered an amount of Rs. 50,000/- for disallowance u/s 14A of the Income Tax Act,1961 on an ad-hoc basis. 4. As per Profit and Loss Account of the Company assessee earned a dividend income of Rs. 5,59,20,431/- on the investments held by the erstwhile Mayuka Investments Ltd. It had also earned interest income of Rs. 5,90,255/-, plus Rs. 1,52,997/-. The assessee had invested Rs. 3,16,862/- in the gross block, Rs. 92,84,82,654/- in investments and Rs. 3,97,40,088/- as advance for purchase of immoveable properties in addition to loans of Rs. 44,60,035/-. As per Schedule 11 and 12 attached to the Profit and Loss Account assessee paid salary of Rs. 2,59,835/- and incurred other expenses of Rs. 15,74,196/-, which included amalgamation expenses of Rs. 11,69,242/- (incurred by all the three companies) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered for making disallowance u/s 14A of the Income Tax Act, 1961. Assessing Officer, was, therefore, in an error in considering Rs. 8,16,942/- for working out proportionate disallowance u/s 14A of the Income Tax Act, 1961. 8. Besides, for allocating expenses in proportion to investment in shares to total capital employed Assessing Officer has considered only investments in shares and securities and loans. He has not considered investment in fixed assets Rs. 3.63 lakhs and investment in immoveable property as advance Rs. 3.97 crores. This amount of Rs. 3.97 crores is reflected in the details of loans and advances in Schedule 7 attached to the Balance Sheet. Therefore, for allocating expenses Assessing Officer ought to have taken the divider at Rs. 97.29 crores instead of Rs. 93.29 crores (Rs.93.29 crores + Rs. 3.97 crores + Rs. 3.63 lacs). By taking this divider disallowance u/s 14A of the Income Tax Act, 1961 cannot exceed Rs. 87,636/- against Rs. 50,000/- already offered by the assessee appellant on an ad-hoc basis. 8.2 It will also not be out of place to submit here that out of expenses Rs. 92,444/- statutory expenses such as audit fees, filing fees etc., which are necess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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