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TMI Blog2018 (2) TMI 1581X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act read with Rule 8D of Income-tax Rules, 1962. - ITA No. 339/Del/2015 - - - Dated:- 31-1-2018 - SH. AMIT SHUKLA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant by Sh. Manu K. Giri, Advocate For The Respondent : Sh. Ravi Kant Gupta, Sr. DR ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 31/10/2014 passed by the Ld. Commissioner of Income-tax (Appeals)-V, New Delhi [in short the Ld. CIT-(A) ] for assessment year 2008-09 raising following grounds: 1. That the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law, equity and justice. 2. That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ₹ 5,46,34,862/- made by the Assessing Officer in accordance with the provisions of section 14A of the Income Tax Act, 1961, read with Rule 8D, ignoring company's contentions based on various judicial pronouncements. A) That the disallowance be restricted to ₹ 10,000/- being the amount of dividend income earned by the company during the year under assessment; or B) Without prejudice to the above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench raised following queries to the Authorized Representative of the assessee that: (i) why the amount of ₹ 82,000/-which admittedly was directly related to the income, which did not form part of the total income, had not been offered for disallowance suo motu? (ii) as huge investment outstanding as on 31/03/2008, to the extent of ₹ 74,99,80,000/- were made out of borrowed funds or own funds? 3.1 The Tribunal further noted that the Ld. AR argued that such details were never requisitioned by the lower authorities. The Tribunal further observed as under: 6. We have heard for both the parties and gone through the facts of the case. Indisputably, the AO disallowed the aforesaid amount of ₹ 5,45,52,862/-, invoking provisions of section 14A(2) of the Act read with Rule 8D of I.T. Rules, 1962, without even analyzing the nature of the expenditure nor it appears that relevant details of expenditure and accounts or cash flow statement were placed before the AO or the Id. CIT(A). The assessee merely submitted that no expenditure had been incurred for earning dividend income even when huge investments were made to the extent of ₹ 74,99,18,000/- until 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon ble jurisdictional High Court in Maxopp Investment Ltd.(supra), even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the correctness of such claim. In case, the AO is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the AO has to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act, Hon ble High Court concluded. Following the view taken in this decision, Hon ble jurisdictional High Court in CIT vs. Machino Plastic Ltd in their decision dated 28.2.2012 in ITA no. 92 of 2011, restored the matter to the file of the AO, being handicapped because of failure of the assessee to furnish relevant details and particulars .In the instant case also, the AO was handicapped, because of failure of the assessee to furnish relevant details/particulars and accounts while making the disallowance in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the demat expenses of ₹ 82,000/- were initially not disallowed by it u/s 14A and were later offered for disallowance on being confronted by the Assessing Officer) and the purpose for which the funds on which interest expense of ₹ 7.46 crores was incurred, were utilized. From the final accounts of the appellant it is observed that as on 31.3.2008 it was having investments in shares of M/s Aptech Ltd., M/s Hexaware Technologies Ltd., M/s Pantasoft Technologies Ltd., M/s Apolo Tyres Ltd. and Apolo International Ltd. For making investments on such a scale and for maintaining them, the appellant must have utilized the services/advice of professionals. It must have also incurred expenses on salary, telephone, postage etc. to follow up in regard to dividend income. 6. Further, the Ld. CIT-A held that the assessee did not comply with the direction of the Tribunal in ITA No. 520/Del/2012, and accordingly he upheld the disallowance with following observations: 3.5 The Assessing Officer had asked the appellant to provide all relevant details of expenditure actually incurred in managing and supervising the investments in funds and securities along with relevant accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perused the relevant material on record. In this case the direct expenditure of ₹ 82,000/-has been admittedly incurred on demat accounts, which is evidently toward earning exempt income. Since in this case exempt income is only of ₹ 10,000/-, applying the decision of the Hon ble Delhi High Court in the case of Joint Investment Private Limited (supra) would not be appropriate as in that case the assessee itself volunteered for disallowance of ₹ 2, 97, 440/-as attributable under section 14A of the Act, but in the instant case assessee has not attributed any expenses toward earning the exempt income, even the direct expenditure of ₹ 82,000/-on demat accounts. The Ld. counsel has not pressed the ground No. 2A, in view of alternative ground No. 2B argued by him. Accordingly, the Ground No. 2A of the appeal is dismissed as infructuous. 9. In the alternative Ground No. 2B, the Ld. counsel has relied on the decision of the Special Bench in the case Vireet Investment Pvt. Ltd. and ANR. (supra). In the said case, the Tribunal has held that as far as computation of the disallowance under Rule 8D2(iii) of the Income-tax Rules is concerned, the average value of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee invested a sum in purchase of shares, which was shown as investment for the purpose of long term capital gains. The AO disallowed interest proportionate to the investment in shares, though no exempt income was earned during the year. The CIT(A) affirmed this but held that the net interest debited to the P L A/c was required to be apportioned and not the s interest expenditure. The Tribunal held that interest expenditure incurred by the assessee was for borrowing used for the purposes- of investment in shares, both held for trading as well as investment purposes. Irrespective of whether or not there was any yield of dividend on the shares purchased, the interest incurred was relatable to earning of dividend on the shares purchased. The dividend income being exempted from tax by virtue of section 10(34) of the Act, the interest paid on borrowed capital utilized in purchase of shares, being the expenditure incurred in relation to dividend income not forming part of the assessee's total income, was held to be not an allowable deduction. In coming to the conclusion, the Special Bench primarily relied on the ratio laid down by the Hon'ble Supreme Court in the case of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Rajendra Prasad Moddy (supra) was rendered in the context of allowability of deduction under Section 57(Hi) of the Act, where the expression used is for the purpose of making or earning such income'. Section 14A of the Act on the other hand contains the expression 'in relation to income which does not form part of the total income.' The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act. 11.8 In the case of Holcin India (P) Ltd. (supra) the facts were that the respondent- assessee was a subsidiary of Holderind Investments Ltd., Mauritius, which was formed as a holding company for 'making downstream investments in. cement manufacturing ventures in India. In the return of income filed for the Assessment Year 2007-08, the respondent-assessee declared loss of ₹ 8.56 Crores approximately. The respondent-assessee had declared revenue receipts of ₹ 18,02,274/- which included interest of ₹ 726/- from Fixed Deposit Receipts and profit on sale of fixed assets of ₹ 16,52,225/-. As against this, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicable. 11.11 The Hon'ble High Court observed that the reasoning given by the CIT(A) was ambiguous and unclear and on clarity being sought from the Revenue it was pointed out that the stand of the assessee contained a contradiction to the extent that on the issue of setting up of business, it was stated that the assessee had incurred expenditure on acquiring the shares, therefore, the assessee could not now take different stand than the one taken in the first issue . 11.12 The Hon'ble High Court, after considering in detail the decision of ld. CIT(A) finally observed in para 13 as under: 13. We. are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr. Standing Counsel for the-Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not give rise to any substantial question of law. Hence, the deletion of the disallowance of ₹ 2,03,752/- made by the Assessing Officer was in order 15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether Income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term, capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax: It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not all improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal, AIR 1960 SC 936 (at page 941) as follows: Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another's decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench. The above decision was followed by the Supreme Court in Baradakanta Mishra v. Bhimsen Dixit, AIR 1972 SC 2466, wherein the legal position was reiterated in the following words (at page 2469) : It would be anomalous to suggest that a Tribunal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping with the decisions of this court after giving the petitioners an opportunity of being heard. At least 48 hours clear notice must be given to the petitioners. The Commissioner will communicate the final order to the petitioner within eight weeks from the date of hearing. ( iv) CIT v. J.K. Jain [1998] 230 ITR 839 (P H), observing as under: We have carefully examined the records and have heard learned counsel representing the parties. We are in respectful agreement with the view expressed by the Allahabad High Court in Omega Sports and Radio Works' case [1982] 134 ITR 28, as also the decision of this court in Mohan Lal Kansal's case [1978] 114 ITR 583. Following the decision in the two cases referred to above, we hold that it was not a case of divergence of opinion inasmuch as the opinion expressed by this court was binding upon the Tribunal. 11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. 11.17 As far as argument relating to meaning to be ascr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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