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TMI Blog2025 (1) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... JAYANTBHAI, AM SHRI NARINDER KUMAR, JM For the Assessee : Sh. Vijay Goyal, CA For the Revenue : Mrs. Anita Rinesh, JCIT-Sr. DR ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM By way of present appeal, assessee challenges the order of the National Faceless Appeal Centre, Delhi dated 24/06/2024 [ in short NFAC / CIT(A)]. The dispute relates to the assessment year 2018-19. The said order of the ld. CIT(A) arises because the assessee had challenged the assessment order dated 15.04.2021 passed under section 143(3) r.w.s 143(3A) 143(3B) of the Income Tax Act, [ for short AO ] by National eAssessment Centre, Delhi before him. 2. In this appeal, the assessee has raised following grounds: On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in: - 1.2 rejecting the submission of the appellant that the investments were made out of non-interest-bearing funds as the assessee had sufficient own funds. 1.3 confirming the part of the addition made by Ld. A.O. without considering the fact that the all the expenses were incurred wholly and exclusively for earning taxable income and no expenses were incurred in relation to investments made by the assessee. The expenses which dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the exempt income. As is evident from the records appellant-assessee earned exempt income i.e. dividend of Rs. 8,55,037/-. In view of that fact that the assessee earned exempt income in the form of dividend income of Rs. 8,55,037/- the assessee was asked show cause as to why disallowance u/s 14A of the Act read with rule 8D of the IT Rules, 1962 should not be made. In that matter, the assessee filed a reply on 16.02.2021. Ld. AO considered that reply of the assessee but found that same was not tenable as the assessee had made investments to earn exempt income therefrom. Thus, he noted that the expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income, which is not specifically shown by the assessee and, hence, not substantiate nexus of expenses to earn exempt income established. Further, the assessee's plea that the company has invested Rs.27,00,23,608/- out of own funds was not considered as the assessee had common pool of funds and composite books of account from where it was not possible to exactly identify that the tax-free investment was made from surplus reserves available with company during the year under reference. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has submitted that the dividend income earned during the year is Rs.8,55,037/- and the amount disallowed u/s 14A is Rs.23,20,009/-, The appellant has submitted plethora of judgements to show that the amount of disallowance cannot be more than the exempt income earned. Following are the judicial pronouncements relied by the appellant:- 1. Hon'ble Supreme Court in the case of CIT(Central)-1 vs. Chettinad Logistics Pvt. Ltd. 2. Hon'ble Supreme Court in the case of PCIT-18 vs. Oil Industry Development Board. 3. Supreme Court of India Principal Commissioner of Income Tax, Patiala vs. State Bank of Patiala. 4. Supreme Court of India in the case of CIT vs. Chettinad Logistics (P) Ltd 5. VBC Ferro Alloys Ltd vs. ITO Wrd-17(1), Hyderabad 6. Assistant Commissioner of Income-tax, Company Circle-1(2), Chennai v. M. Baskaran 7. Hon'ble ITAT Jaipur Bench in the case of Road Infrastructure Development Company of Rajasthan Ltd. I have considered the above submissions and the relevant decisions quoted by the appellant. Respectfully, following the decisions in the above case, I hereby hold that the maximum disallowance us/ 14A can be restricted to the amount of exempt income ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company; from examination of which your honour will find that shareholder fund and reserve and surplus as per Note No. 2 3 of the audited financial statement as on 31/03/2018 (Copy at PB Page No. 15) is Rs. 67,14,10,652/- which is more than total investment in equity shares as on 31/03/2018 is of Rs 27,06,23,112/-. Thus, shareholder fund is sufficient to make this much investment. The ld AO himself has not made any addition on account of interest cost. 3.1.3.2: - No further expenses, over above to whatever already disallowed by the assessee, were incurred in relation to investment activities and assessee was not required to incur any other expenses 1. Sec. 14A talks of the relation between the expenditure and the exempt income. For applicability of section 14A, we have to view the items of expenditure first. If these have resulted in exempt income, only then the disallowance is to be considered. In other words, the starting point for applying section 14A is to consider the amount of expenditure and then moving forward for examining if it has resulted in the exempt income or not. The language of sub-section (1) of section 14A clearly provides that no deduction shall be allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is not in our case. 3. The provisions of section 14A r.w.r. 8D of Income Tax Rules, can only be invoked if any expenses are incurred in relation to income not includible in total income. For making the disallowance, the conditions precedent u/r 8D are to be satisfied. For ready reference the provisions of rule 8D are reproduced hereunder: - (1) Where the Assessing Officer, having regard to the accounts of the assessee of previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has ben incurred, in relation to income, which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). In case of assessee no such expenses have been identified by Ld. A.O. and also the claim of assessee of not incurred any further expenses was disproved by the Ld. A.O. In the regard the following finding of ld AO in para 4.5 page 5 of Astt Order is relevant to be mention: - 4.5 The invocation of Section 14A is automatic and comes into operation without any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in relation to manufacturing business operations of the assessee and such expenses were not attributable to investments or exempted income. The expenses on account of D-mat charges Rs. 1,660/- (PB pg 2) and STT Share Transaction charged Rs.6,27,888/- (PB pg 2) has already been disallowed in ITR. 4. It is relevant to mention here that the nature of investments and volume of transactions was not that much for which any further separate expenses were required to be incurred by the assessee company and thus for such investments no separate other expenses were incurred by the assessee company. The assessee has dealt in shares and securities in very limited numbers; for short term capital gain only in 10 companies' shares and for long term capital gain only in 3 companies shares (PB page 3). In the assessment order also the Ld. A.O. could not point out any such expenses, which might be incurred by the assessee for investment activities. 5. During the course of assessment proceedings, the assessee had submitted that it has not incurred any expenses, over above to whatever already disallowed by itself in computation of Total Income (PB page 2), for making the investments or earning t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances - Decided in favour of assessee. On the same issue the Hon ble Rajasthan High court in the case of Vijay Solvex Limited V/s ACIT 2018 (1) TMI 1629 (Case Law Paper Book page 64-67) held as under: - Disallowance u/s 14A r.w.r. 8D - As argued assessee has reserves and surplus far in excess of the investment made in the year during the relevant assessment year - HELD THAT:- As decided in own case [2017 (8) TMI 1449 - RAJASTHAN HIGH COURT] we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002- 2003, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the AO, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out how the expenditure incurred by assessee during relevant year related to income not forming part of its total income. Reliance is placed on the decision of Hon ble Bombay High Court in the case of Commissioner of Income Tax v. Sociedade De Fomento Industrial (P.) Ltd [2020] 429 ITR 358 (Bom) it was held that:- 19. Here, on facts, the Tribunal noted that the AO only discussed the provisions of section 14A(l) but has not justified how the expenditure the Assessee incurred during the relevant year related to the income not forming part of its total income. The AO, according to the Tribunal, straightaway applied Rule 8D. Indeed, there must be a proximate relationship between the expenditure and the tax-exempt income. Only then would a disallowance have to be effected. This Court, we may note, on more than one occasion, has held that the onus is on the Revenue to establish that there is a proximate relationship between the expenditure and the exempt income. That is, the application of section l4A and rule 8D is not automatic in each and every case, where there is income not forming part of the total income. No doubt, the expenditure under section 14A includes both direct and ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /deducted had actually been incurred in earning the dividend income . iii) M/s. Ruby Merry Enterprises (P) Ltd. vs. JCIT (OSD) Central Circle-3, Jaipur 2016 (10) TMI 1278 - ITAT JAIPUR. The findings of Hon ble ITAT are in para 3.3 is reproduced as under: 3.3. We have heard the rival contentions and perused the materials available on record. As regards Ground No. 1 raised by the assessee, it is noted that such issue has already been decided in favour of the assessee by the ITAT, Jaipur SMC Bench in assessee s own case (supra). The observation of ITAT Jaipur SMC Bench (supra) is reproduced as under : 3. I heard the rival submissions and carefully considered the same along with orders of tax authorities below,. I noted that the AO noted that the assessee had paid interest @ 9% on the investment made against the share application money. The bank statement of the assessee revealed that the payment of Rs. 80,00,000/- was made by the assessee on 13.2.2008 and another payment of Rs. 80,00,000/- was made on the same date against the share application money of M/s. Career Point Infosystem Ltd. No shares were allotted against the investment in share application money. The amount of Rs 1,60,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I accordingly set aside the order of ld. CIT (A). 4. In the result, appeal filed by the assessee is allowed. Respectfully following the decision of ITAT Jaipur SMC Bench in assessee s own case for the assessment year 2009-10 (supra), the appeal of the assessee on the issue in question is allowed. iv) Hon ble ITAT Jaipur in the case of DCIT Circle-2, Jaipur vs. M/s. AU Financiers India Ltd. 2016 (11) TMI 710 - ITAT Jaipur. In this case Hon ble ITAT has followed its own finding in assessee s own case for A.Y. 2011-12. The relevant findings as reproduced in the order are as under:- The above finding on fact by the Revenue is not controverted by placing any material on record. Moreover there is no dispute with regard to fact that the assessee has earned exempt income of 27,006/- against which disallowance of expenditure amounting to 42,22,857/- was made. The AO has not recorded his satisfaction as to how the expenditure disallowed by the assessee of 629878/- towards administrative expenses is not reasonable. Further we find that the assessee has demonstrated by placing sufficient material on record that no borrowed funds were utilized for making investment and wherefrom the exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted any error in deleting the disallowance of expenditure of 24,37,500/- incurred in respect of interest and administrative expenses under Section 14A of the Act. We are in complete agreement with the view taken by the learned Tribunal. At this stage, decision of Division Bench of this Court in the case of Principal Commissioner of Income-tax vs. India Gelatine Chemicals Limited, reported in [2015] 376 ITR 553 [Gujarat] needs a reference. In the said decision, it is observed and held by the Division Bench of this Court that when the assessee had sufficient interest- free funds out of which concerned investments had been made, disallowance under Section 14A is not justified. The SLP filed against the said judgment has been dismissed by Hon ble Supreme Court of India, in Principal Commissioner of Income Tax-IV, Ahmedabad V. Sintex Industries Ltd (2018) 93 taxmann.com 24 (SC). (vii) Emtici Engineering Ltd. Versus ACIT (OSD). Anand Circle, Anand 2016 (3) TMI 186 - ITAT Ahmedabad. It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of Rs. 195.10 crores. In other words, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Hon ble Supreme Court 1 CIT V/s Walfort Shares Stock Brokers Pvt. Ltd (326 ITR 1) 1-11 2 CIT V/s Reliance Industries Ltd Appeal No. 10 to 13 of 2019 order dated 02.01.2019 12-14 3 South India Bank Limited v/s CIT CIVIL APPEAL NO. 9606 OF 2011 dated 09.09.2021 15-21 4 Maxopp Investment Limited V. Commissioner of Income Tax (2018) 91 Taxmann.com 154 (SC) 22-38 5 Radhasoami Satsang vs. Commissioner of Income-Tax (1992) 193 ITR (SC) 321 39-44 6 Godrej Boyce Manufacturing Company Limited V/s Dy. Commissioner of Income-Tax Anr. [2017] 394 ITR 449 45-57 Hon ble Rajasthan High Court 7 PCIT-Kota V/s Prakash Gwalera 2018 (11) TMI 877 58-63 8 Vijay Solvex Limited V/s ACIT 2018 (1) TMI 1629 64-67 9 Commissioner of Income Tax Vs. Vijay Solvex Ltd. 274 CTR 384 Rajasthan (2015) 59axmann 294 68-71 Other Non-Jurisdictional High Court 10 Commissioner of Income Tax v. Sociedade De Fomento Industrial (P.) Ltd [2020] 429 ITR 358 (Bom) 72-79 11 Hon ble High Court of Gujarat passed in Principal Commissioner of Income Tax-4 V/s intex Industries Ltd (2017) 82 taxmann.com 171 (Gujarat). 80-84 12 CU Vs Hero Cycles Ltd (323 ITR 518) 85-87 13 Commissioner of Income-tax, Bangalore v. Karnataka State Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As on 31.03.2018, the Investments were of Rs.27.06 crores and the investment is more than the current year's profit it cannot be presumed in the appellant's case that there were sufficient funds available to meet out the investments. The available own funds are less than the investments made by the appellant. This issue is elaborately discussed in para no. 6.1 of this order Hence, with due respect to the Court, the decision in the case of CIT vs. Reliance Industries Ltd (supra) is not applicable in the case of the appellant and clearly distinguishable with the fact. Ld. DR for the revenue has argued that the assessee had exempt income but the assessee did not disallow correct expenditure and other administrative expenditure, as per section 14A r.w.r. 8D of the Act, and therefore Assessing Officer was right in making the addition. 9. We have heard rival contentions and perused the material placed on record. In the present appeal, the assessee has taken four different grounds challenging the addition sustained by the ld. CIT(A). Though we have discussed the basis of making the addition in the earlier part of this order, the point in dispute is that assessee filed return of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udited financial statement as on 31/03/2018 (Copy at PB Page No. 15) is Rs. 67,14,10,652/- i.e. more than total investment in equity shares as on 31/03/2018 is of Rs 27,06,23,112/-. Thus, shareholder fund was sufficient to make this much investment. The ld AO himself has not made any addition on account of interest cost. Even the ld. CIT(A) has not appreciated the fact that assessee had already disallowed the expenses related to the exempt income for an amount of Rs. 16,604/- for demate charges, share transactions charges for an amount of Rs. 6,27,788/- and interest relating to the transaction of shares undertaken by the assessee for an amount of Rs. 81,153/-, totalling Rs. 7,25,545/- against the exempt income of Rs. 8,85,086/- and, therefore, the same amount which is already considered for disallowance is required to be deducted but the same was not considered while sustaining of the addition by ld CIT(A). Even otherwise, the learned counsel argued that Assessing Officer failed to appreciate that the assessee has enough interest free fund in form of capital to make investment yielding exempt income, therefore, addition under section 14A of the Act was not attracted. As is clear fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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