TaxTMI 
TaxTMI 
2025 (1) TMI 863
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....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 directly attributable to investments were already disallowed by the appellant in its ITR. 1.4 confirming the addition of Rs.8,55,037/-, out of total addition of Rs. 23,20,009/- made by Ld. A.O. u/s 14A of the Act, which is to the extent exempt dividend income earned by appellant. 2. The appellant prays for leave to Add, to amend, to delete, or modify the all or any grounds of appeal on or before the hearing of appeal." 3. Succinctly, the fact as culled out from the records are that the case of the assessee was selected for Complete Scrutiny assessment under the Eassessment Scheme, 2019 on the following issues: S. No. Issues i. Short Term Capital Gains u/s 111A ii. Expenditure of Personal Nature iii. Refund Claim iv. Duty Drawback 3.1 The appellant-assessee filed return of income for AY 2018-19 on 27.07.2018, declarin....
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....mpt 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. Further, ld. AO noted that the assessee had not proved nexus between interest free investment out of surplus & reserves available. So, based on CBDT's Circular No. 5/2014 dated 11.02.2014 that section 14A of the Act does not use the word "income of the year but "income under the Act" therefore, to invoke disallowance u/s. 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration. The onus of the assessee had not been proved and therefore, ld. AO found that there was a clear nexus between the investments made and expenses claimed by the assessee. Ld. AO thus went on to observe that invocation of section 14A is automatic and comes into operation without any exception even if exempt income is not earned during the year if investment is s....
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....he 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 earned by the appellant. In the present case, the appellant had earned exempt income of Rs.8,55,037/- and the disallowance can be restricted to the same amount. Hence, this ground of appeal is treated as partly allowed." 5. As the assessee did not receive the relief in full and was considered in part by the ld. CIT(A), the assessee has preferred the present appeal before this Tribunal on the grounds as reproduced hereinabove. To support the various grounds so raised by the ld. AR of the assessee filed the written submissions which are reproduced herein below: 3. Submission of Appellant on ground....
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....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 "in respect of expenditure incurred by the assessee in relation to income which does not from part of the total income under this Act". On going through the simple and plain language, it is abundantly clear that the relation has to be seen between the exempt income and the expenditure incurred in relation to it. What is relevant is to work out the expenditure in relation to the exempt inc....
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.... (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 exception even if exempt income is not earned during the year if investment is such which would generate exempt income. The possibility of incurring certain expenditure under the head administrative expenditure for earning dividend income cannot be ruled out. While allocating expenses relating to exempt income ....
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....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 the income there from and the Ld. A.O. could not disprove to this fact. Hon'ble Supreme Court in the case of CIT V/s Walfort Shares & Stock Brokers Pvt. Ltd (326 ITR 1)( Case Law Paper Book page 1-11) it was held that for attractin....
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....e 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 and the dividend income received. That any part of the borrowings of the Assessee had been diverted to earn tax free income despite the availability of ....
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.... 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 indirect expenditure, but that expenditure must have a proximate relationship with the exempted income. Surmis....
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....ning 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 1,60,00,0....
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....ccordingly 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 an....
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...., it cannot be said that the learned Tribunal has committed 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 investm....
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....of reply dated 22.03.2021 filed during assessment proceedings. 45 to 49 5. Copy of Written Submission filed before CIT(A) NFAC 50-71 Case laws relied upon: S.No. Particulars Page 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 Industri....
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....t had submitted that if the interest free funds were available, the appellant to meet some of his investment, it could not be presumed that the investments were made from the interest free funds available with the appellant. As on 31.03.2017, the investments were of Rs, 19.42 crores and the appellant had submitted that the current year's profit of Rs.11.28 crores would be sufficient for the above investment. 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 A....
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....ent assessee made total investments of Rs. 27,06,23,113/- (PB page 15) the investments of Rs. 7,63,44,725/- [27,06,23,113-19,42,78,387.50] were only made during the year and the investment in the same was made by the assessee company from own funds. This fact is evident from the Balance Sheet of the assessee company and on examination of which it is also obvious 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/- 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 s....