IN THE ITAT DELHI BENCH ‘E’
Assistant Commissioner of Income-tax
v/s.
Mohan Exports (P.) Ltd.
IT APPEAL NO. 3571 (DELHI) OF 2011
[ASSESSMENT YEAR 2008-09]
MARCH 2, 2012
ORDER
K.G. Bansal, Accountant Member –
Two points have been taken by the revenue in this appeal regarding disallowance u/s 14A and disallowance of misuse charges.
2. In regard to the first issue, the AO found in the course of assessment that the assessee has made investments in shares of companies and units of mutual funds. The investments as on 31.03.2008 stood at Rs. 89,77,51,107/- as compared to Rs. 54,10,80,750/- as on 31.03.2007. The assessee was required to explain as to why appropriate disallowance should not be made from the expenditure debited to the books of account by invoking the provisions contained in section 14A of the Income-tax Act, 1961, read with Rule 8D of the Income-tax Rules, 1962. It was submitted that the assessee has made investments in shares of group companies, shares and units of unlisted companies or funds, and shares and units of listed companies and mutual funds. The shares of group companies have not yielded any dividend in this year. The shares and units of unlisted companies and mutual funds have also not yielded any income. The assessee has received dividend of Rs. 46.65 lakh from Foremost Factor Ltd. Therefore, it was argued that no amount is disallowable under the aforesaid provision. The AO considered the facts of the case and submissions made before him. It is mentioned that the investments have been made with a view to earn dividend. Such income is not to be included in the total income of the assessee. Therefore, provisions contained in section 14A and Rule 8D are applicable. Rule 8D lays down the procedure for calculating the amount which is attributed to earning tax-free income. This rule was applied. Consequently, disallowance was made under Rule 8D(2)(ii) and Rule 8D(2)(iii). The disallowance under former provision was calculated at Rs. 51,78,366/- and under the latter provision at Rs. 35,97,079/-. Thus, a total sum of Rs. 87,75,445/- was disallowed.
3. Various submissions were made before the ld. CIT (Appeals) by the assessee. He considered the assessment order and the submissions made before him. He also examined the bank account maintained by the assessee company with Citi Bank in order to ascertain immediate source of investment in shares and units. It was found that the investments have been made in this year from interest-free funds available with the assessee. In view thereof, it was held that no disallowance is warranted under Rule 8D(2)(ii).
3.1 Coming to the submission that no dividend had been received from various companies, the finding of the ld. CIT (Appeals) is that this does not mean that such companies will not declare dividend in future. For making disallowance u/s 14A, it is not necessary that all the investments must yield income in the year under consideration. The relevant consideration is the potentiality of earning income in future years. Therefore, rejecting this argument, the disallowance under Rule 8D(2)(iii), amounting to Rs. 35,97,079/-, has been sustained.
4. Before us, the ld. senior DR referred to the findings of the AO and the ld. CIT (Appeals). These findings have already been summarized by us. Our attention has been drawn towards page nos. 6, 18 and 22 of the paper book. Page 6 shows the investments made in the unquoted shares and units of the companies and mutual funds and income received therefrom. These details are reproduced below:-
