Prism Cement Ltd. Vs DCIT (ITAT Mumbai)
We observed that assessee has earned exempt income of Rs. 12,62,95,486/- and made a suo moto disallowance of Rs. 29,87,943/-. After careful consideration of the assessment order passed by the AO and the order passed by Ld. CIT(A), it is fact on record that AO has not recorded any satisfaction before rejecting the suo moto disallowance made by the assessee and Ld. CIT(A) also clearly accepted this fact that no satisfaction was recorded. We notice from the record that no satisfaction was recorded even in the earlier Assessment Year 2008-09 and 2009- 10 and based on the above facts on record, Coordinate Bench of ITAT has deleted the disallowance made u/s 14A.
Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to accept the submission of Ld. AR and delete the addition made u/s 14A by observing that there is no satisfaction recorded by the AO as per the findings of Ld. CIT(A).
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present four appeals have been filed by the assessee and revenue against the order of Commissioner of Income Tax (Appeals)-54, Mumbai in short ‘Ld. CIT(A)’, dated 30.11.2017 for AY 2011-12 and 2012-13 respectively.
2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed of by this consolidated order.
3. Firstly we are taking the appeal for Assessment Year 2011- 12 filed by assessee and revenue. Since the issues in both the appeals are common, therefore we prefer to deal with these issues ground wise.
4. The brief facts of the case are, assessee filed its return of income on 29.09.11 declaring total loss of Rs. 1,36,67,03,673/- as per profit and loss (return of income) and Rs. 1,25,85,18,744/- u/s 11 5JB of the Act. The return of income was processed u/s 143(1) of the Act and thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued and served upon the assessee. In response, AR of the assessee attended and filed the relevant information as called for.
5. AO passed the assessment order by making disallowance u/s 14A, 40A(9) of the Act, disallowance in respect of depreciation and bogus purchases.
6. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee, partly allowed the appeal of the assessee. During appellate proceedings, vide letter dated 02.11.17, assessee raised 4 additional grounds of appeal and since the additional grounds raised by the assessee are legal in nature, therefore Ld. CIT(A) admitted the additional grounds and adjudicated the same.
7. Aggrieved with the above order, both assessee and revenue preferred the appeal before us by raising the respective grounds of appeal. Since many grounds of appeal raised by assessee and revenue, therefore we shall deal the issues ground wise.
Ground No. 1(a) to 1(d) raised by assessee and Ground No. 1 to 3 raised by revenue in respect of disallowance u/s 14A r.w.r. 8D.
8. It is brought to our notice by Ld. AR that assessee is pressing only ground no. 1(c). The other grounds raised by the assessee are dismissed as not pressed.
9. The brief facts relating to disallowance u/s 14A are, during the assessment proceedings, AO observed that assessee has received dividend of Rs. 12,62,95,486/- and assessee has added back an amount of Rs. 29,87,943/- stating that the same is added as per the provision of section 14A of the Act. When the assessee was asked to explain as to why the expenditure incurred in relation to exempt income should not be computed by applying the provision of section 14A r.w.r 8D of the Act. In response, assessee submitted that there are no major expenses incurred for the purpose of earning dividend income.
10. After considering the explanation of the assessee, AO rejected the explanation of the assessee and invoked rule 8D. AO by relying on the decision of ITAT, Spl. Bench in the case of M/s Daga Capital Management Pvt. Ltd, determined the disallowance under rule 8D(2)(ii) at Rs. 10,56,83,273 and under rule 8D(2)(iii) at Rs. 95,26,000/- totaling Rs. 11,52,09,273/- and AO reduced the amount of Rs. 29,87,943/- which was already disallowed by the assessee and disallowed net amount of Rs. 11,22,21,330/-.
11. Aggrieved with the above, assessee preferred the appeal before Ld. CIT(A) and before him, assessee raised 3 contentions on the issue of 14A disallowance. The first one was, AO failed to record any dissatisfaction with regard to suo moto disallowance of expenses made by the assessee. Second, the AO was not justified in considering the entire interest expenses for the purpose of calculation under rule 8D and Third, the disallowance under rule 8D works out to more than 100% of the amount of dividend received.
12. For the first issue, assessee submitted before Ld. CIT(A) that he has not incurred any specific expenditure directly attributable to making investments and earning dividend income there from. As a matter of cautious, assessee suo moto added an amount of Rs. 29,87,943/- based on time spent by certain employees in connection with the investment activities. Assessee also submitted that AO determined disallowance under rule 8D to the extent of Rs. 11,52,09,273/- and also added back the amount suo moto disallowance made by the assessee while determining the book profit u/s 1 15JB. Assessee further submitted that AO considered the whole interest expenditure incurred by the assessee and AO cannot charge the whole interest expenditure. Since assessee has incurred interest expenditure on specific term loan, other interest, processing fees and bank charges. Assessee further pointed out that AO has not recorded his dissatisfaction in respect of claim made by the assessee with regard to suo moto expenditure and relied on the various case laws. Assessee further submitted that investment yielding exempt income have been made out of its own funds and gave a chart in support of its claim for 3 years and relied on various case laws in this regard. Assessee further argued that 14A disallowance cannot be added while computing the book profit u/s 115JB and lastly, submitted that the disallowance u/s 14A cannot be more than exempt income earned by the assessee.
13. After considering the submission of the assessee, Ld. CIT(A) however agreed that AO has not recorded any dissatisfaction and observed that ITAT Mumbai Bench in assessee’s own case for Assessment Year 2008-09 & 2009-10, held that in the absence of recording necessary satisfaction, it was wrong on the part of the AO to determine the disallowance u/s 14A by applying rule 8D. Further, Ld. CIT(A) analyzed the other contentions of the assessee and came to the conclusion as below:-
6.5 It is also the contention of the learned counsel that the investments of the appellant were made out of own funds comprising of share capital, reserves and surplus and other accruals over the years. No part of the investments were made out of the borrowed funds and the appellant had sufficient own funds. To substantiate this, the assessee had provided the following details of the fund availability and investments made:
