IN THE INCOME TAX APPELLATE TRIBUNAL
`B' : NEW DELHI
DELHI BENCH `B
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
GARG, JUDICIAL MEMBER
SHRI CHANDRA MOHAN GARG,
No.5417/Del/2012
ITA No.
2009-10
Assessment Year : 2009-
M/s East West Rescue Private Vs. Deputy Commissioner of
Limited, Income Tax,
Links,
38, Golf Links, Circle-3(1),
Circle-
New Delhi 110 003. New Delhi.
PAN : AAACE0482H.
(Appellant) (Respondent)
Appellant by : Shri Prem Nath Monga and
Shri Manu Monga, Advocates.
Respondent by : Smt. Parwinder Kaur, Sr.DR.
ORDER
PER G.D. AGRAWAL, VP :
This appeal by the assessee is directed against the order of
learned CIT(A)-XXVIII, New Delhi dated 28th August, 2012 for the AY
2009-10.
2. The only ground raised by the assessee in this appeal is against
the disallowance of `7,52,242/- made by the Assessing Officer applying
provisions of Section 14A of the Income-tax Act, 1961 read with Rule
8D of the Income-tax Rules, 1962.
3. At the time of hearing before us, the learned counsel for the
assessee argued at length. He stated that during the course of
assessment proceedings, the assessee, vide reply dated 23rd
September, 2011, stated that no expenditure was incurred by the
assessee for earning of exempt income because the only exempt
income is dividend on shares or mutual funds. The assessee does not
have to incur any efforts to receive or recover such income. The
2 ITA-5417/Del/2012
warrant of the same is received on its own at the instance of the
respective companies or mutual funds. He further submitted that the
assessee has not taken any loan for the purpose of investment in
shares or mutual funds. He also referred to the details of investment
by the assessee in shares and mutual funds and pointed out that no
fresh investment is made in the shares though some investment is
made in the mutual funds. He also referred to the list of dividend
received and pointed out that dividend of only `11,85,879/- was
received from 22 mutual funds. He also referred to the assessment
order and pointed out that the satisfaction of the Assessing Officer for
applicability of Section 14A is a bald assertion without pointing out
which expenditure was incurred by the assessee for earning of exempt
income. He, therefore, submitted that on these facts, the disallowance
made under Section 14A read with Rule 8D is not justified. In support
of this contention, he relied on the following decisions of ITAT:-
(i) Relaxo Footwears Ltd. Vs. ACIT [2012] 18 taxmann.com
333 (Delhi).
(ii) Priya Exhibitors (P) Ltd. Vs. ACIT [2012] 27 taxmann.com
88 (Delhi).
(iii) DCIT Vs. Ashish Jhunjhunwala ITA No.1890/Kol/2012
(Kolkata Bench ITAT).
(iv) Kalyani Steels Ltd. Vs. Addl.CIT ITA No.1733/PN/2012
(Pune Bench-B, ITAT).
(v) ACIT, Pune Vs. Magarpatta Township Development &
Construction Co.Ltd. [2014] 46 taxmann.com 284 (Pune).
4. He also submitted that the decision of Coordinate Bench of ITAT
is binding upon another Bench of ITAT and if one Bench of ITAT does
not agree with the decision of another Bench of ITAT, then the matter
should be referred to the Larger Bench rather than taking a different
view. He alternatively submitted that if the Bench does not agree with
3 ITA-5417/Del/2012
the contention of the assessee that on the facts of the assessee's case,
no disallowance under Section 14A is required, the working of the
Assessing Officer as per Rule 8D is defective because the interest
payment of `1,54,187/- was in respect of late payment of TDS.
Therefore, no part of its can be apportioned for earning of dividend
income. Similarly, while working out the half percent of average
amount of investment, the Assessing Officer took the wrong figure of
the total assets at the beginning as well as at the end of the year. He
stated that the correct working of the disallowance under Rule 8D
would be `6,23,494/- and not `7,52,242/-.
5. Learned DR, on the other hand, relied upon the orders of
authorities below and she stated that proper satisfaction is recorded by
the Assessing Officer for application of Section 14A and he has also
worked out the disallowance as per Rule 8D. If there is some clerical
mistake in the working of the disallowance, the Assessing Officer may
be directed to verify and correct the same.
6. We have carefully considered the submissions of both the sides
and perused relevant material placed before us. Section 14A of the
Act reads as under:-
14A. [(1)] For the purposes of computing the total income
"14A.
under this Chapter, no deduction shall be allowed in
respect of expenditure incurred by the assessee in relation
to income which does not form part of the total income
under this Act.]
[(2) The Assessing Officer shall determine the amount of
expenditure incurred in relation to such income which does
not form part of the total income under this Act in
accordance with such method as may be prescribed, if the
Assessing Officer, having regard to the accounts of the
assessee, is not satisfied with the correctness of the claim
4 ITA-5417/Del/2012
of the assessee in respect of such expenditure in relation
to income which does not form part of the total income
under this Act.
(3) The provisions of sub-section (2) shall also apply in
relation to a case where an assessee claims that no
expenditure has been incurred by him in relation to income
which does not form part of the total income under this Act
:]
Provided that nothing contained in this section shall
[Provided
empower the Assessing Officer either to reassess under
section 147 or pass an order enhancing the assessment or
reducing a refund already made or otherwise increasing
the liability of the assessee under section 154, for any
assessment year beginning on or before the 1st day of
April, 2001.]."
7. From sub-section (1) of Section 14A, it is evident that the
legislature has provided that no deduction shall be allowed in respect
of the expenditure incurred by the assessee in relation to income
which does not form part of total income. Therefore, incurring of some
expenditure by the assessee in relation to exempt income is essential
so as to invoke the provisions of Section 14A(1) by the Assessing
Officer. As per sub-section (2) of Section 14A, the Assessing Officer is
empowered to determine the expenditure incurred in relation to
exempt income provided he is not satisfied with the correctness of the
claim of the assessee in relation to the incurring of expenditure for
earning of exempt income. As per sub-section (3), the Assessing
Officer is empowered to determine the expenditure even when the
assessee claims that no expenditure has been incurred by him in
relation to earning of exempt income provided the Assessing Officer is
not satisfied with the correctness of the claim of the assessee. From a
combined reading of sub-section (2) & (3) of Section 14A, it is evident
that first the assessee has to state whether any expenditure was
incurred by him for earning of exempt income, if yes, then, he has to
specify the expenditure which was incurred for earning of exempt
5 ITA-5417/Del/2012
income. Thereafter, the Assessing Officer is required to examine the
assessee's claim with regard to incurring of no expenditure or with
regard to the amount of expenditure claimed to have been incurred by
the assessee for earning of exempt income. If the Assessing Officer is
satisfied with the claim of the assessee, then, no further action under
Section 14A is required except to disallow the amount of expenditure,
if any, which assessee claimed to have incurred for earning of exempt
income. However, when the Assessing Officer is not satisfied with the
claim of the assessee with regard to incurring of no expenditure or the
amount of expenditure specified by the assessee for earning of exempt
income, then, he is required to determine the amount of expenditure
incurred by the assessee in relation to earning of exempt income.
Such expenditure is to be determined by him in accordance with such
method as may be prescribed.
8. Now, the method prescribed for working of disallowance is as per
Rule 8D of the Income-tax Rules. The various decisions relied upon by
the learned counsel also lay down the similar interpretation of Section
14A as discussed above by us. Now the question would be whether in
the present case, the Assessing Officer has recorded proper
satisfaction as required by Section 14A. We have carefully perused the
assessment order in the light of the contention of both the parties. We
find that the Assessing Officer has first discussed the questionnaire
issued to the assessee asking him to explain why the disallowance
under Section 14A should not be made because the assessee has
received dividend income of `11,85,879/- which is exempt. He
discussed the assessee's reply dated 23rd September, 2011. He also
discussed the decision of Hon'ble Bombay High Court in the case of
Godrej & Boyce Mfg. Co.Ltd. Vs. DCIT in ITA No.626 & WP 2010 and
thereafter, recorded the following finding:-
6 ITA-5417/Del/2012
Since no disallowance has been done by the assessee
company going by the decision of Hon'ble High Court of
Mumbai as discussed above and as per the facts and
circumstances of the case, I have reasons to arrive at the
satisfaction for disallowance u/s 14A of the Act, r/w Rule 8D
of the Rules, that there are expenses relatable to the
earning of exempt income by the assessee company.
Since, the assessee company has invested its money for
such investment of shares, which is capable to generate
income which does not or shall not form part of total
income of the assessee company and indirect cost in the
form of administrative expenditures and interest is
involved in this process. There is direct and proximate
nexus between the exempted income, which the
investments shall generate and the expenditures directly
or indirectly involved in earning the said income. Hence, I
am fully satisfied to invoke the provisions of section 14A
read with Rule 8D to work out disallowance of
expenditures.
In view of the facts and circumstances of the case, legal
position on the issue under consideration and reasons
recorded in this case, as discussed above, a disallowance
of Rs.7,52,242/- u/s 14A of the Act, r/w Rule 8D of the
Rules as worked out as under is being made and added to
the income of the assessee:-
Disallowance as per 14A r/w
Rule 8D
Rule 8D(2)(i) 0
Rule 8D(2)(ii) 101633
Rule 8D(2)(iii) 650609
Total 752242
9. After considering the facts of the assessee's case and the
arguments of both the sides, we are unable to agree with the
contention of the learned counsel that the satisfaction of the Assessing
Officer is a bald satisfaction without specifying any particular item of
the expenditure which was incurred for earning of dividend income.
That Hon'ble Jurisdictional High Court has considered the meaning of
the expression "in relation to" in the decision of Maxopp Investment
Ltd. Vs. CIT [2012] 347 ITR 272 (Delhi) and held as under:-
7 ITA-5417/Del/2012
"The expression "in relation to" does not have any
embedded object. It simply means "in connection with" or
"pertains to". If the expenditure in question has a relation
or connection with or pertains to exempt income it cannot
be allowed as a deduction even if it qualifies under other
provisions of the Act. The actual expenditure that is in
contemplation under section 14A(1) of the Act is the
"actual" expenditure in relation to or in connection with or
pertaining to exempt income. The corollary to this is that if
no expenditure is incurred in relation to the exempt
income, no disallowance can be made under section 14A of
the Act."
10. Thus, if the expenditure incurred has connection or some relation
or pertains to earning of exempt income, it has to be disallowed under
Section 14A. That when an assessee is carrying on the business and at
the same time has made investment in the shares or mutual funds, it
may be practically impossible to specify any particular item of
expenditure which is incurred for the purpose of earning exempt
income. If at all it can be specified, it can be done by the assessee
because all facts are in his knowledge. Therefore, under Section 14A
of the Act, the primary responsibility is upon the assessee to specify
the expenditure incurred by him for earning of exempt income. In this
case also, the Assessing Officer asked the assessee to state what was
the expenditure incurred by him for earning of exempt income. The
assessee denied to have incurred any expenditure.
11. To examine the correctness of the assessee's contention, let us
go through the details of investment made by the assessee. The
details of such investments are at pages 13 & 14 of the assessee's
Annexure-A for
paper book and copy of which is annexed hereto as Annexure-
ready reference. We find that the investment in the shares is only
`6,46,000/- plus `2,42,648/- but, it is in large number of companies.
The investment in the mutual funds is `14,58,81,026/-. The
8 ITA-5417/Del/2012
investment in the mutual funds as on 31st March, 2008 was
`10,17,39,223/-. If we see the list, we find that the assessee invested
in more than 50 different mutual funds. Various mutual funds were
liquidated during the year under consideration and there was fresh
investment in 17 mutual funds. On these facts, we are unable to
accept the assessee's contention that not a single Rupee was incurred
by the assessee either for liquidating old mutual funds or making
investment in new mutual funds or for deposit of the dividend received
from 22 different mutual funds. The assessee liquidated the
investment in 13 mutual funds during the year under consideration.
Similarly, there was investment in 17 different mutual funds during the
year under consideration. It cannot be believed that no effort was
involved in the entire process. The telephone expenses claimed by the
assessee are `7,11,999/-, travelling & conveyance expenses are
`7,72,247/-, salary to the staff is `7,17,138/- and directors'
remuneration is `8,50,600. It cannot be accepted that not a single
phone call was made by the assessee relating to purchase and sale of
mutual funds, no employee ever traveled for the purpose of either
making investment or for liquidating mutual funds, no staff or the
director devoted any time for the purpose of investment or liquidation
of mutual funds. In our opinion, when there is investment in large
number of mutual funds and moreover during the year under
consideration various mutual funds were liquidated and investment
made in various new mutual funds, certainly, the assessee must be
keeping details in a systematic manner and some staff must be doing
that job. For the purpose of liquidation as well as investment in the
mutual funds, some effort and some paper formalities are certainly
required. So far as assessee's contention is concerned that the
Assessing Officer has not specified which part of the expenditure was
incurred for the purpose of earning of dividend income, in our opinion,
when there is a mixed account and the assessee is carrying on the
9 ITA-5417/Del/2012
business, it is practically impossible to specify which particular portion
of the expenditure was incurred for the purpose of earning dividend
income. For this purpose only, Rule 8D has been introduced for
allocating the expenditure when it is not possible to ascertain which
particular expenditure was incurred relating to exempt income or other
income. Considering the totality of the above facts, in our opinion, the
assertion of the assessee that no expenditure was incurred for earning
of dividend income is a bald assertion, contrary to the obvious facts on
record and the satisfaction of the Assessing Officer that some
expenditure was incurred for earning of exempt income is based upon
the facts of the case.
12. In view of the above, we are of the opinion that a proper
satisfaction as required by Section 14A was duly recorded by the
Assessing Officer and, he was fully justified in working out the
disallowance as per Rule 8D of the Income-tax Rules, 1962. So far as
the alleged discrepancy in the working of Rule 8D is concerned, we set
aside the matter to the file of the Assessing Officer and direct him to
verify the working of Rule 8D and make the disallowance strictly as per
Rule 8D. Needless to mention that the Assessing Officer will allow
adequate opportunity of being heard to the assessee.
13. In the result, the appeal of the assessee is deemed to be partly
allowed for statistical purposes.
Decision pronounced in the open Court on 29th August, 2014.
Sd/- Sd/-
GARG)
(CHANDRA MOHAN GARG) AGRAWAL)
(G.D. AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 29.08.2014
VK.
10 ITA-5417/Del/2012
Copy forwarded to: -
1. Appellant : M/s East West Rescue Private Limited,
38, Golf Links, New Delhi 110 003.
2. Deputy Commissioner of Income Tax,
Respondent : Deputy
Circle-3(1), New Delhi.
Circle-
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
Contd...(Annexure-A)/..
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12 ITA-5417/Del/2012
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