1 ITA No. 1333/Del/2012
FINAL - IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH:`B' NEW DELHI
BEFORE SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
&
SMT. BEENA PILLAI, JUDICIAL MEMBER
I.T.A .No. 1333/Del/2012
(ASSESSMENT YEAR-2008-09)
DCM Engineering Ltd., vs ACIT,
6 Floor, Vikrant Tower,
th Circle 10(1),
Rajendra Place, New Delhi. New Delhi.
AABCD2472M
Appellant by Sh. V.P. Gupta, Adv.
Respondent by Md. Mohsin Alam, CIT DR
Date of Hearing 28.08.2015
Date of Pronouncement 01.09.2015
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER:
This is an appeal filed by the assessee against the order of ld.
CIT(A)-XIII, New Delhi dated 01.02.2012 for A.Y. 2008-09 on the
following grounds:
1. "That the CIT(A) erred in upholding the disallowance
of Rs. 26,40,830/- made by Assessing Officer u/s
14A of the Income Tax Act read with Rule 8D of
Income Tax Rules in the facts and circumstances of
the case without appreciating that no expenditure
was incurred in earning of exempt income. He failed
to appreciate that expenditure of Rs. 2 lacs offered by
the appellant was reasonable and no further
disallowance was called for.
2 ITA No. 1333/Del/2012
2. That the CIT(A) also erred in making wrong
observations that no evidence was produced to the
effect that shares were acquired out of own funds and
profits of the appellant ignoring the
details/documents submitted before him.
3. The appellant company craves leave to alter, amend,
vary and/or add any of the grounds of appeal at any
time hereinafter."
2. Brief facts of the case are that the appellant company is
engaged in the business of manufacturing and trading of grey iron
casting, patterns, jigs and fixtures. The assessee had filed its return
of income on 27.09.2008, declaring a total income of
Rs.17,02,26,730/-. The return was processed u/s143(1). Assessee's
case was selected for scrutiny and notice u/s.143(2) was issued.
During the year under consideration the assessee had claimed
exempt income of Rs.9,01,250/-, being dividend received the shares
of SRF Ltd., during the year. The assessee offered Rs.2,00,000/-
u/s.14A, during the course of the assessment proceedings on the
ground that the amount represents 50% of salary of the concerned
executive, who looks after the activities relating to investments. The
assessee submitted before ld. A.O that since there was no activity
during the year and dividend was received only from one company,
the disallowance to the extent of Rs.2 lacs was justified. In the
assessment order passed an amount of Rs. 26,40,830/- was added
on account of expenditure related to earning exempt income.
Clause Particulars Amount
i. Expenditure directly related to
exempt income
ii. Disallowance of interest
expenditure 409.04
A. Interest expenditure 670.24+670.24 409.045
incurred during the year 2 670.24
B. Average Value of 11890.24
3 ITA No. 1333/Del/2012
Investment 12406.6+11373.88
C. Average of total assets 2
Disallowance = A*B/C 28,0671
Iii Aggregate of Opening & Closing 670.24 X 0.5% 3.3512
value of Investment (Average
Value of Investment) ½% of
abvoe as per Rule 8D
Total disallowance [Aggregate of (i), (ii) & (iii)] 26,4083
3. Aggrieved by the assessment order, the assessee preferred
appeal before the Ld. CIT(A). The Ld. CIT(A) after going through the
submissions confirmed the actions of the Ld. A.O.
Aggrieved by the Order of Ld. CIT(A), the assessee is in appeal
before us now.
4. We have verified the above submissions by both the parties and
perused the Statement of accounts submitted by the assessee in
paper book. It is seen from the order of the Ld. CIT(A) that the
appellant has made investments in the following companies:
S.No. Particulars Amount
i SRF Equity Shares of Rs. 10 each 503.74
Ii Purearth Infrastructure Ltd. 166.50
Equity Shares of Rs. 10 each
These investments have been made in the group companies for
earning dividend income and retain the controlling stakes. The
dividend income earned from such investments is exempt from tax.
It has been claimed by the appellant before the Ld. CIT(A) that
investment in SRF Shares was made in the F.Y. 2005-06 and in the
shares of Purearth Infrastructure Ltd. it was made in the F.Y. 2006-
07 out of the cash flow generated by the company from its profits.
It is claimed by the appellant that company has declared profit of
Rs. 2331.61 lacs in the F.Y. 2005-06 and Rs. 2169.75 lacs in F.Y.
2006-07. It has been claimed by the assessee that company was
4 ITA No. 1333/Del/2012
having share capital and reserve of Rs. 5702.74 lacs and Rs.
6316.63 lacs during the Financial Year ending on 31st March, 2006
and 31st March, 2007 respectively. It has been claimed by the
assessee company that no disallowance on account of interest
payment is called for.
5. The Ld. CIT(A) has examined the contention of the appellant
and it is recorded in the order passed by Ld. CIT(A), that funds
borrowed for working capital requirement and for expansion
purposes are kept in a common account and no separate account is
maintained. The profit generated is also kept in a common hotch
potch. It further observed that appellant had taken secured loan of
Rs. 5057.62 lacs from Financial Institutions during the F.Y. 2006-
07. This has increased to Rs. 5529.71 lacs during the year. The
appellant has availed cash credit and over draft facility from banks
of Rs. 1130.53 lacs in F.Y. 2006-07 and Rs. 2138.71 lacs during the
year under consideration. The secured loans obtained by the
company are coming from the earlier years. The majority of interest
payments pertains to secured loans and cash credit and over draft
facility availed by the appellant.
6. As discussed above the assessee has kept all the funds in a
common account and investments and expenditure are made from
the same account. No separate account is maintained for the
investment purposes which could prove that funds used were not
from the interest bearing loans obtained by the appellant. The Ld.
CIT(A) has decided the issue on the facts stated above that
investment in the shares of SRF Ltd. and Purearth Infrastructure
5 ITA No. 1333/Del/2012
Ltd. was made out of the funds available in common account and
there is no evidence that these investments were made from the
profit earned by the company. The ld. CIT(A) thus confirmed the
addition made by the ld. A.O.
7. We have perused the order passed by the authorities below and
the decision of coordinate bench in assessee's own case for
assessment year 2009-10 in ITA no. 5033/Del/2012 and
4582/Del/2012, which has been produced before us at the time of
hearing. It is observed that the Tribunal in the subsequent
assessment year has restored back the issue to the assessing officer
to decide the disallowance u/s.14A read with Rule 8D on the
investments of shares in question.
8. On the facts and circumstances of the present case, the
Ld.CIT(A) held that investment would have been made out of
common/mixed funds, and therefore the ld. AO has worked out the
disallowance at Rs. 26,40,830/- on a proportionate basis with
reference to investment of Rs.166.50lacz out of total interest of
Rs.576.40 lacs paid on account of cash credits. The ld. CIT(A)
should have passed a speaking order dealing with contentions of
parties in specific terms with facts and figure. The decision of
Hon''ble Delhi High Court in the case of Maxopp Investments,
reported in 374 ITR 272, are very much relevant on the issue of
working of disallowance u/s.14A r.w.Rule 8 D by the ld. A.O.
9. We thus following the decision of the coordinate bench in
assessee's own case for assessment year 2009-10(supra), set aside
the issue back to the file of A.O to decide the disallowance of
6 ITA No. 1333/Del/2012
expenses u/s.14A r.w. Rule 8 D on the investments of shares in
question as per the law, keeping in view the guidelines provided for
the same in the case of Maxopp (supra), after affording opportunity
of being herd to the assessee.
10. Ground no. 2 is incidental in nature and no specific
determination is called for.
11. The ground of appeal in assessee's case is thus allowed for
statistical purposes.
12. The Assessee's appeal thus stands disposed off.
The order is pronounced in the open court on 01/09/2015
Sd/- Sd/-
(T.S. KAPOOR) (BEENA PILLAI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 01/09/2015
*Kavita, P.S.
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
7 ITA No. 1333/Del/2012
Date
1. Draft dictated on 31.08.2015
2. Draft placed before author 31.08.2015
3. Draft proposed & placed before the 01.09.2015
second member
4. Draft discussed/approved by Second 01.09.2015
Member.
5. Approved Draft comes to the 01.09.2015
Sr.PS/PS
6. Kept for pronouncement on 01.09.2015
7. File sent to the Bench Clerk 01.09.2015
8. Date on which file goes to the AR
9. Date on which file goes to the Head
Clerk.
10. Date of dispatch of Order.
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