Agsons Agencies (I) Pvt. Ltd., New Delhi vs Assessee

PER I.C. SUDHIR: JUDICIAL MEMBER The assessee has questioned first appellate order whereby the Learned

CIT(Appeals) has confirmed the addition made under section 14A read with

Rule 8D amounting to Rs.13,58,851.

2. Heard and considered the arguments advanced by the parties in view

of orders of the authorities below, material available on record and the

decisions relied upon.

3. The contentions of the Learned AR against the addition in question

remained that the main business of the assessee was manufacturing and

trading of metal and alloys. The assessee has not incurred any expenditure 2

towards earning of dividend income and that the dividend income earned

relates to investments made by the assessee are comprises of investment

made in earlier years out of assessee's own funds as well as during the year

the investments were made out of the surplus balance. He contended that the

assessee has not paid any interest on funds utilized for investment in the

shares, hence, provisions laid down under sec. 14A are not applicable to its

case and, therefore, the Assessing Officer was not justified in making the

disallowance ignoring the above submission made before him. He submitted

further that the Assessing Officer has not identified the expenses incurred to

earn dividend. 1.1% dividend only has been earned out of total expenses. He

submitted that the expenses were relating to business purpose and not for

earning dividend.

4. The Learned DR on the other hand placed reliance on the orders of the

authorities below. She submitted that before invoking the provisions under

sec. 14A and Rule 8D, the Assessing Officer has recorded his satisfaction

for doing so at page No.2 of the assessment order. He submitted that

substantial dividend income has been earned and the assessee has also not

maintained separate account. He placed reliance on the following decisions:

i) Maxopp Investment. Ltd. Vs. CIT - 347 ITR 272 (Del.);

ii) Catholic Syrian Bank Ltd. Vs. CIT - 330 ITR 556 (Ker.);

3 5. Considering the above submissions, we find that there is no dispute

regarding the applicability of the provisions laid down under sec. 14A of the

Income-tax Act, 1961 read with Rule 8D of the I.T. Rules, 1962 during the

year under consideration. Still there are some important aspects of the case

which are required to be considered before invoking the above said

provisions to work out the expenditure in relation to income not includible in

total income. These aspects are the submissions of the assessee that dividend

income is entirely from mutual funds, no expenditure were incurred by the

assessee company towards earning of dividend income, dividend income

earned relates to investments made by the assessee which comprises of

investments made in the earlier years out of the assessee's own funds as

well as during the year the investments were made out of surplus balance

and the assessee has not paid any interest on funds utilized for investment.

As per the audited balance sheet of the company, the company had secured

loans as under:

SBI CC against stock & Book Debts. Rs. 99135/- Term loan from SBI in foreign currency Rs. 48,875,000/- Term Loan from SBI against Building Rs. 20,373,173/- Buyers credit from foreign Bank Rs. 101,075,105/-

6. It was submitted further that CC limit of Rs.99,135 is the loan which

can be utilized for investment but this amount is very small in comparison to

value of investment. The other loans are for specific purposes and paid 4

directly by bankers to the creditors and could not utilize for investment in

mutual funds. Besides, the company has not paid any interest on secured

loans. The assessee company had issued instruction to its bankers, State

Bank of India that whenever surplus funds are there in the account, it should

invest them in viable mutual funds so that the company can earn some return

from the ideal fund. So the company has not paid any interest on the funds

utilized for investment in mutual funds. It was submitted that the total

income of the assessee is Rs.100,53,36,873 and the dividend income claimed

exempt is Rs.17,90,486 which is around 00.18%, therefore, 99.82% of the

income represents sales of manufactured and traded item and other income

which is taxable income. Very negligible portion of the total income of the

assessee is exempt income, contended the assessee.

7. The Learned AR submitted that above submissions were also made

before the Assessing Officer during the course of assessment proceedings

but the Assessing Officer without examining the correctness of the above

submission has simply stated that no reply has been submitted by the

assessee. The Assessing Officer was thus not justified in applying the

provisions of sec. 14A read with Rule 8D without recording proper

satisfaction about the correctness of the above submission. 5

8. Without going into the controversy as to whether above submissions

as claimed by the Learned AR were furnished before the Assessing Officer

or not, we in the interest of justice set aside the matter before the Assessing

Officer to examine the correctness of above submissions supported by the

balance sheet and other documents available on record and then record his

satisfaction about the correctness of the claim of the assessee that no

expenditure was incurred by the assessee in earning exempt income before

invoking the provisions laid down under sec. 14A of the Income-tax Act,

1961 read with Rule 8D of the I.T. Rules, 1962. It is needless to mention

over here that while disposing of the matter as directed above, the Assessing

Officer will afford adequate opportunity of being heard. It is also made clear

that if the Assessing Officer is satisfied on the correctness of the above

submissions of the assessee then there is no need for making any

disallowance under sec. 14A read with Rule 8D. The ground is accordingly

allowed for statistical purposes.

9. In result, the appeal is allowed for statistical purposes.

Decision pronounced in the open court on 13.03.2015

Sd/- Sd/-

( T.S. KAPOOR ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 13 /03/2015 Mohan Lal 6

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

Date Draft dictated on computer 13.03.2015 Draft placed before author 13.03.2015 Draft proposed & placed before the second 13.03.2015 member Draft discussed/approved by Second Member. Approved Draft comes to the Sr.PS/PS 16.03.2015 Kept for pronouncement on File sent to the Bench Clerk 17.03.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.