Jindal Stainless Steelway Ltd., New ... vs Assessee

PER I.C. SUDHIR: JUDICIAL MEMBER The assessee has questioned first appellate order on the sole ground

that the Learned CIT(Appeals) has erred in confirming the disallowance of

interest of Rs.27,96,190 under sec. 14A made by the Assessing Officer.

2. We have 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.

2

3. The relevant facts are that the assessee company is engaged in the

business of cutting/slitting of HR/CR sheets. During the course of

assessment proceedings, the Assessing Officer observed that the assessee

had earned dividend income of Rs.926 which it claimed exempt under sec.

10 of the Income-tax Act, 1961. In response to show-cause notice issued by

the Assessing Officer regarding the proposed proportionate disallowance

under sec. 14A read with Rule 8D, the assessee submitted that addition

under Rule 8D is warranted only when interest is incurred which is not

attributable to any particular income or receipt. It was submitted that no such

expenditure has been incurred in the case of the assessee, hence, there

cannot be any disallowance under Rule 8D of the Income-tax Rules, 1962.

The Assessing Officer did not agree with the assessee and observed that the

assessee has not maintained separate bank accounts in respect of investment

and other activities. Instead, funds have been used from the common bank

account of the assessee. The Assessing Officer accordingly made

disallowance of Rs.30,09,361 under sec. 14A of the Act read with Rule 8D

of the I.T. Rules. The Learned CIT(Appeals) has upheld the same.

4. In support of the ground, the Learned AR submitted that the dividend

income is Rs.926 only and 0.5% of average income i.e. Rs.2,13,171 was 3

offered by the assessee as a suo-moto disallowance under Rule 8D. He

contended that during the last assessment year in the assessment framed

under sec. 143(3) of the Act, no such disallowance was made. He referred

page No. 9 of the paper book i.e. audited statement of accounts to support

his contention that the dividend was earned only on the mutual fund of

Rs.14,694. The Learned AR submitted further that as per the decision of

Hon'ble jurisdictional Delhi High Court recently decided on 25.2.2015 in

ITA No. 117/2015 in the case of Joint Investment Pvt. Ltd. Vs. CIT, no

disallowance more than dividend income/exempt income can be made. He

also placed reliance on the following decisions:

1) CIT vs. Holcin India Pvt. Ltd. - ITA No. 486 and 299/2014 -

date of decision 05.09.2014 (Del.)

2) CIT vs. HDFC Bank Ltd. - ITA No. 330 of 2012 - decision dated 23.7.2014 (Bombay);

5. The Learned Senior DR on the other hand placed reliance on the

orders of the authorities below.

6. Having gone through the cited decisions and the unrebutted facts of

the present case that the disallowance in question was made for an amount 4

which was more than dividend income/exempt income earned by the

assessee during the year, we are of the view that the issue is fully covered in

favour of the assessee by the decision of Hon'ble jurisdictional High Court

of Delhi in the case of Joint Investment Pvt. Ltd. vs. CIT (supra). Para 9 of

the said decision is being reproduced hereunder for a ready reference:

"9. In the present case, the A.O. has not firstly disclosed why the appellant/assessee's claim for attributing Rs.2,97,440 as a disallowance under sec. 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determined amounts is derived after examination of the accounts and rejection, if any, of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the A.O. - an aspect which is completely unnoticed by the CIT(A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197. By no stretch of imagination can sec. 14A or Rule 8D, we interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in sec. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion of portion of tax exempt income surely cannot swallow the entire amount as has happened in this case."

5 7. Almost similar are the facts of the present case, hence, respectfully

following the ratios of decision of the Hon'ble Jurisdictional High Court of

Delhi in the above cited case of Joint Investment Pvt. Ltd. vs. CIT (supra),

we set aside the matter to the file of the Assessing Officer to decide the

disallowance in question afresh as per the above cited decision after

affording proper opportunity of being heard to the assessee. The ground is

thus allowed for statistical purposes.

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

Decision pronounced in the open court on 28 .05.2015

Sd/- Sd/-

( N.K. SAINI ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 28 /05/2015 Mohan Lal

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR 6

Date Draft dictated on computer 25 .05.2015 Draft placed before author 25 .05.2015 Draft proposed & placed before the second member

Draft discussed/approved by Second Member.

Approved Draft comes to the Sr.PS/PS Kept for pronouncement on File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk.

Date of dispatch of Order.