| CITATION | 2020 SCC OnLine ITAT 2841 |
| DATE OF JUDGMENT | 5th February, 2020 |
| COURT | INCOME TAX APPELLATE TRIBUNAL |
| APPELLANT | GUJRAL DESIGN PLUS OVERSEAS PVT. LTD. |
| RESPONDENT | DEPUTY COMMISSIONER OF INCOME TAX CIRCLE |
| BENCH | N.K. BILLAIYA, A.M. AND KULDIP SINGH, J.M. |
INTRODUCTION
The case of “Gujral Design Plus Overseas Pvt. Ltd. V. Deputy Commissioner of Income Tax Circle” arises out of an appeal against an order of the Commissioner of Income Tax [Appeals] refusing to allow disallowance as given by the appellant. It involves the provisions of the Income Tax Act, 1961, specifically the application of Section 14A read with Rule 8D of the Income Tax Rules, 1962.
FACTS OF THE CASE
The appellant is a company involved in the business of non-banking financial company (NBFC), trading in securities, investments, etc. The Assessing Officer, during the course of scrutiny assessment proceedings, observed that the appellant had made an investment of Rs. 96.70 crores and had received exempt income in the form of dividend resulting in Rs. 5.04 crores. The Assessing Officer, on a strong belief that the provisions of section 14A read with Rule 8D apply to the present case, issued a notice of show cause to the appellant to explain why disallowance should not be made as per rule 8D of the Income Tax Rules, 1962. The Assessing Officer was dissatisfied with the reply of the appellant and proceeded to compute disallowance under Section 14A as per Rule 8D and added an amount of Rs. 40,23,974. The appellant brought the matter before the Commissioner of Income Tax [Appeals] without any success.
ISSUES RAISED
- Whether the provision of Section 14A r/w Rule 8D apply to the present case?
LEGAL PROVISIONS
INCOME TAX ACT, 1961
14A. Expenditure incurred in relation to income not includible in total income.—[(1)] For the purposes of computing the total income 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 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 empower the Assessing Officer either to reassess undersection 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee undersection 154, for any assessment year beginning on or before the 1st day of April, 2001.
INCOME TAX RULES, 1962
8D. Method for determining amount of expenditure in relation to income not includible in total income. – (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with –
(a) the correctness of the claim of expenditure made by the assessee; or
(b) the claim made by the assessee that no expenditure has been incurred,
in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).
(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely: –
(i) the amount of expenditure directly relating to income which does not form part of total income; and
(ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income:
Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.
CONTENTIONS OF APPELLANT
- In its reply to the show cause notice by the Assessing Officer, the appellant pleads that it has no expenses on account of interest which is evident from the profit and loss account. As given in Rule 8D, only 0.5% of average investment may be considered for disallowance which is absent in this case.
- Further, the appellant highlighted that the investment of Rs. 10.76 lakhs does not yield any income which comes under the exempted income category. Therefore, the disallowance of Rs. 8,11,262 may be accepted.
- After these contentions proved unconvincing before the CIT(A), the appellant drew attention of the Income Tax Appellate Tribunal to its Schedule of Investments that described the major investments made in earlier years and a chart of the dividend income received during the assessment year 2012-13. The chart showed that the dividend income received in the assessment year was of Rs. 5 crores of which Rs. 4.62 crores were received from DLF Ltd., where investment was made in earlier years.
- The counsel for the appellant further brought to notice the computation of disallowance, which is presented in pages 34 to 36 of the paper book, and stated that if any disallowance has to be made, the amount should be Rs. 5,57,206.
CONTENTIONS OF REPONDENT
The Department Representative supported the findings of the Assessing Officer. The DR now states that the details furnished by the counsel for the appellant appear to not have been examined by the Assessing Officer.
JUDGEMENT
The Income Tax Appellate Tribunal carefully considered the previous orders given in this matter and thoroughly examined the balance sheets and paper book presented by the appellant. It is evident from these records that major investments were made in preceding years. After meticulous examination of the documents provided by the appellant, the bench came to the decision that the record of the investments and dividend income chart need to be examined and verified by the Assessing Officer. The issue was restored to the file of the Assessing Officer. The appellant was instructed to provide a breakdown of allocable expenses to the Assessing Officer and offer a detailed explanation regarding the previous investments. The Assessing Officer was directed to review and verify the information provided by the appellant and subsequently make a fresh decision on the matter, ensuring the appellant has a reasonable opportunity to present their case. As a result, the appeal of the appellant was allowed for statistical purposes.
ANALYSIS
- Section 14A, Income Tax Act, 1961- Section 14 of this Act describes the heads which shall be calculated as the total income of a taxpayer. Section 14A explains that any expenses that are incurred under income that is not described under Section 14 shall not be deducted from the total income.
- Rule 8D, Income Tax Rules 1962 – Section 14A is read with Rule 8D which describes the method to calculate the expenditure incurred from income that does not form a part of the total income. Both of these provisions together ensure that there are no undue deductions or exploitation of loopholes.
CONCLUSION
The tribunal, after thorough consideration, found merit in the appellant’s contentions regarding major investments from earlier years and the specifics of dividend income. However, due to the need for verification, the tribunal directed the issue back to the Assessing Officer. The decision allows the appellant an opportunity to provide detailed explanations and ensures a fair examination of the case. The appeal is allowed for statistical purposes, implying that while the decision favours the appellant on procedural grounds, it does not necessarily provide a final resolution on the merits of the tax dispute.
REFERENCES
This Article is written by Astha Samal student of National Law University Odisha; Intern at Legal Vidhiya.
Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.
0 Comments