Pr. Commissioner of Income-tax-5, New Delhi v. Kama Holdings Ltd
[Citation -2017-LL-0816-1]

Citation 2017-LL-0816-1
Appellant Name Pr. Commissioner of Income-tax-5, New Delhi
Respondent Name Kama Holdings Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 16/08/2017
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags disallowance of interest • interest expenditure • proportionate basis • working capital • question of law • exempted income
Bot Summary: The Assessee pointed out that, as on 31st March 2005, it had made investments of Rs. 7869.10 lakhs in shares of listed companies and unquoted shares of a subsidiary company. The AO, in the assessment order dated 12th December 2011, rejected the disallowance offered by the Assessee and re-calculated it at Rs. 6,06,19,000/- by applying Rule 8D of the Rules. The Assessee did not question the disallowance made by the AO as far as the administrative expenses were concerned. The CIT(A) agreed with the Assessee and reduced the disallowance of interest to what was in fact offered by the Assessee. At the outset, the Court notices that for the applicability of Section 14A of the Act read with Rule 8D of the Rules, a pre-requisite is that the AO must, having regard to the accounts of the Assessee, record his dissatisfaction with ITA No.818/2016 Page 3 of 5 the correctness of the claim of expenditure made by the Assessee. There is no specific recording by the AO, with reference to the accounts of the Assessee, that he is not satisfied with the correctness of the claim of expenditure made by the Assessee. Had the AO examined the accounts, he would have realized that, there being no fresh investment during the AY in question, the disallowance offered by the Assessee on the basis of the investment already made in the previous year could not have been disregarded.


IN HIGH COURT OF DELHI AT NEW DELHI ITA No. 818/2016 PR. COMMISSIONER OF INCOME TAX-5, NEW DELHI ..... Appellant Through: Mr. Asheesh Jain, Sr. Standing Counsel with Mr. Vikrant A. Maheshwari, Advocate. versus KAMA HOLDING LTD. ..... Respondent Through: Mr. Satyen Sethi, Advocate with Mr. Arta Trana Panda, Ms. Gargi Sethee, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 16.08.2017 1. This appeal is filed by Revenue against order dated 11th May 2016 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 1555/Del/2014 for Assessment Year ( AY ) 2009-10. 2. question of law urged by Revenue is whether ITAT was justified in upholding order of Commissioner of Income Tax (Appeals) [ CIT (A) ] deleting disallowance of expenditure relatable to exempt income made by Assessing Officer ( AO ) under Section 14 of Income Tax Act, 1961 ( Act ) read with Rule 8D of Income Tax Rules, 1962 ( Rules ). ITA No.818/2016 Page 1 of 5 3. facts, in brief, are that Assessee is engaged in business of manufacturing of engineering plastics and fish net twines. In return of income filed for AY in question on 30 th September 2009, Assessee showed income of Rs. 17,96,73,549/-. return was revised on 31st March 2011, claiming amount of Rs. 39,41,713/- on account of short deduction and late deposit of TDS. assessment was completed under Section 143 (3) of Act making inter alia disallowance of Rs. 6,27,21,000/- under Section 14A of Act. 4. Assessee pointed out that, as on 31st March 2005, it had made investments of Rs. 7869.10 lakhs in shares of listed companies and unquoted shares of subsidiary company. As of that date, total borrowed funds stood at Rs. 4520.75 lakhs. Thereafter, Assessee obtained various loans from banks, financial institutions and other companies and loan rose up to Rs.13072.17 lacs as on 31st March 2008. According to Assessee, these borrowed loans were utilized for business purposes, viz., for setting up of new plants and factories, expansion of production capacity and working capital requirement. 5. categorical stand of Assessee was that after 31st March 2005, it had not made any fresh investment and definitely not during AY in question. In earlier AYs, loan amount that was relatable to investments made was determined as Rs. 857.04 lacs. Assessee had paid interest on this loan amount at average interest rate of 10.69% p.a. which was worked out to Rs. 91,61,757/-. This was accordingly disallowed for AY 2006-07 under Section 14A of Act. Assessee accordingly ITA No.818/2016 Page 2 of 5 explained that, for this AY, it had likewise disallowed Rs. 87,58,151/- on proportionate basis, considering that there was no fresh investment in shares. 6. AO, in assessment order dated 12th December 2011, rejected disallowance offered by Assessee and re-calculated it at Rs. 6,06,19,000/- by applying Rule 8D (2) (ii) of Rules. Before CIT (A), Assessee did not question disallowance made by AO as far as administrative expenses were concerned. It was aggrieved by AO applying Rule 8D (2) (ii) to re-determine disallowance of interest component. CIT(A) agreed with Assessee and reduced disallowance of interest to what was in fact offered by Assessee. total disallowance, as determined by CIT (A) under Section 14A worked out to Rs. 1,08,59,701/-. Incidentally, Assessee has accepted order of CIT (A) and did not challenge it further before ITAT. 7. In impugned order in Revenue s appeal, ITAT referred to assessment order dated 2nd December 2011, which was passed on directions of this Court in ITA No. 720/2011, for AY 2006-07 and, held that there was no infirmity in order of CIT (A). 8. This Court has heard submissions of Mr. Asheesh Jain, learned Senior Standing Counsel for Revenue, and Mr. Satyen Sethi, learned counsel for Respondent/Assessee. 9. At outset, Court notices that for applicability of Section 14A of Act read with Rule 8D of Rules, pre-requisite is that AO must, having regard to accounts of Assessee, record his dissatisfaction with ITA No.818/2016 Page 3 of 5 correctness of claim of expenditure made by Assessee. If this pre- requisite is not satisfied, question of proceeding to next stage of applying formula under Rule 8D (2) (ii) of Rules does not arise. 10. In this context, if one peruses order of AO, it is seen that there is simply recording that contention of Assessee that investments were made in shares out of its own funds and that said funds were merged with borrowed funds was not accepted. There is no specific recording by AO, with reference to accounts of Assessee, that he is not satisfied with correctness of claim of expenditure made by Assessee. It is seen that before AO, Assessee had placed reliance on decision of this Court in Maxopp Investment Ltd. v. Commissioner of Income Tax [2012] 347 ITR 272 (Del). Yet, AO did not consider it necessary to fulfil mandatory requirement of Section 14A (2) of Act and Rule 8D (1) (a) of Rules and straightaway provided to re-determine disallowance of interest expenditure in terms of Rule 8D(2)(ii) of Rules. Had AO examined accounts, he would have realized that, there being no fresh investment during AY in question, disallowance offered by Assessee on basis of investment already made in previous year could not have been disregarded. 11. In considered view of Court, impugned order of CIT (A) which limits disallowance to figure above-mentioned cannot be stated to be erroneous. ITAT was therefore right in not interfering with it, though for different reasons. ITA No.818/2016 Page 4 of 5 12. No substantial question of law arises for consideration. appeal is accordingly dismissed with no order as to costs. S. MURALIDHAR, J. PRATHIBA M. SINGH, J. AUGUST 16, 2017 anb ITA No.818/2016 Page 5 of 5 Pr. Commissioner of Income-tax-5, New Delhi v. Kama Holdings Ltd
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