×Latest Case Laws on Income Tax by various High Courts of India
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18-12-2018, DLF HOME DEVELOPERS, Section 260A, 14A, 8D, HIGH COURT OF DELHI
On 14th December 2018, we had dictated the following order:-
‘‘This appeal by Revenue under Section 260A of the Income Tax Act, 1961 ('Act', for short) in the case of M/s DLF Home Developers Ltd ('respondent-assessee', for short) pertains to assessment year 2011-12 and arises from the order of the Income Tax Appellate Tribunal dated 19.06.2018.
2. First issue which relates to addition of Rs. 3.46 crores on account of golf club membership fee, is accepted by the Counsel for the appellant-Revenue, that is covered against them vide decision dated 30.3.2012 passed in ITA No.180/2012 in the case of DLF Commercial Developers Ltd. An SLP against the said decision was also dismissed. (Pursuant to the order of merger, the golf club has merged with DLF Home Developers Ltd.)
3. Accordingly, no substantial question of law arises from disallowance of Rs.3.46 crores made by Assessing Officer ('AO', for short) on account of golf club membership fee.
4. The second issue relates to disallowance of more than Rs. 80.66 crores made by the AO under Section 14A of the Act, by applying Rule 8D of the Income Tax Rules, 1962 ('Rules, for short).
5. The AO on the aforesaid question had observed:
“7. On perusal of the comparative Balance Sheets as on 31.03.2010 & 31.03.2011, it is noticed that the assessee company has shown to have invested its funds in equity shares, which stand at Rs.2,73,331.69/- lacs as at the beginning of the year and at Rs.1,78,239.36/- lacs as at the end of the year. However, the assessee has not attributed any expenses which have been incurred to carry out the activity of investments, though it is an accepted fact that for carrying out any such activity, some kind of expenditure necessary has to be incurred. In view of the income tax circular no.5/2014 assessee vide order sheet entry dated 24.03.2014 was asked that since the assessee has done investment and has earned dividend income during current FY why expenses shall not be disallowed u/s 14A r.w. Rule 8D. In response to the same the assessee vide its reply dated 24.03.2014 submitted that “the assessee company on its accord, has made a disallowance of Rs.8,21,883/- as attributable to exempt income u/s 14A r.w. Rule 8D of the IT Rules, 1962. Therefore, on the facts and circumstances of the case, no further disallowance is called for.
7.1 The submissions of the assessee are considered but the same are not acceptable in view of the following background;
The provision of sub-section (1) of Section 14A provides:
“14.4 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.”
The term “expenditure” occurring in Section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial.
As regards the applicability of Rule 8D of the I.T. Rules, the Hon’ble ITAT in the case of Citicorp Finance (I) Ld. Held that “....it is no longer open to the Assessing Officer to apply his discretion in computing the disallowance or make adhoc disallowance u/s 14A...” as “...sub-sections (2) and (3) seek to achieve the underlying objection of section 14A(1) that any expenditure incurred in relation to exempt income should not be allowed deduction...”.
The Hon’ble Bombay High Court, in its judgment delivered on 12.08.2010 in ITXA No.626/2010 & Writ Petition No.758/2010 in the case of Godrej & Boyce Manufacturing Co. Limited, Mumbai vs. Dy.CIT10(2), Mumbai & others; has ruled in favour of the Department as regards the applicability of Rule 8D for and from A.Y. 2008-09 onwards.
In view of the above, the disallowance u/s 14A r.w. rule 8D as computed as under:-