Forerunner Capital Investments Limited vs Ward 9(1), Delhi

PER VIKAS AWASTHY, JUDICIAL MEMBER:

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Delhi-3 [in short ‘the CIT(A)’] dated 08.09.2020, for Assessment Year 2017-18.

Ms. Sangeeta Singh, appearing on behalf of the assessee submits that the assessee is a Non-Banking Finance Company (NBFC) engaged in activities of financing and investments. Admittedly, the assessee received dividend income of Rs.42,73,338/- during the period relevant to assessment year under appeal. No interest expenses were claimed for making investments on which dividend was received. During the year, the total expenditure claimed was:

The ld. AR contended that depreciation is statutory allowance u/s.32 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and audit fees represent mandatory statutory compliance expenditure incurred for audit of books of account under the Companies Act, 2013 and Income Tax Act. Provision for expenses represent MCA challan fees incurred for statutory corporate filing and compliance requirement under the Companies Act. The rent is paid for maintaining office premises and business establishment of the company for carrying out its regular administrative and corporate functions. The Assessing Officer (AO) has made disallowance of expenditure u/s.14A r.w.r 8 D of the Act on the entire expenditure claimed by the assessee i.e. Rs.8,30,334/-. The disallowance, if, any u/s.14A of the Act can be made in respect of direct expenditure i.e. rental income.

Per contra, Shri Nirmal Nangia, representing the department vehemently relying on findings of the CIT(A) and prayed for dismissing appeal of the assessee.

Both sides heard, orders of the lower authorities examined. It is an undisputed fact that the assessee is a registered NBFC and has earned dividend income of Rs.42,73,338/-. No suo-motto disallowance was made by the assessee for earning exempt income. No material is brought on record to show that any direct expenditure is incurred by the assessee for earning exempt income. Rule 8D(ii) provides that an amount equal to 1% of annual average of monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. The disallowance u/s.14A of the Act cannot be more than the actual expenditure. From perusal of the documents placed on record, I find that apart from statutory expenditure on compliances and depreciation, the only expenditure claimed by the assessee is rent Rs.30,000/-. I am of considered view, that disallowance u/s.14A of the Act is to be restricted to rent expenditure only.

In the result, appeal of the assessee is partly allowed.