Enkay India Rubber Co (P) Ltd vs. Circle-8(1), New Delhi: Disallowance of Expenditure Under Section 14A

Enkay India Rubber Co (P) Ltd vs. Circle-8(1), New Delhi: Disallowance of Expenditure Under Section 14A

Case Number: ITA 5778/DEL/2019

Appellant: Enkay India Rubber Co (P) Ltd, New Delhi

Respondent: Circle-8(1), New Delhi

Assessment Year: 2016-17

Case Filed On: 2019-07-02

Order Type: Final Tribunal Order

Date of Order: 2022-12-13

Pronounced On: 2022-12-13

Conclusion: The appeal filed by Enkay India Rubber Co (P) Ltd resulted in partial relief with the deletion of interest expenditure disallowance under Rule 8D(2)(ii) and the confirmation of administrative expenses disallowance under Rule 8D(2)(iii).

Background

The Income Tax Appellate Tribunal (ITAT) Delhi Bench “D” heard the case on 12th October 2022, and the order was pronounced on 13th December 2022. The Tribunal comprised Hon’ble President Shri G.S. Pannu and Judicial Member Shri Saktijit Dey.

The appellant, Enkay India Rubber Co (P) Ltd, located at B-3, SMA Industrial Estate, New Delhi, filed an appeal against the Additional Commissioner of Income Tax (ACIT), Circle-8(1), New Delhi. The appellant’s PAN is AAACE0097Q.

Contentions

The appeal was directed against the order of the learned Commissioner of Income Tax (Appeals)-3, New Delhi, dated 11th June 2019, pertaining to the assessment year 2016-17.

The main issue in the appeal was the disallowance of expenditure under section 14A of the Income Tax Act, 1961. The appellant contested the disallowance of Rs.87,147/- made by the Assessing Officer, which was reduced to Rs.31,171/- by the Commissioner (Appeals).

Tribunal’s Analysis

Interest Expenditure Disallowance

The Tribunal noted that the assessee had sufficient interest-free funds in the form of reserves and surplus amounting to Rs.40 crores. The investments generating exempt income were from earlier years, with no fresh investments made. The Assessing Officer had not controverted this factual claim.

Based on these facts and following settled legal principles, the Tribunal concluded that no disallowance of interest expenditure could be made under Rule 8D(2)(ii) of the Income Tax Rules, 1962. The disallowance of Rs.80,164/- on account of interest expenditure was deleted.

Administrative Expenditure Disallowance

The Tribunal upheld the disallowance of Rs.6,983/- made under Rule 8D(2)(iii) for administrative expenses, noting that the Assessing Officer had recorded proper satisfaction as required under section 14A(2) of the Income Tax Act, 1961.

Disallowance Under Section 40(a)(i)

Another issue in the appeal was the disallowance of Rs.15,98,755/- under section 40(a)(i) for non-deduction of tax at source on payments made to non-residents towards patent charges. The Assessing Officer treated the payments as royalty, while the Commissioner (Appeals) treated them as Fee for Technical Services (FTS).

The Tribunal found that the submissions of the assessee regarding the nature of payments had not been properly considered. The case was restored to the Assessing Officer for fresh adjudication after providing due opportunity to the assessee to present further evidence if necessary.

Conclusion

The appeal filed by Enkay India Rubber Co (P) Ltd resulted in partial relief with the deletion of interest expenditure disallowance and the confirmation of administrative expenses disallowance. The issue of disallowance under section 40(a)(i) was restored to the Assessing Officer for fresh adjudication.

Order pronounced in the open court on 13th December 2022.

Sd/- Sd/-
(G.S. PANNU) (SAKTIJIT DEY)
PRESIDENT JUDICIAL MEMBER

Date: 13.12.2022

Copy forwarded to:
1. Appellant: Enkay India Rubber Co (P) Ltd, B-3, SMA Industrial Estate, New Delhi.
2. Respondent: Circle-8(1), New Delhi.
3. CIT
4. CIT(A)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI

Date of dictation: 12.10.2022
Date on which the typed draft is placed before the dictating member: 12.10.2022
Date on which the typed draft is placed before the other member: 13.12.2022
Date on which the approved draft comes to the Sr. PS/ PS: 13.12.2022
Date on which the fair order is placed before the dictating member for pronouncement: 13.12.2022
Date on which the fair order comes back to the Sr. PS/ PS: 13.12.2022
Date on which the final order is uploaded on the website of ITAT: 13.12.2022
Date on which the file goes to the Bench Clerk: 13.12.2022
Date on which the file goes to the Head Clerk:
The date on which the file goes to the Assistant Registrar for signature on the order:
Date of dispatch of the Order

Enkay India Rubber Co (P) Ltd vs. Circle-8(1), New Delhi: Disallowance of Expenditure Under Section 14A