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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI SUDHANSHU SRIVASTAVA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the DCIT, Circle-1, LTU, New Delhi against the order of the ld CIT(A)-22, New Delhi dated 16.10.2015 Assessment Year 2011-12. 2. The revenue has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in directing to exclude the amount of Rs. 71, 17, 18,810/- being the investment made by the assessee in M/s Munjal Kiriu Industries (P) Ltd., M/s Hero Chassis System (P) Ltd. and M/s Hero Global Design Ltd. for working out the amount of average investment for the purpose of computation of disallowance u/s 14A read with Rule 8D by holding that there is no nexus between the interest paid by the appellant and the investments made in these companies.
2. On the fact and in the circumstances of the case and in law, Ld. CIT(A) has erred in directing the Assessing Officer to exclude the amount of Rs. 19, 46, 87,405/- being the investment made by the assessee in Debt Oriented Mutual Funds under growth option for working out the amount of average investment for the purpose of computation of disallowance u/s 14A read with Rule 8D merely by passing a cryptic order accepting the claim of the assessee that investment in mutual funds was in a debt oriented scheme under growth option not entitled to tax exempt dividend and income on sale/redemption of such mutual fund is taxable under the head 'Capital Gain', without verifying the claim and in absence of any such finding by the Assessing Officer in the assessment order.”
Brief facts of the case shows that the assessee is a company engaged in manufacturing of two wheeler and auto components/ spare parts for automobile. It filed its return of income showing Nil income under normal provision of the Act and a book profit of Rs. 9,52,69,347/-. Subsequently, assessee revised return of income on 31.03.2013 to claim the higher amount of TDS. The assessment u/s 143(3) was passed by the ld AO on 11.03.2014 making a disallowance u/s 14A of Rs. 2,06,06,478/- to the book profit of the assessee. Subsequently, book profit was assessed at Rs. 11,58,75,825/-. In the normal computation of the total income the ld AO disallowed Rs. 2,06,06,478/- u/s 14A of the Act of Rs. 24060/- was disallowed u/s 40a(ia) and Rs. 155343/- was disallowed u/s 36(1)(va) for late deposit of employees‟ contribution to the PF Account. The assessee was assessed on book profit.
The assessee preferred appeal before the ld CIT(A). The ld CIT(A) upheld the applicability of disallowance u/s 14A. However, he directed ld AO to reduce the disallowance u/s 14A of the Act. He directed to exclude the investment in shares for working out „average value of investment‟ in three subsidiaries for the reason that shares were allotted under the scheme of transfer of foundry division, assembly Unit and in lieu of sale. He further excluded the investment of Rs. 19,46,87,405/- being investment in Debt Oriented Mutual Fund. Thus, he directed the ld AO to re-compute the disallowance accordingly. The ld AO is aggrieved with that order and has preferred an appeal before us. 5. The ld DR vehemently supported the order of the ld AO and stated that the ld CIT(A) has erroneously directed to reduce the average value of investment of Rs. 71,17,18,810/- with respect to the investment made in other companies as well as Rs. 19,46,87,405/- being the investment in Debt Oriented Mutual Fund. It was stated that the debt oriented mutual funds are under growth option scheme. It was further stated that such debt oriented mutual fund cannot be excluded from the investment. 6. The ld AR submitted the details of investment made in the subsidiaries. He further stated that on investment made in the subsidiary, no exempt income has been earned. Therefore, he submitted that the investment which has not yielded any tax free income are even otherwise required to be excluded from the disallowance working out u/s 14A of the Act. He, therefore, submitted