M/S. COFFEEDAY ENTERPRISES LIMITED,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(3), BAGALORE

The assessee has filed this appeal challenging the order dated 25/02/2020 passed by ld CIT(A)-11, Bengaluru and it relates to asst. year 2014-15.

The assessee is aggrieved by the decision of ld CIT(A) in confirming the enhancement of disallowance made by the AO over and above the amount disallowed by the assessee u/s 14A of the Act.

We heard the parties and perused the record. The assessee is engaged in the business of managing hotels and resorts. The assessee had earned dividend income of Rs.8.47 crores and claimed the same as exempt. The assessee disallowed a sum of Rs.28.56 crores u/s 14A of the Act while computing total income. The AO took the view that the assessee has not computed disallowance as per Rule 8D. Accordingly he computed the disallowance as per Rule 8D at Rs.84.56 crores and accordingly made additional disallowance of Rs.55.99 crores. The same was confirmed by ld CIT(A) and hence the assessee has filed this appeal before us.

The ld AR placed his reliance on the decision rendered by the coordinate bench in the case of Sivan Securities Pvt. Ltd. (ITA No.713 to 715/Bang/2018 dated 8/5/2019) and submitted that the disallowance made u/s 14A cannot exceed the amount of dividend received by the assessee during the year. He submitted that the coordinate bench in the above said case had followed the decision rendered by another coordinate bench in the case of M/s Way2Wealth Securities Pvt. Ltd. (ITA No.1679/Bang/2017) dated 1/6/2018, wherein the said coordinate bench has followed the decision rendered by Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd., 372 ITR 694 and Holecim India Pvt. Ltd., 272 CTR 282. The ld AR submitted that the disallowance voluntarily made by the assessee u/s 14A of the Act is more than the amount of dividend and hence no further disallowance is called for, in the facts and circumstances of the case. He submitted that identical issue has been considered by the co-ordinate bench in the assessee’s own case for assessment year 2013-14 in dated 10-06-2019 and the Tribunal has deleted the enhancement of disallowance made by the AO.

On the contrary, the ld DR supported the order passed by ld CIT(A).

Having heard rival contentions, we notice that the co-ordinate bench has decided an identical issue in the assessee’s own case in favour of the assessee in AY 2013-14 (referred supra). For the sake of convenience, we extract below the operative portion of the order passed in AY 2013-14:- “6. Having heard rival contentions, we are of the view that there is merit in the contentions of the assessee. During the course of hearing the ld AR also submitted that the assessee had received dividend from only one company named M/s Mind Tree Ltd. Further the amount of disallowance made by the assessee Rs.3023.29 lakhs is more than the dividend amount of Rs.205.44 lakhs. Hence, we are of the view that the disallowance voluntarily made by the assessee would meet the requirements of sec.14A of the Act. Accordingly we are of the view that further disallowance made by the AO and confirmed by ld CIT(A) is not warranted in the facts and circumstances of the case. Accordingly we set aside the order passed by ld CIT(A) on this issue and direct the AO to delete further addition made by him u/s 14A of the Act.”

We notice that during the year under consideration, the assessee has received dividend income of Rs.8.47 crores and it has voluntarily disallowed a sum of Rs.28.56 crores u/s 14A of the Act. We also notice from the computation of income placed at page 65 of the paper book, the assessee has also earned Long term capital gain of Rs.13 crores and claimed the same as exempt. Thus aggregate amount of exemption claimed was Rs.21.47 crores. We also notice that the dividend income was received from one group company named M/s Mindtree Limited and the long term capital gain was also earned on sale of shares of M/s Mindtree limited. We notice that, as in the earlier year, the disallowance made by the assessee voluntarily is more than the amount of exempted income. Hence, we are of the view that the disallowance voluntarily made by the assessee would meet the requirements of sec.14A of the Act. Accordingly, following the order passed in AY 2013-14, we are of the view that further disallowance made by the AO and confirmed by ld CIT(A) is not warranted in the facts and circumstances of the case. Accordingly we set aside the order passed by ld CIT(A) on this issue and direct the AO to delete further addition made by him u/s 14A of the Act.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the Open Court on 7th October, 2020.