MAHENDRA BROTHERS EXPORTS PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 1(2), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1) On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in confirming the disallowance made by the Ld. AO u/s 14A r.w.r. 8D(2)(iii) of Rs.11,85,278/- A.Y. 2008-09

2. Without prejudice to Ground No.1 on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in confirming the disallowance adjustment made by the Ld. AO u/s 14A r.w. Rule 8D(2)(iii) of Rs.11,85,278/- to the returned income of the appellant, without appreciating the fact that such disallowance adjustment is not based on any incriminating material found during the course of search. The appellant prays that the order passed by the Ld. AO is bad in law as the jurisdiction u/s 153A is vitiated. The appellant craves leave to add, omit or alter grounds of assessment proceedings appeal before or during the hearing of the appeal.”

3. The brief facts of the case are that a search and seizure action u/s 132 of the I. T. Act, 1961 was conducted by DDIT(Inv.) Unit-IX(3), Mumbai in the case of Mahendra Brothers Exports Pvt. Ltd. Group, its associated concerns, directors and related persons. The case of the assessee was covered in the above mentioned in the search action. The notice u/s 153A of the Act was given and served upon the assessee. The assessee filed the return of income on 29.10.2012 declaring total income to the tune of Rs.48,89,04,410/-. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee earned the dividend income amounting to Rs.62,92,640/- which was claimed exempt u/s 10(34) of the I. T. Act. The assessee also earned the long term capital gain in sum of Rs.70,54,454/- and claimed exempt. The total income of the assessee was assessed to the tune of Rs.1,33,49,094/-. The AO applied the provisions u/s 14A r.w. Rule 8D and assessed the expenditure to earn the exempt income in sum of Rs.25,85,314/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who deleted the addition in sum of Rs.14,00,041/- as per Rule 8D2(ii) following the ITAT order in compliance of the case and upheld the addition of Rs.11,85,278/- as per Rule 8D2(iii) on account of Maxopp Investment Ltd the decision of Hon’ble Supreme Court 2018 (91 ITA. NO.5218/M/2018 A.Y. 2008-09 taxmann.com 154). Since the assessee was not satisfied, therefore, the assessee has filed the present appeal before us.

ISSUE NO.1 & 2 4. Under this issue the assessee has challenged the confirmation of the addition of Rs.11,85,278/- in view of the u/s 14A r.w. Rule 8D(2)(iii). The assessee has raised the two point vide which one is that the strategic investments should be excluded by applying the provisions under Rule 8D(2)(iii) and Secondly the investments which did not yielded exempt income should be excluded to assess the expenditure to earn the exempt income. The Ld. Representative of the assessee has placed reliance upon the decision in his own case for the A.Y. 2008-09 & 2004-05 bearing & 7449/M/2011 dated 25.07.2016. Undoubtedly, in the said decision Hon’ble ITAT Mumbai Bench has ordered to exclude the strategic investment while assessing the expenditure to earn the income in view of the provisions under Rule 8D(2)(iii) but subsequently the decision of the Hon’ble Supreme court has come into existence in which the strategic investment is not liable to be excluded while assessing the expenditure to earn the exempt income in view of the provisions Rule 8D(2)(iii). Accordingly, no strategic investment is liable to be excluded while assessing the expenditure to earn the income in view of the decisions of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd the decision of Hon’ble Supreme Court 2018 (91 taxmann.com 154). Coming to the another plea of the assessee in which the assessee requested to exclude the investment which did not yield exempt income, we find force in this contention and in this regard the decision of ITAT Mumbai bench in ITA. NO.5218/M/2018 A.Y. 2008-09 the case of Piramal Enterprises Ltd. Vs. ACIT (2018) 97 taxmann.com 352 and Welspun India Ltd. Vs. DCIT (2019) 104 taxmann.com 267 are on the file in which it is specifically held that the investment which did not yielded exempt income is not liable to be considered for the investment to earn the exempt income in view of the provisions Rule 8D(2)(iii). The Delhi Special Bench has also decided the issue in favour of the assessee in the case of Vireet Investment Pvt. Ltd. 82 taxmann.com 415. While following the above mentioned decisions, we are of the view that the investment which did not yielded exempt income is not liable to be included in the investment while assessing the expenditure to earn the exempt income in view of the provisions Rule 8D(2)(iii). Accordingly, this issue is decided in favour of the assessee against the revenue.