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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
2 | Page Crest Logistics and Engineers Pvt. Ltd. 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 ुनवाई की तारीख / Date of hearing: 21.01.2020 घोर्णा की तारीख / Date of pronouncement: 03.02.2020 आदेश / O R D E R महावीर स िंह, उपाध्यक्ष / PER MAHAVIR SINGH, VP:
These cross appeals are arising out of the orders of Commissioner of Income Tax (Appeals)-21, Mumbai in Appeal No. CIT(A)-21/IT/137/2013-14, CIT(A)-22/DCIT-10(1)/IT- 66/2010-11 dated 04.08.2014, 10.11.2014, 05.07.2013. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-10(1), Mumbai (in short DCIT/ AO) for AYs 2008-09, 2010-11 vide dated nil 23.03.2010, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’). In
The first ground in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt income in respect of entire investment. For this, assessee has raised the following ground No.1: - “1. The learned Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)] erred in confirming the consideration of entire investments (excluding stock in trade) whether it has yielded dividend income or not while working out disallowance under section 3 | Page Crest Logistics and Engineers Pvt. Ltd. ITA No. 6066,5905/M/2013, 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 14A r.w.Rule 8D under normal computation of income. Your appellant submits that only those investments ought to have been taken which had actually yielded dividend income during the year while working out disallowance under section 14A r.w.Rule 8D and ought to have restricted the disallowance accordingly under normal computation of income.”
3. At the outset, the learned Counsel for the assessee stated that this issue can be set aside to the file of the Assessing Officer with a direction that disallowance of expenses relatable to exempt income under section 14A read with Rule 8D of the Rules can be directed only on the investments which have yielded exempt income but no disallowance under section 14A read with Rule 8D of the Rules in respect of investments which have not yielded any exempt income during the year can be given. For this, assessee relied on ACIT vs. Vireet Investment Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi-Trib.) (SB) (Para 6.22). The learned Sr. Departmental Representative, also agreed for this proposition
4. After hearing both the sides and going through the arguments, we set aside the matter back to the file of the Assessing Officer with a direction that no disallowance under section 14A of the Act read with Rule 8D of the Rules can be made in respect of investment which have not yielded any 4 | Page Crest Logistics and Engineers Pvt. Ltd. ITA No. 6066,5905/M/2013, 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 exempt income during the year in view of the decision of the Special Bench of this Tribunal in the case of Vireet Investment (supra). We direct the Assessing Officer accordingly.
The second ground raised
by assessee in this appeal of assessee is as regards to the order of CIT(A) confirming the disallowance of expenditure relatable to exempt income under section 14A of the Act read with Rule 8D of the Rules while computing the income under section 115JB of the Act in respect of book profit. For this, assessee has raised the following ground No.2: -
2. The learned CIT(A) erred in confirming that the expenditure related to sec 14A which is computed under Rule 8D has to be added for computing book profit.
Your appellant submits that the formula of Rule 8D for making the adjustment in respect of the expenses incurred in relation to exempt income should not have been applied for computing book profit.”
At the outset, the learned Counsel for the assessee stated that this issue is also covered by the decision of Special Bench of this Tribunal in the case of Vireet Investment (supra), wherein it is held that no disallowance can be made under section 14A of the Act read with Rule 8D of the Rules while computing book profit under section 115JB of the Act. The learned Departmental Representative could not rebut the above argument.
5 | Page Crest Logistics and Engineers Pvt. Ltd. 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 7. After hearing both the sides, we respectfully following the decision of Special Bench in the case of Vireet Investment (supra), direct the Assessing Officer to delete the disallowance of expenses relatable to exempt income under section 14A of the Act read with Rule 8D of the Rules while computing book profit under section 115JB of the Act. Hence, this issue of the assessee appeal is allowed.
The next additional ground raised
by assessee is as regards to the disallowance of expenses relatable to exempt income in respect to interest under section 14A of the Act read with Rule 8D(2)(ii) of the Rules. For this, assessee has raised the following additional ground No.1: - “1. On the facts and circumstances of the case, the learned Deputy Commissioner of Income Tax, Circle 10(1), Mumbai (Assessing Officer) ought to have consider the fact that the shareholders fund was more than investment amount which may yield tax free income while computing disallowance under section 14A of the Act r.w.Rule 8D of the Rules. Your appellant submits that the Assessing Officer ought to have consider the fact that the shareholders fund was more than the total investments thereby interest free funds available with the appellant are 6 | Page Crest Logistics and Engineers Pvt. Ltd. 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 more than the total investment amount and hence the disallowance of interest expenses under Rule 8D(2)(ii) of the Rules ought to be deleted.”
9. After hearing both the sides and going through the facts of the case, we noted that this issue is covered by the decision of Hon’ble Bombay High Court in the case of HDFC Bank Ltd. Vs. DCIT (2016) 67 taxmann.com 42 (Bom.), wherein it is held that no interest disallowance can be made under section 14A of the Act read with Rule 8D(2)(ii) of the Rules in case of interest free funds exceeds total value of tax free investments. This matter is restored back to the file of the Assessing Officer for verification of facts.
The next additional ground raised by the assessee and the issue in this appeal of assessee is as regards to the disallowance of expenses relatable to exempt income under section 14A of the Act by restricting the exempt income of `11,85,51,792/-. For this assessee has raised the following additional ground No. 2 :-
“2. On the facts and circumstances of the case, the Learned Assessing Officer ought to have restricted the disallowance under section 14A of the Act to exempt income earned by the Appellant during the year under consideration.
The Appellant submits that the disallowance under section 14A of the Act 7 | Page Crest Logistics and Engineers Pvt. Ltd. 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 ought to have restricted to `11,85,51,792/- i.e. exempt income earned by the Appellant during the year under consideration.”
The learned Counsel for the assessee stated that this issue is squarely covered in the case of assessee’s own case for Assessment Years 2012-13, 2013-14 in ITA No.310 & 311/Mum/2018 and also by the decision of Hon’ble Supreme Court in the case of PCIT vs. State Bank of Patiala (2018) 99 taxmann.com 286 (SC). We noted that now Hon’ble Supreme Court in the case of State Bank of Patiala (supra) has squarely held that the disallowance under section 14A of the Act read with Rule 8D of the Rules in regard to expenses relatable to exempt income can be restricted to the extent of exempt income only. We direct the Assessing Officer accordingly.
Coming to Revenue’s appeal in ITA no. 6823/Mum/2014. The only issue in this appeal of Revenue is as regards to the order of CIT(A) directing the Assessing Officer to disallow expenses relatable to exempt income under section 14A of the Act read with Rule 8D of the Rules after excluding stock in trade. For this, Revenue has raised the following ground: - “
1. On the facts and in the circumstances of the case, the CIT(A) erred ignoring the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. (284 ITR 283) directing the Assessing Officer to allow the necessary relief to the 8 | Page Crest Logistics and Engineers Pvt. Ltd. ITA No. 6066,5905/M/2013, 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 appellant with respect to disallowance under section.14A.”
13. We noted that this issue is now covered in favor of Revenue by the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT [2018] 402 ITR 640 (SC). Once, the issue on exclusion of stock in trade while computing expenditure in relation to exempt income while disallowing under section 14A of the Act read with Rule 8D of the Rules, the Assessing Officer has to consider the decision of Hon’ble Supreme Court in the Case of Maxopp Investment Ltd. (supra), we direct the Assessing Officer accordingly.
14. The next issue in this appeal of assessee in CIT(A) confirming the disallowance of expenses relatable to exempt income in respect of entire investment. For this, assessee has raised the following ground. - “1.a) The learned Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)] erred in confirming the consideration of entire investments (excluding stock in trade) where it has yielded dividend income or not while working out disallowance under section 14A r.w.Rule 8D. Your appellant submits that only those investments ought to have been taken 9 | Page Crest Logistics and Engineers Pvt. Ltd. 7181, 7722 & 6823/M/14 AYs; 08-09 & 10-11 which had actually yielded dividend income during the year while working out disallowance under section 14A r.w.Rule 8D and ought to have restricted the disallowance accordingly.”
We have already deal this issue in Para 3 of this order in hence, respectfully following the same, we direct the Assessing Officer accordingly.
The next issue in this appeal of Revenue in is against the order of CIT(A) deleting the disallowance of expenditure relatable to exempt income under section 14A of the Act read with Rule 8D of the Rules while computing the income under section 115JB of the Act in respect of book profit. For this Revenue has raised the following grounds: - “
1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of s.204,36,18,679/- under section 14Ar.w.Rule 8D of the I.T. rules, 1962.
2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting addition of s.204,36,18,679/- under section 14Ar.w.Rule 8D in computing book profit under section 115JB of the Act.”