DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1)(1), BANGALORE vs. M/S DECCAN MINING SYNDICATE PVT LIMITED , BANGALORE

The revenue is challenging the decision of Ld CIT(A) in granting partial relief in the disallowance made by the AO u/s 14A of the Act in both the years. The assessee, in its cross objections, seeks deletion of the addition partially confirmed by Ld CIT(A) in both the years.

The assessee is engaged in the business of mining iron ore.

We shall first take up the appeal filed by the revenue for AY 2013-14. The assessee had earned exempt income by way of share income from partnership firms, gain on redemption of mutual fund, dividend income and interest in IIFCL bonds to the tune of Rs.107.75 lakhs. The assessee had disallowed a sum of Rs.5,14,096/- only u/s 14A of the Act. The AO, however, applied the provisions of Rule 8D and accordingly computed disallowance u/s Rule 8D(2)(iii) at Rs.194.91 lakhs. Accordingly, he disallowed a sum of Rs.189.77 lakhs after giving set off of the amount disallowed by the assessee. The Ld CIT(A), by placing reliance on the decision rendered by Hon’ble Delhi High Court in the case of Joint Investments Ltd (372 ITR 694) and also the decision rendered by the co-ordinate bench of ITAT, Bangalore in the case of Tranquil Realty Private Limited (ITA No.185/bang/2016), held that the disallowance cannot exceed the exempted income. Accordingly he confirmed the disallowance u/s 14A of the Act to the extent of exempt income.

We heard the parties on this issue and perused the record. Though the Ld D.R strongly supported the order of the assessing officer, yet we notice that the Ld CIT(A) has followed the decision rendered by the co-ordinate bench in the case of Tranquil Realty Private Limited (supra) and the decision rendered by Hon’ble Delhi High Court in the case of Joint Investments Ltd (supra) in order to hold that the disallowance cannot exceed the amount of exempted income. Accordingly, we do not find any infirmity in the order passed by Ld CIT(A) on this issue.

We shall now take up the appeal filed by the revenue for AY 2014-15. In this year, the assessee had disallowed a sum of Rs.6,29,283/- u/a 14A of the Act. The AO, however, computed the disallowance at Rs.204.08 lakhs u/r 8D(2)(iii) of I.T Rules and accordingly disallowed a sum of Rs.197.78 lakhs after giving set off of amount disallowed by the assessee.

Before Ld CIT(A), the assessee contended that, for the purpose of computing average value of investments under Rule 8D, only those investments which have yielded dividend income should be taken into account. In support of this proposition, the assessee placed its reliance on the decision rendered by Special bench of Delhi ITAT in the case of Vireet Investments (P) Ltd (2017)(82 taxmann.com 415)(SB). The Ld CIT(A) accepted the contentions of the assessee and accordingly directed the AO to disallowance by considering only those investments which have yielded dividend income.

We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has followed the decision rendered by Special bench of ITAT, Delhi in deciding this issue. Accordingly, we do not find any reason to interfere with his decision rendered on this issue.

We shall now take up the cross objections filed by the assessee for both the years under consideration. The Ld A.R submitted that the assessee shall not press the cross objections, if the appeals of the revenue are dismissed. Accordingly these cross objections were taken as heard with the announcement that, if the bench decides that the appeals of the revenue are required to be allowed/partly allowed, then all the appeals shall be fixed for re-hearing. Both the parties agreed to the same. Since we have upheld the orders passed by ld CIT(A) in both the years and accordingly dismissed the appeals of the revenue, keeping in view of the submission of Ld A.R that the assessee shall not be pressing the cross objections, we dismiss the cross objections filed for both the years as not pressed.

In the result, both the appeals of the revenue and both the cross objections filed by the assessee are dismissed.

The Applicant 2. The Respondent 3 . The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

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