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Income Tax Appellate Tribunal, “C”, BENCH
O R D E R PER: R.C. SHARMA, A.M. This appeal by the assessee is directed against the order dated 29/03/2018 of ld. CIT(A)-20, Mumbai for the A.Y. 2012-13 in the matter of order passed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the assessee: “1. The Ld. CIT(A) failed to appreciate that the assessee has minimal activities relating to exempt income.
2. The Ld. CIT(A) failed to appreciate that the assessee has made investments in the subsidiary companies to retain management control of the said subsidiaries and not to earn income.
India Infoline Finance Ltd. Vs ACIT 3. The Ld. CIT (A) failed to appreciate that the expenses of the subsidiary companies are being borne by the subsidiary companies themselves and no substantial expenditure is required to be incurred by the assessee for making and maintaining these investments.
4. The Ld. CIT(A) failed to appreciate that that the disallowance on ad hoc basis of 0.5% of average investments is uncalled for and unreasonable.
The ld. CIT(A) failed to appreciate that the assessee has suo-moto disallowed expenses amounting to Rs.15,00,000/- considering the expenses being attributable towards earning dividend income.
Further, Ld CIT(A) failed to appreciate that Hon'ble ITAT in the case of Garware Ropes, has held that it was incumbent on the AO to find out that as to whether the assessee has incurred an expenditure for earning dividend Income. The onus of proving that no expense has been incurred is not on the assessee.
The Ld CIT (A) failed to appreciate that the assessee has invested short term surplus funds in liquid schemes of mutual funds. Since the investments in mutual funds were made on short term basis in liquid mutual funds, no expense has been incurred for making such investments.
The appellant craves leave to amend, alter, vary or delete any of the above grounds of appeal.
2. Rival contentions have been heard and record perused. The facts in brief are that the assessee is engaged in the business of lending and investment activities. During the course of assessment u/s 143(3), the A.O made a disallowance by invoking the provisions of Sec. 14A of the Act by applying Rule 8D of the Rules. It was the allegation of the A.O that the assessee was in receipt of dividend income of Rs.29.79 crores, which was claimed as exempt. Accordingly, he computed the disallowance of Rs.4.19 lacs. By the impugned order, the CIT(A)
India Infoline Finance Ltd. Vs ACIT affirmed the action of the A.O, against which assessee is in further appeal before us. At the outset, the ld. A.R placed on record the order of Tribunal in assessee’s own case for A.Ys 2009-10, 2010-11 and 2011- 12, wherein under similar facts and circumstances, the matter was restored back to the file of the A.O for deciding afresh in terms of the directions given by the Tribunal in the order dated 25.07.2014.
We have carefully gone through the order of the Tribunal for A.Y 2009-10, wherein under similar facts and circumstances, for deciding the quantum of disallowance to be made u/s. 14A of the Act, when the assessee was having his own sufficient funds, the matter was restored back to the file of the A.O. The precise observation of the Bench was as under :-
“5. We have considered the rival submissions as well as relevant material on record. We note that the Assessing Officer has made the disallowance of Rs. 1,89,85,307/- on account of interest expenditure u/s 14A by applying Rule 8D. The assessee has brought out the details before us showing the assessee’s own fund is Rs. 1208 crore against the investment of Rs. 402 crores, therefore, the assessee contended that the assessee’s own fund is more than sufficient for the investment during the year. Prima facie it appears that the assessee’s own fund is much more than the investment. Further the borrowings of the assessee is for a short term ranging from 30 days to 90 days in most of the cases. The assessee has filed the details under which the assessee has raised the funds through NCD, unsecured debentures for 89 days, 88 days and 30 days respectively. It is clear from the short tenure of the borrowings that the same cannot be used for the purpose of long term investment which is in the 100% subsidiary of the assessee, therefore, the disallowance made by Assessing Officer without examining all these aspects that the assessee’s own fund and interest paid on short borrowings cannot be approved. It is pertinent to note that when most
India Infoline Finance Ltd. Vs ACIT of the investment are in the subsidiaries of the assessee then these aspects are crucial and relevant aspects for making disallowance u/s 14A. Since the Assessing Officer has not examined the issue in the light of these facts as discussed above, therefore, the issue of disallowance of interest as well as the administrative expenses requires to be reconsidered in the light of fact that the majority of the investment is in the 100% subsidiary and further the disallowance as computed under Rule 8D cannot exceed the actual expenditure which could be attributable for earning the dividend income from the susidiary. We note that the administrative and other expenses includes advertisement, rent, provisions for bad and doubtful debts, legal and professional fee, certification expenses which could be attributable for earning the dividend income from the investment made in the 100% subsidiaries. Since the investment is a long term investment and was made in the earlier years and, therefore, no decision making process is said to be undertaken during the year for making this investment. Accordingly in view of the above discussion and in the facts and circumstances of the case, the issue of disallowance u/s 14A is set aside to the record of Assessing Officer for reconsideration after considering all the facts and aspects discussed above and in the light of decision of this Tribunal in the case of Garware Wall Ropes Ltd. (supra) 6. In the result appeal of the assessee is allowed for statistical purposes.”
During the year under consideration also, we find that disallowance has been made on the plea that interest-bearing funds have been diverted for earning exempt income, whereas the claim of the assessee was that it has its own funds much more than the investment so made, therefore, following the proposition laid down by our co- ordinate bench in assessee’s own case, we restore the matter back to the file of the A.O for deciding afresh in terms of the directions given by the Tribunal in its order dated 25.07.2014.
India Infoline Finance Ltd. Vs ACIT 5. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 18th September, 2019.