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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आयकर अपीलीय अधिकरण “F” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य एविं श्री राजेश कुमार लेखा दस्य के मक्ष। BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2014-15) The Dy. Commissioner of Income- Videocon Realty & Infrastructures Ltd. tax, circle -3(3)(2), 171-C, 17th Floor, ‘C’ Wing, Room No. 609, 6th Floor, Aayakar Vs. Mittal court, Nariman Pont, Bhavan, M.K. road, Mumbai-400 021 Mumbai-400 020 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AAACV2303E प्रत्याक्षेप सM./ CO No. 165/Mum/2019 (Arising in for AY 2014-15) Videocon Realty & Infrastructure The Dy. Commissioner of Income- Limited, 171-C, 17th Floor,, ‘C’ tax, circle -3(3)(2), Wing, Mittal court, Nariman Pont, Room No. 609, 6th Floor, Aayakar Vs. Mumbai-400 021 Bhavan, M.K. road, Mumbai-400 020 (ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent) अपीलाथी की ओर े / Appellant by : Shri Rajeev Gubgotra, DR प्रत्यथी की ओर े / Respondent by : Shri Mayank Chauhan, AR ुनवाई की तारीख / Date of hearing: 03.09.2019 घोषणा की तारीख / Date of pronouncement : 03.09.2019 AadoSa / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM: In these appeals, one by Revenue and Cross Objection by assessee are arising out of the order of Commissioner of Income Tax 2 | P a g e CO No. 165/Mum/2019 (Appeals)-8, Mumbai in Appeal No. CIT(A)-8/It-595/16-17/15 dated 15.03.2018. The Assessment was framed by the Dy. Commissioner of Income Tax- Circle 3(3)(2), Mumbai (in short DCIT/ AO) for AY 2013-14 vide dated 28.10.2016, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in these cross appeals is as regards to the 2. order of CIT(A) deleting the disallowance of expenses relatable to exempt income made by the AO under section 14A of the Act read with Rule 8D of the Rules, 1962 (hereinafter the ‘Rules’). For this Revenue has raised the following 7 grounds: - “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing netting off of interest income against expenditure incurred for earning exempt income while working of disallowance u/s. 14Aof the I. T Act. 1961, when there is no such provision in Rule 8D of I T. Rules, 1962 which prescribes the method of computing quantum of disallowance for the purpose of Section 14A?
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to recompute the disallowance u/s. 14A r.w.r. 8D taking net interest and reducing the value of strategic investment fit subsidiaries / group companies amounting to Rs. 2,49,00,150/- without appreciating the fact that the Hon'ble High Court of Karnataka in the case of United Breweries 3 | P a g e CO No. 165/Mum/2019 Ltd. v/s. DCIT Central Circle-2(3), Bangalore [2016]72 taxmann.com 102 (Karnataka) has held that section 14A is applicable even where motive in acquiring shares is to obtain controlling interest in companies?
Whether art facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not considering the fact that the amount of disallowance u/s 24A r.w.r. 8D(2)(iii) to the amount of Rs. 1,76,56,955/- made by the AO was on the basis of CBDT Circular No. 5 of 2014 dated 11.02.2014?
Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in directing to compute the disallowance u/s. 14A r.w.r. 8D after reducing the value of investments from where income is taxable or the investments which are for business or strategic reasons while working out the average value of investments whereas in the recent judgement of the Apex Court in the case of M/s. Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104-109 of 2015 dated 12/02/2018, it is held that Section 14A applies irrespective of whether the shares are held to gain control or as stock in-trade?
Whether on the facts and in the circumstances of the case and in law, the ld. 4 | P a g e CO No. 165/Mum/2019 CIT(A) is correct in holding that Assessee's own funds were more than investment made of Rs.353.16 crores relying incorrectly on Assessee's statement of own funds being Rs.854.48 crores when in fact Rs. 787.39 crores is amount payable by assessee to other parties in normal course of business and own fund Field as Share Capital and Reserves was only Rs. 67.09 crores which is much less than the investments made?
Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is correct in deleting the disallowance u/s. 14A read with Rule 8D stating that Assessee's own funds were more than investment made and relying on Hon'ble Bombay High Court's decision in Reliance Utilities & Power Limited whereas the Hon’ble Supreme Court in para 42 of their decision in the case of MIs. Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104-109 of 2015 dated 12/02/2018, have upheld the principle of apportionment in cases where the assessee has mixed funds and interest has been paid?
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the addition made when it was the fact that the Assessee 5 | P a g e CO No. 165/Mum/2019 Company has incurred expenditure only for investment activity and not for the other limbs of' construction work and therefore expenditure for such investment should have been disallowed u/s. 14A r.w.r.8D?”
The assessee in its Cross Objection has raised the following ground: - “1. (a) On the facts and in the circumstances of the case and in law, the learned Lower Authority ought to have accepted a sum of Rs. 27,56,805/- as disallowance calculated by appellant company u/s 14A being fair and reasonable and correct claim having regards to accounts of the appellant company and not doing so is wrong and contrary to the provisions of the Act, and the Rules made there under.
(b) Without prejudice to the above Grounds of Appeal the Lower authority ought to have considered only those investments which have generated exempt income during the captioned assessment year for the purpose of calculating average value of investments in terms of section 14A r.w.r. 8D(2) and not doing so is wrong and contrary to the provisions of the Act, and the Rules made there under.
(c) Without prejudice to the above Grounds of Appeal. the Ld. CIT(A) ought to have 6 | P a g e CO No. 165/Mum/2019 restricted the disallowance made u/s. 14A r w.r. 8D to the extent of exempt income earned by the appellant company and not doing so is wrong and contrary to the provisions of the Act, and the Rules made there under.”
We have heard rival contentions and gone through the facts and 3. circumstances of the case. We noted that the assessee has earned exempt income being dividend income of ₹ 696/- and claimed the same as exempt under section 10(34) of the Act. The assessee computed the suo moto disallowance under section 14A of the Act at ₹ 27,56,805/-. The AO not considering the working of the assessee for making suo moto disallowance and stated that the same is not as per the provisions of section 14A of the Act read with Rule 8D of the Rules and thereby, he worked out disallowance under Rule 8D(2)(ii) of the Rules being interest expenses at ₹ 1,51,31,640/- and under Rule 8D(2)(iii) of the Rules being 0.5% of average value of investment on the opening and closing day of previous year amounting to ₹ 1,76,56,955/- and thereby total disallowance made by AO at ₹ 3,27,88,595/-. The AO after allowing rebate of suo moto disallowance made by assessee of ₹ 27,57,805/- made balance disallowance of ₹ 3,00,31,790/-. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance in regard to interest under Rule 8D(2)(ii) at net interest and reducing the value of strategic investment for calculating average value of investment and directed the AO to follow his predecessors order for AY 2012-13. Hence, he restricted the disallowance. Aggrieved, Revenue came in appeal and assessee supported the order of CIT(A) in its cross objection. Now, before us, the assessee’s Counsel stated that the only exempt income earned by assessee is ₹ 696/- and the same was claimed in its computation. However, he made submission that the disallowance if 7 | P a g e CO No. 165/Mum/2019 restricted to the suo moto disallowance of ₹ 27,57,805/-, will meet the end of justice.
On the other hand, the learned Sr. Departmental Representative 4. supported the order of the Assessing Officer.
5. We noted that the assessee has earned exempt income to the extent of ₹ 696/- and claimed the same in the computation of income. Since, the assessee agreed for restriction of disallowance to the extent of suo moto disallowance made at ₹ 27,57,805/-, we direct the AO to restrict the disallowance to that extent only. This issue Revenue’s appeal is dismissed and the CO is also being supportive, hence dismissed.
Another issue raised by assessee in its CO is as regards to the 6. computation of income under section 115JB of the Act while computing the disallowance under the provisions of section 14A of the Act read with Rule 8D of the Rules being expenses relatable to exempt income. For this assessee has raised the following ground No. 2: -
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of Ld. AO in adding the disallowances made by invoking the provisions of Section 14A read with rule 3D. to the book profit for the purpose of Section 115JB of the Income Tax Act, 1961 over and above Rs. 27,56.805/- added suo-moto by the appellant company, which is wrong and contrary to the provisions of the Income Tax Act, 1961. and the Rules made there under.”