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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-4, Mumbai [in short CIT(A)], in appeal No. CIT(A)-4/DCIT. 2(1)/2013-14 vide dated 06.10.2015. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle 2(1), Mumbai (in short DCIT/ITO/ AO) for the A.Y. 2010-11 vide order
2 | P a g e 26.02.2013 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt income made by AO by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. For this assessee has raised the following ground No. 1: -
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of INR 8,37,28,783 made by the Assessing Officer under section 14A of the Income Tax Act as against the disallowance of INR 8,14,83,241 worked out and submitted by the appellant during the course of assessment proceedings. He erred in not considering the revised working of disallowance and the correct formula given in Rule 8D."
The assessee has also raised the additional grounds No. 3 and 4 for the same issue which read as under: -
"3. On the facts and in the circumstances of the case and in law, the learend CIT(A) erred in confirming disallowance under section 14A of the Act in respect of investments aggregating to ₹ 169,04,35,619 which were strategic investments not made with the intention of earning dividend income.
On the facts and in the circumstances of the case and in law, the learned CIT(A) also erred in confirming the disallowance under section 14A of the Act in respect of investments aggregating to ₹ 79,77,41,492 on which no exempt income was earned by the appellant during the year under appeal."
4. Brief facts are that the assessee is engaged in the business of investment and is a private limited company. The assessee claimed exempt income being dividend amounting to ₹ 20,56,96,269/-. The assessee suo moto computed the disallowance at ₹ 8,28,13,345/-. The AO after going through the Rule 8D computed the disallowance under Rule 8D(2)(ii) being interest paid at ₹ 7,56,10,516/- and under Rule 8D(2)(iii) at ₹ 81,18,267/- as against the suo moto disallowance computed by the assessee at ₹ 8,28,13,345/-, thereby the AO computed further disallowance of ₹ 9,15,438/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) noted the submissions of the assessee and confirmed the action of the AO by noting that from the argument of the assessee that there is concept of total asset and hence there should not be any net asset but did not convince because it is evident from the balance sheet that the assessee has utilized substantial interest bearing funds for fixed assets, which give rise to earning of dividend and as such assessee has incurred the expenditure for earning dividend. According to CIT(A), the interest element to the extent of ₹ 7,56,10,516/- which is related to the investment and therefore, the AO has rightly calculated the disallowance because this interest expenditure relates to investment capable of exempt income. He also confirmed the disallowance made under Rule 8D(2)(iii) being 0.5% of average value of investment. Aggrieved, assessee came in appeal before Tribunal.
Before us, the assessee contended that the computation made by the AO for disallowance under section 14A of the Act and confirmed by CIT(A) had considered the gross value of fixed assets and current assets rejecting the contention of the assessee that fixed assets should be considered under all depreciation and current assets should be considered under all current liabilities. The assessee also contended that there are conflicting views on the aspect of computation of disallowance under section 14A of the Act including investments which are strategic in nature or investments on which assessee have not receive any exempt income during the year under appeal. Now, before us the learned Counsel for the assessee conceded that the issue of investments which are strategic in nature is covered against the assessee by the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT [2018] 402 ITR 640 (SC). However, the learned Counsel for the assessee stated that the investments on which assessee has not received any exempt income during the year under appeal, the issue is again covered in favour of assessee by the decision of Special Bench of this Tribunal of Delhi Special Bench in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB). The learned Counsel for the assessee stated that the assessee has filed revised computation of disallowance under section 14A read with Rule 8D of the Rules, which is enclosed at page 33, wherein disallowance made amounting to ₹ 8,28,13,345/-. The learned Counsel for the assessee stated that the working given by assessee was not considered by the CIT(A) hence, the revised the computation, wherein the assessee has excluded the investment which is not received any exempt income during the year of appeal, is to be excluded.
When these facts were confronted to the learned Sr. Departmental Representative, he stated that the matter can be restored back to the file of the AO for re-computation of disallowance.
After hearing both the sides and going through the facts and circumstances of the case. We are of the view that the disallowance of interest under Rule 8D(2)(ii) and administrative expenses under Rule 8D(2)(iii) should be restricted to the investment giving rise to exempt income and no disallowance should be made on the investments which are not giving taxable income. The AO will look into the computation of disallowance made by assessee i.e. the revised computation filed before us on page 34 of assessee’s paper book. The AO will re-compute the disallowance in term of the above.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of interest on expenditure under section 37(1) of the Act made by the AO to the tune of ₹ 4,36,649/-. 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 learned CIT(A) erred in confirming disallowance of interest expenditure undersection 37(1) to the tune of INR 4,36,649/- .
Without prejudice to the above, the CIT(A) erred in not directing the Assessing Officer to allow the above interest as the above interest has already been considered in disallowance worked out under section 14A of the Income Tax Act.
Without prejudice to the above, the CIT(A) erred in not directing the Assessing Officer that out of the total loans and advances, amount advanced to KCA Holdings Ltd. was at a lower rate of 6 | P a g e interest and therefore, if at all any disallowance of interest is to be made, such disallowance has to be restricted to the advance given to KCA holdings Ltd.” 9. We noted that this disallowance has already been considered by the AO while making disallowance under Rule 8D(2)(ii) and no further disallowance can be made by AO. This disallowance is deleted. 10. In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 21.08.2019.