DCIT- 3(3)(1), MUMBAI vs. QUANT CAPITAL PVT. LTD., MUMBAI

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ITA 3345/MUM/2018Status: DisposedITAT Mumbai26 July 2019AY 2014-154 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that disallowance under Rule 8D(2)(iii) should be computed by considering only those investments that yielded exempt income during the year. This aligns with the Special Bench decision in CIT v/s Vireet Investment Pvt. Ltd.

What were the facts?

The Assessing Officer disallowed expenditure under Section 14A read with Rule 8D for earning exempt dividend income. The assessee argued that investments were for controlling stake and no expenditure was incurred for earning exempt income. The Assessing Officer made a disallowance of ₹84,55,299.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D should be made on investments not yielding exempt income. Whether the computation of disallowance under Rule 8D(2)(iii) should be restricted to investments yielding exempt income.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEYAND SHRI N.K. PRADHAN

For Appellant: Shri Deepak M. Jain
For Respondent: Shri D.G. Pansari, Shri Deepak M. Jain

Date of Hearing – 09.07.2019 Date of Order – 26.07.2019

O R D E R PER SAKTIJIT DEY. J.M.

Captioned appeal has been filed by the Revenue against order dated 15th March 2018, passed by the learned Commissioner of Income Tax (Appeals)–8, Mumbai, for the assessment year 2014–15.

2.

The only dispute in the present appeal is with regard to deletion of disallowance made under section 14A r/w rule 8D.

3.

Brief facts are, the assessee, as stated by the Assessing Officer, is a domestic company engaged in the business of investment in 2 Quant Capital Pvt. Ltd. shares and securities. In the course of assessment proceedings, the Assessing Officer noticed that during the year under consideration, the assessee has earned exempt income by way of dividend amounting to ` 17,200. Therefore, he called upon the assessee to explain why disallowance under section 14A r/w rule 8D should not be made towards expenditure incurred for earning exempt income. In response, it was submitted by the assessee that the main intention behind investment in subsidiary is for holding controlling stake and not earning dividend income. Further, it was submitted, no expenditure was incurred by the assessee for earning exempt income. Therefore, it was submitted, no disallowance under section 14A of the Act should be made. The Assessing Officer, however, did not find merit in the submissions of the assessee and proceeded to make a disallowance of ` 84,55,299, under rule 8D(2)(iii) towards administrative expenses. The disallowance made under section 14A r/w rule 8D was also added to the book profit computed under section 115JB of the Act. Being aggrieved of such disallowance/addition, the assessee preferred appeal before the first appellate authority.

4.

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) found that while deciding identical issue in case of assessee’s holding company viz. Reliance Capital Ltd. for the A.Y. 2011–12 and 2012–13,

3 Quant Capital Pvt. Ltd. the issue has been decided in favour of the assessee. Following the same, learned Commissioner (Appeals) directed the Assessing Officer to compute disallowance under rule 8D(2)(iii) by taking into account only those investments on which the assessee had received exempt income during the year.

5.

We have considered rival submissions and perused the material on record. In our view, the direction of the learned Commissioner (Appeals) with regard to the computation of disallowance under section 8D(2)(iii) is fully in conformity with the ratio laid down in the Special Bench decision of the Tribunal, in case of CIT v/s Vireet Investment Pvt. Ltd., [2017] 82 taxmann.com 415 (Del.). In the aforesaid decision, the Special Bench of the Tribunal has held that while computing disallowance under rule 8D(2)(iii), only those investments which have yielded exempt income during the year under consideration can be considered. That being the case, we do not find any infirmity in the decision of the learned Commissioner (Appeals). Accordingly, grounds raised are dismissed.

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