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

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

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.

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,

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.