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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAJESH KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “B”, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER Assessment Year: 2014-15 M/s. New Growth Comtrade Pvt. Ltd., Vs. Asst. Commissioner of Sai Chambers, Income Tax-16(3), Next to Syndicate Bank, MUMBAI Santacruz (E), MUMBAI [PAN : AAECN3690G] (Appellant) (Respondent) Appellant By : Shri Suman Kumar, Respondent By : Shri Pritesh Mehta, Date of Hearing : 09-07-2019 Date of Pronouncement : 19-07-2019 O R D E R PER MAHAVIR SINGH, J.M:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax(Appeals)-7, Mumbai, dated 22-01-2018 in Appeal No. CIT(A)-7/IT-48/2016-17. The assessment was framed by the Asst. Commissioner of Income Tax, Circle-16(3), Mumbai, u/s.143(3) of the Income Tax Act, 1961 [herein after referred to as ‘Act’] for the AY 2014-15, vide his order dated 29-12-2016.
Briefly stated facts of the case are that the assessee is a company in the business of providing financial services, filed its return of income on 26-11-2014 declaring net loss of ₹2,28,00,806/-. The case has been selected for scrutiny and accordingly notice u/s.143(2) of the Act was issued and duly served on the assessee.
At the outset, it is stated that assessee has earned exempt income i.e., dividend income to the extent of ₹7,07,857/- from investments in mutual funds and shares which has been claimed as exempt under the provisions of Section 10 of the Act. The short term surplus funds available have been invested by the assessee in Liquid Mutual Funds. The assessee has not done many transactions in the said Liquid Mutual funds and has merely redeemed from the said investment as and when funds were required by the assessee in the normal course of operations. No expenses have been incurred by the assessee for making the aforesaid investment.
With respect to the investment made by the assessee in the shares of Piramal Glass Limited, the said shares have been held as inventory and in the subsequent year when the said shares have been sold, the entire profit from the sale of the said shares has been offered to tax under the head of ‘business income’. The AO has made an addition under Rule 8D of an amount of ₹1,95,72,484/- being the amount disallowed u/s.14A of the Act.
Aggrieved, assessee preferred an appeal before the CIT(A), who partly allowed the appeal, by restricting the disallowance to ₹7,07,857/- u/s.14A r.w.r 8D, by giving the findings at para 8 of his order, as under: “8. Therefore, in the background of the case, Section 14A and Rule 8D are applicable and respectfully following the above binding precedents, the Assessing Officer is hereby directed to restrict the disallowance u/s.14A to the extent of dividend income claimed as exempt i.e. of an amount of ₹7,07,857/-.”
Aggrieved with the said order of CIT(A), now the Revenue is in appeal before us, raising the following grounds: “
1. On the facts and in circumstances of the case and in law, whether the Ld.CIT(A) has erred in restricting the disallowances to ₹7,07,857/- u/s.14A r.w.r.8D of the Income Tax act, 1961 instead of ₹1,95,72,494/-.
2. On the facts and in circumstances of the case and in law, whether the Ld.CIT(A) has erred in considering that the borrowed funds were utilized to acquire the share of Primala Glass Limited.
3. On the facts and in circumstances of the case and in law, whetherthe Ld.CIT(A) has erred in considering dividend from the said investment are merely incidental to the said transaction. Assessee has incurred interest expenses and hence should be considered for purpose of computing disallowance u/s.14A”.
We have heard rival contentions and gone through the facts and circumstances of the case. The CIT(A) has restricted the disallowance to the extent of dividend income. We find that this issue is squarely covered by the decision of the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Ballarpur Industries Limited in Income Tax Appeal No.51 of 2016, wherein this issue has been considered following the judgment of Hon’ble Delhi High Court in the case of Chem invest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held as under:
“On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.”
As this issue is squarely covered, disallowance can be restricted to the claim of exempt income, which is in this year amounting to ₹7,07,857/-. We uphold the order of CIT(A). Hence, this issue of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 19th July, 2019.