DCIT, NEW DELHI vs. RHC HOLDING (P) LTD, NEW DELHI

O R D E R PER M. BALAGANESH, A. M.: The appeal in AY 2009-10, 1. arises out of the ld. Commissioner of Income Tax (Appeals)-XX, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 171/2013- 14/CIT(A)-XX dated 30.10.2014 against the order of assessment passed u/s 92CA(4)/ 143(3) Income Tax Act, 1961 (hereinafter referred to as ‘the Act) dated 28.02.2014 by the Assessing Officer, DCIT, Central Revenue, New Delhi (hereinafter referred to as ‘ld. AO’).

The only issue to be decided in this appeal is challenging the deletion of 2. disallowance u/s 14A of the Act.

M/s. RHC Holding Pvt. Ltd We have heard the ld AR and perused the material available on record. 3. The revenue merely placed an adjournment letter and none was present on behalf of the revenue at the time of hearing.

The assessee earned exempt income and disallowed a sum of Rs. 4. 3,96,63,088/- suo moto in the return of income in accordance with Rule 8D(2)(iii) of the Income Tax Rules. This disallowance was made taking into account 0.5% of average value of investments of the assessee as reflected in the balance sheet. The ld AO considered the investments made in share application money and investments made in stock in trade of the assessee and included those figures also for the purpose of computing disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules, 1962. The ld CIT(A) by placing reliance on the decision of the Mumbai Tribunal in the case of Rainy Investments Pvt. Ltd. vs. ACIT reported in 56 SOT 61 (Mumbai) (URO) held that investments in share application money and stock in trade cannot be considered for the purpose of reckoning the value of investments in term of Rule 8D(2)(iii) of the Rules. We have gone through the said decision of the Mumbai Tribunal wherein it was categorically held as under:-

There is much force in the assessee's argument that 'share application money', to the extent it is actually so, so that it only represents amount/s paid by way of application for allotment of shares, the same cannot be regarded as an investment in shares, or an asset (or asset class) yielding tax-free income, and neither is it capable of yielding any tax-free income. The same would, therefore, have to be excluded in working out the disallowance under rule 8D. Further it is clarified that the exclusion of 'share application money' is not in the least for the reason that it did not yield any tax-free income for the relevant year, but for the reason that it is incapable of any such income.