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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2013-14. The appeal is directed against the order of the Commissioner of Income Tax-9, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
Fortune Financial Services (India) Ltd. Page 2 of 5 2. The ground raised in this appeal reads as under: “On the facts and in the circumstances of the case and in the law, the Ld.CIT(A) has erred in allowing the appeal of the assessee without considering the recent Hon’ble Supreme Court judgment in the case of Maxopp Investment Ltd. Vs. CIT, Delhi (Civil appeal no. 104-109 of 2015) wherein section 14A applies irrespective of whether the shares are held to gain control or as stock-in- trade”.
3. Briefly stated, the facts are that the assessee claimed dividend income of Rs.4,24,164/- as exempt u/s 10(34) of the Act. During the course of hearing, the Assessing Officer (AO) asked the assessee to submit the working of expenses incurred in relation to earning of above exempt income for disallowance u/s 14A of the Act. In response to it, the assessee submitted that an amount of Rs.4,79,100/- is the notional disallowance u/s 14A read with rule 8D(i) towards direct expenses incurred for earning the exempt income. However, the AO was not convinced with the above explanation of the assessee and worked out the disallowance u/s 14A read with rule 8D and it comes to Rs.85,40,311/-. As the assessee had suo motu made a disallowance Rs.4,79,100/-, the AO made an addition of the balance amount of Rs.80,61,211/-.
4. In appeal before the Ld. CIT(A), the assessee submitted that “no disallowance can be made u/s 14A as investments made are in 100% subsidiaries and is strategic investment. Moreover, strategic investment in group concern is made to have controlling stake and not for earning any exempt income. Also all the investments are financed out of the Fortune Financial Services (India) Ltd. Page 3 of 5 interest-free fund available and interest income earned is in excess of interest expenses”. Also the assessee submitted before the Ld. CIT(A) that the above issue has been decided in its favour by the ITAT in assesse’s own case for A.Y. 2011-12 in dated 18.12.2017. The Ld. CIT(A) followed the said order of the ITAT for A.Y. 2011-12 and allowed the appeal on the above ground filed by the assessee.
Before us, the Ld. Departmental Representative (DR) submits that the Ld. CIT(A) should have followed the judgement of the Hon’ble Supreme Court in Maxopp Investment Ltd. (supra), wherein it is held that section 14A applies irrespective of whether the shares are held to gain control or as stock-in-trade.
On the other hand, the ld. counsel files a copy of the order of the Tribunal in assessee’s own case for A.Y. 2011-12 and A.Y. 2012-13 and submits that the same be followed.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, the assessee’s own funds of Rs.9,936.86 lacs (share capital of Rs.1,287.93 lacs and reserves and surplus of Rs.8,648.93 lacs) are more than its investment of Rs.9,349.75 lacs. Since, interest free funds are sufficient to meet the investment; no disallowance can be made on account of interest u/s 14A in view of the decision in CIT vs. Reliance Utilies & Power Ltd. 313 ITR 340(Bom.) and CIT vs. HDFC Bank Ltd. (ITA 330 of 2012, Bombay High Court). In view of Fortune Financial Services (India) Ltd. Page 4 of 5 the above facts, we delete the disallowance of Rs.37,00,084/- made by the AO under rule 8D(2)(ii). As regards, the disallowance of Rs.43,61,127/- made by the AO under rule 8D(2)(iii), we find that the Tribunal in assessee’s own case for the immediate preceding assessment year 2012-13 has followed the order of the Special Bench of the Tribunal in ACIT vs. Vireet Investment (P.) Ltd. 82 taxmann.com 415, wherein it is held that only income yielding investments were to be considered to arrive at the disallowance u/s 14A. Facts being identical, we follow the said order of the Co-ordinate Bench and direct the AO to re-compute the expense disallowance under rule 8D(2)(iii) by considering only those investments which have yielded exempt income during the impugned assessment year. The assessee is directed to provide the relevant documents/evidence before the AO.