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PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeal by revenue and cross objections therein by assessee are directed against the separate orders of ld. Commissioner of Income-tax (Appeals)-49 [hereinafter referred as ld CIT (A)], Mumbai dated 09.01.2018 for Assessment Year 2011-12 & 2012-13. The assessee as well as revenue has raised common grounds of appeal, therefore, both the appeals and cross objections were clubbed, heard and are decided by a consolidated order. In appeal for Assessment Year 2011-12, the revenue has raised the following grounds of appeal:
a) "Whether, on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in restricting the disallowance u/s 14A to the dividend income of Rs. 17,012/- instead of Rs. 37,76,098/- worked out by the AO as per Rule 8D, even when Hon'ble Bombay High Court has upheld the constitutional validity of Rule 8D in case of Godrej Boyce & MFG. Co. vs. ACIT.” b) “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in restricting the disallowance u/s 14A to the dividend income of Rs. 17,012/- instead of Rs. 37,76,098/- worked out by the AD as per Rule 8D, even when such restriction is contrary to statutory provisions and CBDT's Circular No. 5 of 2014 dated 11.02.2014 which provides for , 2297 Mum 2018 & C.O. 89 & 90 Mum 2019 M/s Pan India Network Infravest Ltd. disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income". 2. In Cross Objections, the assessee has raised the following grounds of appeal:
Without prejudice to the order of the Commissioner of Income Tax (Appeals)- 49 [hereinafter referred to as "the CIT(A)], wherein the CIT (A) directed to restrict the disallowance under section 14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") read with Rule 8D of the Income-Tax Rules, 1962 (hereinafter referred to as "the Rules") to the extent of exempt income amounting to Rs. 17,012/-, the Respondent raises the following cross- objections:
1. 1. The Assessing Officer (hereinafter referred to as ''the AO) erred in making disallowance of Rs. 34,76,098/- under section 14A read with Rule 8D(2)(iii) without giving any specific finding or recording any dissatisfaction with the claim made by assessee in the return of income.
2. The AO erred in disallowing expenses of Rs. 34,76,098/- under section 14A read with Rule 8D(2)(iii) without establishing any nexus between expenses and exempt income 3. The AO/CIT(A) failed to appreciate that for the purpose of computing disallowance under section 14A under Rule 8D(iii) only average value of opening and closing investment which have earned exempt income ought to be considered. The AO/CIT(A) failed to appreciate that since none of investment forming part of opening or closing value of investments have earned income, no disallowance under section 14A r.w. Rule 8D(2)(iii) can be made. Infact, even the disallowance of Rs. 17,012/- confirmed by the CIT(A) requires to be deleted.
4. The AO/CIT(A) failed to appreciate that disallowance u/s 14A read with Rule 8D could not be added to book profit u/s 115JB of the Act.
3. At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that tax effect involve in the present appeal is less than the prescribed monetary limit of fixed by CBDT vide Circular No. 3 2297 Mum 2018 & C.O. 89 & 90 Mum 2019 M/s Pan India Network Infravest Ltd. dated 11.07.2018, therefore, in view of the said Circular, the appeal of the revenue is liable to be dismissed. Th. Ld AR further submit that he is not pressing the grounds of cross objection raised by assessee.
4. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that the Assessing Officer while passing the assessment order besides the other additions/disallowance, disallowed Rs. 34,76,098/- under section 14A being .5% of average value of investment on the first day and the last day of previous year. On appeal before the ld. CIT(A), the CIT(A) restricted the disallowance to the extent of exempt income i.e. Rs. 1,701/-.
We have further noted that tax effect involved in the grounds of appeal raised by revenue is only Rs. 10,68,858/-, therefore, considering the contents of CBDT Circular No Circular No. 3 dated 11.07.2018 the grounds of appeal raised by revenue are dismissed as tax effect involved in the appeal is less than Rs. 20,00,000/-.
6. The ld. AR of the assessee has already submitted that he is not pressing ground of appeal
raised in the cross objections. Therefore, the cross objections raised by assessee are also dismissed. for A.Y. 2012-13
7. The revenue has raised the following grounds of appeal: , 2297 Mum 2018 & C.O. 89 & 90 Mum 2019 M/s Pan India Network Infravest Ltd. a) "Whether, on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in restricting the disallowance u/s 14A to the dividend income of Rs. 82,147/- instead of Rs. 14,05,94,100/- worked out by the AO as per Rule 8D, even when Hon'ble Bombay High Court has upheld the constitutional validity of Rule 8D in case of Godrej Boyce & MFG. Co. vs. ACIT.” b) “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in restricting the disallowance u/s 14A to the dividend income of Rs. 82,147/- instead of Rs. 14,05,94,100/- worked out by the AD as per Rule 8D, even when such restriction is contrary to statutory provisions and CBDT's Circular No. 5 of 2014 dated 11.02.2014 which provides for disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income".
In cross objections, the assessee has raised the following grounds of appeal:
Without prejudice to the order of the Commissioner of Income Tax (Appeals)- 49 [hereinafter referred to as "the CIT(A)], wherein the CIT (A) directed to restrict the disallowance under section 14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") read with Rule 8D of the Income-Tax Rules, 1962 (hereinafter referred to as "the Rules") to the extent of exempt income amounting to Rs. 82,147/-, the Respondent raises the following cross- objections:
1. 1. The Assessing Officer (hereinafter referred to as ''the AO) erred in making disallowance of Rs. 14,05,91,722/- under section 14A read with Rule 8D(2)(iii) without giving any specific finding or recording any dissatisfaction with the claim made by assessee in the return of income.
2. The AO erred in disallowing interest of Rs. 2,378/- and expenses of Rs. 14,05,91,722/- under section 14A read with Rule 8D(2)(ii( & (iii) without establishing any nexus between expenses and exempt income 3. The AO/CIT(A) failed to appreciate that for the purpose of computing disallowance under section 14A under Rule 8D(iii) only average value of , 2297 Mum 2018 & C.O. 89 & 90 Mum 2019 M/s Pan India Network Infravest Ltd. opening and closing investment which have earned exempt income ought to be considered. The AO/CIT(A) failed to appreciate that since none of investment forming part of opening or closing value of investments have earned income, no disallowance under section 14A r.w. Rule 8D(2)(iii) can be made. Infact, even the disallowance of Rs. 82,147/- confirmed by the CIT(A) requires to be deleted.
The AO erred in disallowing a sum of Rs. 14,05,91,722/- although the total expenditures claimed by assessee was only Rs. 4,84,16,152/- (excluding depreciation). He further failed to appreciate that depreciation claimed by the assessee cannot be a subject matter of disallowance under section 14A.
5. The AO erred in taking into consideration investments of Rs. 5,477 crores in convertible debentures of Essel Infraprojects Limited, converted into equity shares at the fag end of the year i.e. on 30.30.2012, while computing disallowance under section 14A with reference to Rule 8D.
The above cross objections are without prejudice to each other.
At the outset of hearing, the ld. AR of the assessee submits that the grounds of appeal raised by revenue is also covered against the revenue by the decision of Hon’ble Delhi High Court in Chem Investment Ltd. vs. DCIT (ITA No. 749 of 2014 dated 2nd September 2015) and PCIT vs. Caraf builders & Constructions (P.) Ltd. (101 taxmann.com 167 (Del.) and decision of Mumbai Tribunal in M/s Aptech Ltd. vs. DCIT in dated 13.02.2018. The ld. AR of the assessee further submits that in view of the fact that the ground of appeal raised by revenue is covered in favour of assessee. Therefore, he is not pressing the grounds of cross objection raised by the assessee.
On the other hand, the ld. Departmental Representative (DR) for the revenue supported the order of Assessing Officer. 6 2297 Mum 2018 & C.O. 89 & 90 Mum 2019 M/s Pan India Network Infravest Ltd.
We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that in the computation of income, the assessee claimed to have earned dividend income of Rs. 82,147/-. We have noted that while passing the assessment order, the Assessing Officer made disallowance under section 14A of Rs. 14,05,94,100/- being .5% of average value of investment. The ld. CIT(A) restricted the disallowance to the extent of exempt income by following the decision of jurisdictional Tribunal in Daga Global Chemical P. Ltd. in ITA No. 5592/Mum/2012. Before us, the ld. AR of the assessee has strongly relied upon the decision of Hon’ble Delhi High Court in Chem Investment ltd. (supra) and decision of Hon’ble Bombay High Court in PCIT vs. Caraf builders & Constructions (P.) Ltd. (supra), wherein it was held that disallowance under section 14A cannot exceed the exempt income of the relevant Assessment Year. Thus, we do not find any illegality or infirmity in the order passed by ld. CIT(A). Similar view was taken by this combination us in M/s Aptech Ltd. (supra). No contrary fact or law is brought to our notice to take other view.
In the result, appeals of the revenue as well as cross objections of the assessee are also dismissed.
Order pronounced in the open court on 22/04/2019.
Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: 22 .04.2019 7 2297 Mum 2018 & C.O. 89 & 90 Mum 2019 M/s Pan India Network Infravest Ltd. SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “C” Bench, ITAT, Mumbai 6. Guard File