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Income Tax Appellate Tribunal, “F BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Date of Hearing – 08.01.2019 Date of Order – 30.01.2019 2 Future Corporate Resources Ltd. O R D E R PER BENCH
The appeal by the Revenue and cross objection by the assessee are directed against order dated 30th September 2016, passed by the learned Commissioner (Appeals)–16, Mumbai, for the assessment year 2012–13.
The only dispute raised by the Revenue in this appeal relates to the issue of disallowance of expenditure under section 14A of the Income Tax Act, 1961 (for short “the Act”) r/w rule 8D of the Income Tax Rules, 1962.
Brief facts are, the assessee company is engaged in the business of advertising agency, customer loyalty programmes and investments, telecommunications etc. For the assessment year under dispute, the assessee filed its return of income on 30th September 2012, declaring total income of `16,33,43,445. During the assessment proceedings, the Assessing Officer noticed that in the relevant previous year the assessee has earned substantial exempt income from shares and mutual funds. Whereas, it has disallowed an amount of ` 29,42,39,292 under section 14A of the Act. Subsequently, the assessee filed a revised computation of income reducing the disallowance under section 14A to `.23,46,53,355. Being of the view that disallowance
3 Future Corporate Resources Ltd. made by the assessee is not correct, he called upon the assessee to show cause as to why disallowance under section 14A of the Act should not be made in accordance with rule 8D. In reply, the assessee filed a detailed submission objecting to any further disallowance. However, the Assessing Officer rejecting the explanation of the assessee held that the provisions of section 14A of the Act would apply irrespective of the fact whether shares are held as stock–in–trade or investment. Accordingly, he proceeded to compute the disallowance under rule 8D at ` 90,87,82,000. The assessee challenged the aforesaid disallowance before the first appellate authority.
Before the learned Commissioner (Appeals), the assessee submitted that most of the investments made were in subsidiary associates and joint ventures as a business strategy and not for earning dividend income. Thus, it was submitted that investments in shares cannot be considered as investment activity for earning of dividend income to make disallowance under section 14A of the Act. The learned Commissioner (Appeals), after considering the submissions of the assessee and taking note of certain judicial precedents directed the Assessing Officer to recomputed disallowance under section 14A after excluding strategic investments made in associates/subsidiaries.
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The learned Departmental Representative relying upon the decision of the Hon'ble Supreme Court in Maxopp Investments Ltd. v/s CIT, 91 taxmann.com 154 (SC) submitted, provisions of section 14A r/w rule 8D are attracted to strategic investments. Therefore, disallowance made by the Assessing Officer should be restored.
The learned Authorised Representative submitted, considering the fact that strategic investments are no longer excluded from the purview of section 14A of the Act in view of the decision of the Hon'ble Supreme Court in Maxopp Investments Ltd. (supra), the decision of ld. Commissioner (Appeals) cannot be sustained. However, she submitted, various other submissions made by the assessee before the learned Commissioner (Appeals) against the disallowance made under section 14A r/w rule 8D were not taken note of since he decided the issue only on the applicability of section 14A of the Act to strategic investment. She submitted, other contentions of the assessee that it has sufficient interest free funds to make investments as well as exclusion of investment which have not yielded any exempt income during the year were not dealt by the learned Commissioner (Appeals). She submitted, while deciding similar issue in case of another group concern, the Tribunal has restored the issue to the Assessing Officer to apportion the expenditure between taxable and non–taxable income as held by the Hon'ble Supreme Court in Maxopp
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Investment Ltd. (supra). Thus, she submitted, the issue may be restored back to the Assessing Officer with similar direction.
We have considered rival submissions and perused material on record. Admittedly, learned Commissioner (Appeals) has directed the Assessing Officer to re–compute disallowance under section 14A r/w rule on the reasoning that the investments made by the assessee in shares and mutual funds are strategic investments. Further, the Hon'ble Supreme Court in Maxopp Investments Ltd. (supra) has held that provisions of section 14A of the Act would also apply to investments made in group companies for strategic purpose and shares held as stock in trade. That being the case, the decision of the learned Commissioner (Appeals) on the issue deserves to be set aside. However, while deciding similar issue in case of a group concern for assessment years 2010–11, 2011–12 and 2012–13, in Mum./2016 &Ors., the Tribunal, vide order dated 30th November 2018, has restored the issue to the Assessing Officer with the following observations:–
“19.We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment, the Assessing Officer noted that the assessee has earned the exempt income ofRs. 6,76,06,678/-. The assessee in its computation of income disallowed amount of Rs. 24,96,770/- as disallowance under section 14A. The Assessing Officer asked the assessee to furnish the working of disallowance under section 14A. The assessee furnished its working of disallowance under section 14A. The working of 6 Future Corporate Resources Ltd. assessee was not accepted by Assessing Officer holding that the same is not as per Rule 8D and that only direct expenses relatable to exempt income have been considered for disallowance. The Assessing Officer invoked the provision of Rule 8D and disallowed .5% of average value of investment as per Rule 8D(2)(3). The Assessing Officer worked out the disallowance of Rs. 447.54 Lakhs. In addition to the suo-moto disallowance. On appeal before the ld. CIT(A), the disallowance was restricted to suo-moto disallowance offered by assessee. The ld. CIT(A) deleted the disallowance of Rule 8D (2)(3) by following the decision of his predecessor for Assessment Year 2010-11 & 2011-12, wherein investment in subsidiary, joint venture and associate and debentures were excluded from total investment. The Hon’ble Court in Maxopp Investment Ltd. vs. CIT [91 Taxman.com 154 (SC) held that the applicability of section 14A is based on the theory of apportionment of expenditure between taxable and non-taxable income and the expenditure incurred in acquiring those share (acquired for controlling stake in group company) will have to be apportioned. Therefore, respectfully following the decision of Hon’ble Apex Court, the grounds of appeal raised by Revenue is restored to the file of Assessing Officer to make the disallowance after following the decision of Maxopp Investment Ltd. (supra). Needless to order that before passing the order, the Assessing Officer shall allow the opportunity of hearing to the assessee before passing the order in accordance with law.”
8. In view of the aforesaid decision of the Co–ordinate Bench in assessee’s own case, we restore the issue to the Assessing Officer for deciding afresh keeping in view the ratio laid down by the Hon'ble Supreme Court in Maxopp Investments Ltd. (supra). It is open for the assessee to raise all issues concerning the applicability or otherwise of section 14A r/w rule 8D before the Assessing Officer. The Assessing Officer must not only afford reasonable opportunity of being heard to the assessee but should deal with all the contentions to be raised by the assessee. Ground raised is allowed for statistical purposes.
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In the result, Revenue’s appeal is allowed for statistical purposes.
C.O. no.270/Mum./2017
In view of our decision, apropos the appeal filed by the department being ITA ITA no. 7295/Mum./2016, there is no need for separate adjudication of the cross objection.
In the result, appeal is allowed for statistical purposes and cross objection having become infructuous is dismissed. Order pronounced in the open Court on 30.01.2019