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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against the order of ld. Commissioner of Income-tax (Appeals)-56, (hereinafter referred as ld. CIT(A), Mumbai dated 15.06.2017, which in turn arises from the assessment order dated 03.05.2016 framed under section 143(3) r.w.s 144C(3) of Income-tax Act. The revenue has raised the following grounds of appeal:
i) "On the facts, and in the circumstances of the case, the Ld. CIT-(A) erred in directing the AO to exclude the investments made by the assessee in Garware Chemicals Ltd. While computing the disallowance of u/s. 14A read with Rule 80 of the I. T. Rules, 1962." ii) "On the facts, and in the circumstances of the case, the Ld. CIT-(A) erred in deleting the disallowance of interest expenses without appreciating that sub-rule 80(iii) starts with heading "Formula for determination of expenditure" and the three steps under this sub-rule to compute the expenditure in relation to exempt income and shall be applied collectively. 1 Mum 2017-M/s Garware Polyster Ltd.
Therefore, the total disallowance u/s. 14A has to be the aggregate of the amounts determined so by applying three steps together and not in isolation as done by the - Ld. CIT(A)". iii) "On the facts, and in the circumstances of the case, the Ld. CIT(A) erred in ignoring the CBDT Circular NO.5 of 2014 dated 11.02.2014 wherein it has been clarified that the term "includible" in the Heading section 14A of the Act and the Heading to Rule 8D of I.T. Rules, 1962 indicates that for invoking disallowance u/s. 14A, it is not material that the assessee should have earned such exempt income during the financial year under consideration". iv) "On the facts, and in the circumstances of the case, the Ld. CIT-(A) erred in holding that provisions of Sec 14A cannot be imported while computing book profit u/s. 115JB". v) "On the facts, and in the circumstances of the case, the Ld. CIT-(A) erred in allowing set off of unabsorbed depreciation of Rs. 19,76,20,191/- pertaining to A. Y. 2001-02 against business income of current year ignoring the fact that the depreciation loss of A. Y. 2001-02 can be carried forward for set off for a maximum period of 8 years only as held in the case of Mumbai ITAT Special Bench in the case of Times Guaranty Ltd".
At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that all the grounds of appeal raised by revenue are covered either in favour of assessee or against the revenue in assessee’s own case for Assessment Years 2008-099 to 2011-12 in 5083/Mum/2015, 2208/Mum/2014 & 31/Mum/2015 dated 27.12.2018. The ld. AR of the assessee furnished a tabulated chart narrating the grounds of appeal covered either in favour of assessee or against the revenue and copy of decision of Tribunal dated 27.12.2018 for Assessment Year 2008-09 to 2011-12. Mum 2017-M/s Garware Polyster Ltd.
After going through the grounds of appeal
and in the decision of Tribunal, the ld. DR for the revenue agreed that ground no.1 is covered in favour of revenue and grounds no. 2 to 5 are covered in favour of assessee.
4. We have considered the rival submission of both the parties and perused the material available on record. We have also gone through the contents of decision of Tribunal for Assessment Year 2008-09 to 2011-12 dated 27.12.2018. Ground No.1 relates to directing the Assessing Officer to exclude the investment made by assessee in Garware Chemicals Ltd. while computing the disallowance under section 14A r.w.Rule 8D. We have noted that this ground of appeal is covered against the assessee in assessee’s own case for Assessment Year 2009-10 by the order of Tribunal dated 27.12.2018.
5. We have noted that the co-ordinate bench while deciding the appeal for AY 2009-10 followed the decision of Hon’ble Supreme Court in Maxopp Investment dated 12.02.2008, wherein it was held that investment made in group concern as strategical investment is also liable for disallowance under section 14A. Therefore, considering the decision of Hon’ble Supreme Court in Maxopp Investment (supra) this ground of appeal raised by revenue is allowed.
6. Ground No.2 relates to deleting the disallowance of interest expenses under Rule 8D. We have noted that this ground of appeal is covered in Mum 2017-M/s Garware Polyster Ltd. favour of assessee in assessee’s own case for Assessment Year 2008-09 to 2011-12, the Tribunal passed the following order in assessee’s own case for Assessment Year 2008-09 to 2011-12.
“19. Furthermore no interest disallowance can be made u/s 14A of the Act when own funds of the assessee are sufficient to cover the value of investments for this purpose reliance can be placed on the following judicial pronouncement:
1.
1. CIT Vs. Reliance Utilities Ltd [313 ITR 340 (80m)] 2. CIT Vs. HDFC Bank Ltd [366 ITR 505 (Bom)] 3. HDFC Bank Vs. DCIT [383 ITR 529 (Bom)] 20. For the purpose of disallowance u/s 14A of the Act only those investments are to be considered form which exempt income has been received during the year for this purpose reliance is placed on following judicial pronouncement: 1. ACIT Vs. Vireet investment [165 ITD 25 (Del) (SB)] 2. ACB India Vs. ACIT [374 ITR 108 (Del)] 3. CIT vs. Interglobe Enterprises Ltd. (Delhi High Court) 4. M/s. Slyvex cable Co. Pvt. Ltd Vs. DCIT being for A. Y 2008-09 dated 24.02.2016.
5. Syntex Corp Pvt Ltd Vs. ITO being ITA No. 2994/Mum/2012 dated 21.06.2018.
21. In the A.Y 2009-10, we find that assessee was having own funds of Rs. 23,758.60 lakhs against which investment was only to the tune of Rs. 3,810.02 lakhs. Accordingly no disallowance of interest is warranted in terms of judicial pronouncements referred above.
22. Facts and circumstances in the A.Y 2010-11 and 2011-12, wherein the Revenue is aggrieved for deleting the disallowance of interest so made by the A.O u/s 14A of the Act. Respectfully following the reasoning given in the A.Y 2009-10 herein above we do not find any reason to interfere in the order of the Ld. CIT(A) for the A.Y 2010-11 and 2011-12 with regard to deleting disallowance of interest so made u/s 14A of the Act.”
Therefore, considering the decision of Tribunal, we do not find any merit in the grounds of appeal raised by revenue. 4 Mum 2017-M/s Garware Polyster Ltd.
Ground No.3 relates to ignoring the CBDT Circular No. 5 of 2014 dated 22.02.2014. We have noted that this ground of appeal is covered in favour of assessee in assessee’s own case for Assessment Year 2008-09 to 2011-12 wherein the Tribunal has passed the following order:
“17. However, as per our considered view no disallowance is to made if there is no dividend income during the year, in this regard Hon'ble ITAT, Mumbai in the case of Slyvex cable Co. Pvt. Ltd Vs. DCIT in dated 24.02.2016, held as under: "6. We find force in the submission of the assessee that only those investments which would yield dividend and which is exempt should be considered for disallowance under Rule 8D2(iii) of the Act. We also hold that the disallowance u/s 14A should not exceed the dividend income earned by the assessee. We direct the AO to recomputed the disallowance taking only those investments which yield dividend income and apply Rule 8D(2)(iii) and such disallowance should not exceed the dividend income earned by the assessee": 18. In view of the above we direct the A.O to restrict the disallowance u/s 14A in all the years to the amount of exempt income earned by the appellant during the year under consideration. We also find support for this contention in the judgement of the Hon'ble ITAT, Mumbai in the case of Daga Global Chemicals Vs. ACIT in ITA No. 5592/Mum/2012 wherein the assessee had appealed against the excessive disallowance made u/s 14A of the Act. The ITAT subsequently held that even if disallowance u/s 14A of the Act is made, the same shall not exceed the amount of exempt income earned. Relevant extract of the said judgement is reproduced hereunder; "At best; if any disallowance could be made that can be restricted to Rs. 1,485/- which were claimed as demat charges. Disallowance u/s 14A r. w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore stowed": “19. Furthermore no interest disallowance can be made u/s 14A of the Act when own funds of the assessee are sufficient to cover the value of 5 Mum 2017-M/s Garware Polyster Ltd. investments for this purpose reliance can be placed on the following judicial pronouncement:
1.
CIT Vs. Reliance Utilities Ltd [313 ITR 340 (80m)] 2. CIT Vs. HDFC Bank Ltd [366 ITR 505 (Bom)] 3. HDFC Bank Vs. DCIT [383 ITR 529 (Bom)] 20. For the purpose of disallowance u/s 14A of the Act only those investments are to be considered form which exempt income has been received during the year for this purpose reliance is placed on following judicial pronouncement: 1. ACIT Vs. Vireet investment [165 ITD 25 (Del) (SB)] 2. ACB India Vs. ACIT [374 ITR 108 (Del)] 3. CIT vs. Interglobe Enterprises Ltd. (Delhi High Court) 4. M/s. Slyvex cable Co. Pvt. Ltd Vs. DCIT being for A. Y 2008-09 dated 24.02.2016.
5. Syntex Corp Pvt Ltd Vs. ITO being ITA No. 2994/Mum/2012 dated 21.06.2018.
9. Considering the decision of Tribunal in earlier orders as referred above, we do not find any merit in the grounds of appeal raised by revenue.
Ground No.4 relates to computing the book profit under section 115JB on disallowance under section 14A. We have noted that this ground of appeal
is covered by the decision of Tribunal in assessee’s own case for Assessment Year 2008-09 to 2011-12 and by the decision of Special Bench of Delhi Tribunal in Vireet Investment (165 ITR
25. (Delhi SB).
Therefore, considering the decision of Special Bench which was followed in assessee’s own case for Assessment Year 2008-09 to 2011- 12, we do not find any merit in the grounds of appeal raised by revenue.
Ground No.5 relates to disallowance of set off of unabsorbed depreciation pertaining to Assessment Year 2001-02 against the income of current year. We have noted that this ground of appeal
is also covered
6. Mum 2017-M/s Garware Polyster Ltd. in favour of assessee and against the revenue by the decision of Assessment Year 2010-11, wherein the Tribunal passed the following order:
25. For the A.Y 2010-11 the Revenue aggrieved for deleting disallowance of set off of unabsorbed depreciation pertains to the A.Ys 1999-00 and 2000-01. We have considered rival contentions and found that the issue is covered in favour of assessee vide decision of Hon'ble Bombay High Court in the case of CIT Vs. Associated Cables Pvt Ltd dated 03.08.2018 and decision of Hon'ble Gujarat High Court in the case of General Motors India Pvt Ltd Vs. DCIT (354 ITR 244). Respectfully following the above decisions of the Bombay High Court and Gujarat High Court, we do not find any infirmity in the order of the CIT(A) for allowing set off of unabsorbed depreciation pertaining to the A.Ys 1999-00 and 2000-01 similar view has been taken by the Delhi High Court in the case of Motor and General Fine Ltd., reported in 393 ITR 60. Following the above reasons, we do not find any infirmity in the order of the Ld. CIT(A).
Considering the decision of Tribunal in assessee’s own case for Assessment Year 2010-11 dated 27.12.2008. We have further noted that while granting relief to the assessee, the ld. CIT(A) relied upon the decision of his predecessor for Assessment Year 2010-11 & 2011-12, the order of ld. CIT(A) has been affirmed by Tribunal. Therefore, we do not find any merit in the grounds of appeal raised by revenue.
In the result, appeal of the revenue is partly allowed.
Order pronounced in the open court on 27/03/2019.
Sd/- Sd/- N.K. PRADHAN, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 27.03.2019 SK 7 Mum 2017-M/s Garware Polyster Ltd. Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “G” Bench, ITAT, Mumbai 6. Guard File