DCIT, CIR-6(2), KOLKATA, KOLKATA vs. M/S WILLIAMSON MAGOR & CO. LTD., KOLKATA

We first take up the appeal in for AY 2009-10. The Grounds raised by the Revenue in the appeal are as follows:

From the above grounds it is noted that the main grievance of the Revenue is against the action of the Ld. CIT(A) directing the AO to re-compute the disallowance u/s 14A read

We however note that while deciding the ground against the disallowance u/s 14A read with Rule 8D, the Ld. CIT(A)had entirely excluded the strategic investments held by the assessee company on the premise that Rule 8D does not apply to investments held in group/associate companies. Although the Revenue has not specifically disputed this position but both the parties fairly agreed that the issue of investments in group / subsidiary companies for strategic business purposes vis a vis the applicability of provisions of section 14A of the Act are now settled in favour of the Revenue by the recent decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs CIT reported in (2018) 402 ITR 640 (SC). Hence the applicability of provisions of Section 14A of the Act vis-à-vis strategic investment in shares cannot be ruled out in the instant case. The Ld. AR appearing on behalf of the assessee however claimed that although Section 14A may be applicable to strategic investments but he urged that while working out the proportionate interest disallowance as per Rule 8D(2)(ii), the AO ought to have considered the ‘net’ interest (after netting off interest received from interest expenditure) and not the ‘gross’ interest amount should have been considered by the AO. In support of this proposition, he relied on the decision of the judgment of the Hon’ble Gujarat High Court in the case of Pr.CITVsNirma Credit & Capital Pvt Ltd (300 CTR 286). The Ld. AR further submitted that even with regard to strategic investments, the disallowance u/s 14A read with Rule 8D has to be restricted only to the investments, which actually yielded dividend income during the year,

We have heard the rival submissions of the parties. It is noted that the position of dividend income, disallowance offered u/s 14A in the return of income, interest income & expense for the relevant year is as follows:

Having regard to the above factual position, representatives of both the parties fairly agreed that the disallowance u/s 14A cannot under any circumstance exceed the dividend earned by the assessee which was Rs.1,40,86,392/-. Reliance in this regard is placed on the decision the Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd vs CIT (supra). Since the assessee itself had voluntarily disallowed a sum of Rs2,90,083/-, we restrict the further disallowance u/s 14A to Rs.1,37,96,309/-. Accordingly the appeal of the Revenue stands partly allowed.

Now we take up the appeal in for AY 2010-11. The Ground Nos. 1 to 3 raised in this appeal are identical grounds involved in with the AY 2009-10 and the main grievance of the Revenue concerns the disallowance u/s 14A read with Rule 8D.

Therefore, following our conclusions drawn in A.Y. 2009-10, since the assessee itself had voluntarily disallowed a sum of Rs5,15,170/- u/s 14A, we direct the AO to restrict the further disallowance u/s 14A to Rs.5,77,50,052/-. Accordingly this appeal of the Revenue stands partly allowed.

In the result, both the appeals of the Revenue stand partly allowed.