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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
ORDER Per Shri A.T.Varkey, JM
Both these appeals preferred by the revenue are against the separate orders of Ld. CIT(A)-10, Kolkata dated 07.10.2015 and 08.10.2015 for AYs 2009-10 and 2010-11 respectively. Since grounds are identical and facts are common we dispose of both these appeals by this consolidated order for the sake of convenience by taking the as the lead case and the result of which will be applied in the case of other year also.
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
2 & 100/Kol/2016 Williamson Magor & Co. Ltd, AYs. 2009-10 & 2010-11 with Rule 8D only with reference to the investments which actually yielded dividend income. We find that this direction given the Ld. CIT(A) is in consonance with the judgment of the Hon’ble Supreme Court in the case of Pr. CIT Vs Oil & Industry Development Board (103 Taxmann.com 326)wherein it has been held that only tax free income producing investments can be considered for the purposes of application of Rule 8D under Section 14A of the Act. The LD. DR appearing on behalf of the Revenue did not dispute this proposition. In these circumstances we do not find any infirmity in the direction given to the AO by the Ld. CIT(A).
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,
3 & 100/Kol/2016 Williamson Magor & Co. Ltd, AYs. 2009-10 & 2010-11 and that overall disallowance u/s 14A cannot exceed the amount of exempt income actually earned during the year. In support of this proposition the Ld. AR relied on the decision of Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd vs CIT reported in 372 ITR 694.
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:
1. Dividend Income for the year Rs.1,40,86,392/- 2. Disallowance offered u/s 14A Rs.2,90,083/- 3. Disallowance made by the AO – 8D(2)(ii) Rs.11,75,07,024/- 8D(2)(iii) Rs.99,75,640/- 4. Gross Interest Expenditure Rs.20,47,18,000/- 5. Interest Income Rs.12,46,02,000/- 6. Net Interest Expense Rs.8,01,16,000/-
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.
4 & 100/Kol/2016 Williamson Magor & Co. Ltd, AYs. 2009-10 & 2010-11 After considering the rival submissions, it is observed that the issue involved in these groundsare identical to Ground No.1 to 3 of Department appeal in A.Y. 2009-10. The reasons for making the disallowance in the year under consideration are same as discussed in the assessment order for AY 2009-10. The order of the Ld. CIT(A) was also passed on identical lines on which the relief was allowed in the appellate order for AY 2009-10. In this year 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:
Dividend Income for the year Rs.5,86,65,222/- 2. Disallowance offered u/s 14A Rs.5,15,170/- 3. Disallowance made by the AO – 8D(2)(ii) Rs.13,20,09,035/- 8D(2)(iii) Rs.1,03,03,795/- 4. Gross Interest Expenditure Rs.21,82,61,000/- 5. Interest Income Rs.9,41,12,000/- 6. Net Interest Expense Rs.12,41,49,000/-
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.
Order is pronounced in the open court on 03.05.2018