ACIT - 2(3)(1), MUMBAI vs. TATA REALTY & INFRASTRUCTURE LTD., MUMBAI

This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-6 [in short ‘CIT(A)’], Mumbai and arises out of the assessment completed u/s 143(3) r.w.s. 144C of the Income Tax Act 1961, (the ‘Act’).

In a nutshell, the facts of the case are that the Assessing Officer (AO) made a disallowance of Rs.4,66,96,227/- u/s 14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962 (the Rules). During the appellate proceedings before the Ld. CIT(A), the assessee filed a calculation for the purpose of disallowance which included personnel costs, salaries etc. of Rs.9,09,320/-, administrative and other expenses M/s Tata Reality Rs.1,88,275/- and depreciation of Rs.15,180/- totalling to Rs.11,12,776/-. Without prejudice to the above submission, it was submitted before the Ld. CIT(A) that even if formula under Rule 8D(2)(iii) is applied, then the strategic investments as well as the investments which have not yielded tax-free income during the year, shall be excluded while working out the disallowance. We find that the Ld. CIT(A), relying on the case-laws cited by the assessee, directed the AO to exclude strategic investments as claimed, after verification. 3. Before us, the Ld. DR submits that disallowance u/s 14A is applicable to expenditure in relation to exempt income from strategic investment/stock-in-trade, while calculating disallowance under Rule 8D(2)(iii), in view of the recent decision rendered by the Hon’ble Supreme Court in Maxopp Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC). On the other hand, the Ld. counsel of the assessee submits that in view of the order of the Special Bench of the Tribunal in ACIT v. Vireet Investment (P) Ltd. (2017) 165 ITD 27, only those investments are to be considered for computing average value of investment which yielded exempt income during the year. 4. We have heard the rival submissions and perused the relevant materials on record. The issue here is the disallowance made by the AO u/s 14A r.w. Rule 8D(2)(iii) and the same has been addressed in Maxopp Investment Ltd. (supra) and Vireet Investment (P) Ltd. (supra). We find that in the instant case neither the AO nor the Ld. CIT(A) had the benefit of the above two decisions. Also the assessee was not having the benefit of the above two decisions while submitting its case before the above two authorities.