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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 22.12.2015 passed by the Commissioner of Income Tax (Appeals)-2, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the AY. 2011-12.
The revenue has raised the following grounds: - “1.Whether on facts and in circumstances of the case and in law, the Ld. CIT(A) was correct in stating that the interest portion of Rs.6,32,96,027/- be not considered in computing disallowance u/s 14A r.w. Rule 8D2(ii).
ITA. No. 1945/M/2016 A.Y. 2011-12 Being the final fact finding authority, the Hon’ble ITAT may be requested to set aside the issue for fresh consideration to the filed of the AO. Whether on facts and in circumstances of the case and in law, the Ld. CIT(A) was correct in restricting the disallowance made u/s 14A of the Act r.w. Rule 8D of the Rules to the extent of dividend income from non-trade investment. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
The brief facts of the case are that the assessee filed its return of income on 29.09.2011 declaring a total income to the tune of Rs.43,23,03,929/- for the A.Y.2009-10. The return was processed u/s 143(1) of the Act. The case was selected for the scrutiny. Therefore notice u/s 143(2) of the I.T. Act, 1961 dated 21.09.2012 was issued and served upon the assessee. Thereafter, on account of change of incumbent further notice u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. The assessee company was engaged in the profession of facilities for storage and Terminaling of bulk liquid chemicals, petrochemicals, liquefied gas and oils at Mumbai. The assessee disclosed the investment of Rs.9453.07 lacs in its balance sheet and earned the dividend income of Rs.118.17 lacs exempt u/s 10 of the Act. The assessee disallowed a sum of Rs.1,72,085/-on account of expenses incurred to earn exempt income. The assessee also claimed the interest expenditure of Rs.6,32,96,027/- during the year. Thereafter on seeing the facts and circumstance of the case, the Assessing Officer disallowed the expenditure incurred to earn the exempt income to the tune of Rs.11,073,251/-. The total income of the A.Y. 2011-12 assessee was assessed to the tune of Rs.44,66,77,920/-. The assessee was not satisfied, therefore, filed an appeal before the CIT(A) who allowed the claim of the assessee in connection with the disallowance of u/s 14A r. w. Rule 8D of the Act. Feeling aggrieved, the revenue has filed the present appeal before us.
ISSUE NO. 1
Before discussing the present issue, it is necessary to consider the application for condonation of delay. The appeal has been filed 7 days delay which is not so long. The appeal is required to be decided on merits in the interest of justice, therefore, we condone the delay. Under this issue, the contention of the revenue is that the CIT(A) is not correct in no considering the interest portion of Rs.6,32,96,027/- in computing to disallowance u/s 14A r.w. Rule 8D 2 (ii) of the Act. It is necessary to advert the finding of the CIT(A) on record: - 3.4, I have considered the AG's order as well as appellant's submission in this regard. The appellant has provided year wise details of the investment made and the statement of own funds. As appellant had sufficient funds in the year in which investment were made, the investment would be consider as being made out of own funds. 1 have also gone through the Balance Sheet as on 31.03.2011 wherein the own funds available with the appellant is as under: Share holders funds Schedule As on 3l.03.2O11 {Rs. in lacs)
(a) Capital 1 Rs.3,340.45
(b) Reserves and Surplus 2 Rs.23,093.32 Rs.26,433.77 Investments 6 Rs.9,453.07 Whereas the investments made by the appellant company as per Schedulc-6 is of Rs. 9,453.07 lacs. From the above facts, the investments made by the appellant company is well within the fund available with the appellant A.Y. 2011-12 company of Rs. 26,433.77 lacs. The AR of the appellant also is relying on the judicial decision in the cases of Reliance Utilities & Power Limited (313 1TR 340) and HDFC Bank Limited (366 1TR 505) which are also similar to the appellant's case ad accordingly, I am of the considered opinion that the interest portion of Rs. 6,32,96h027/- cannot be considered in computing the disallowance u/s. HA of the LT, Act. This ground is accordingly decided in favor of the appellant. Applicable Investment The second issue relating to computation of disallowance is the investments that may need to be considered for the purpose of computing the disallowance under Rule BD.The appellant has objected addition of following investment. Particulars Investmen Investmen Average t as on t as on Investmen 31.03.201 31.03.201 t (Rs. In 1 (Rs.in 0 (Rs. In lacs) lacs) lacs) Investment in 6,764.8 1,956.9 4,360.9 subsidiaries 5 8 2 Trade - 433.53 216.77 investments Non-trade 40.03 0.03 20.03 investmets Misc.Investme 3.24 - 1.62 nt Investment in 0.48 0.48 0.48 Government Securities The appellants submission on the same are as under: Investment in subsidiary company 5.3 It is submitted that no dividend has been received by the appellant from any of its subsidiary company during the aforesaid assessment year. As no exempt income is earned therefrom, the same cannot be considered for the purpose of computing the disallowance u/s 14A of the Act. 5.4 Reliance in this connection is placed on the decision of Bombay High Court in the case of CIT(A) V. Delite Enterprise (Income Tax appeal No. 110 of 2009) (Refer pages 397 to 398), wherein the Hon’ble High Court have upheld the decision of the Hon’ble Mumbai Tribunal and held that since no exempt income was earned, there should be no disallowance u/s 14A of the Act. The copy of the said decision is enclosed. 5.5 The aforesaid principle has also been laid down in the following decisions:
ITA. No. 1945/M/2016 A.Y. 2011-12 Decision of the Gujarat High Court in the case of Corrtech Energy Pvt. Ltd. (233 taxman 130) (Refer pages 399 to 401) Decision of the Allahabad High Court in the case of Shivam Motors (p) Ltd) of 2014 (Refer pages 402 to 408) Decision of Punjab and Haryana High Court in the case of Lakhani Marketing fact (1TA No. 970 of 2008) (Refer pages 409 to 415) 56. In addition it is submitted that when the investment in subsidiary companies would be sold, the some could also result /is taxable capital gains, securities transaction fax is paid an the rules proceed. The investment in subsidiaries therefore cannot be regarded as investment generating lax free income as they have potential of generating taxable income. . Accordingly, thee investments are nut includible for the purpose of computation disallowance u/s 14A read with rule 8D of the Income Tax Rules.
Reliance in this connection is also placed on the decision of Mumbai Tribunal its the case of Avshesh Mercantile Mercantile Pvt. Ltd. (HA No. 5779/Mum/2006) (refer pages 371 to 59. Further, your Honour wilt kindly appreciate that investment in subsidiaries have not been made with a view is earn dividends, but with a view to have controlling Make in these Companies. Accordingly, these investments am in the nature of strategic investments 60 Reliance in this connection is placed on the following decision: a. Decision of the Delhi high Court in the case of CIT v. Oriental Securities Engineers (P) Ltd 35 taxmann com 210) (Refer pages 338 to 339) b. Decision of the Mumbai ITAT in the case of Garware Wail Ropes Ltd v. ACIT (65 SOT 86) (Refer pages 340 to 344) c. Decision of the Mumbai ITAT in the case of JM Financial Ltd v ACIT ITA No 4521 /Mum/20 1 2) (Refer pages 345 to d Decision of the Delhi ITAT in the case of Interglobe Enterprises Ltd v DCIT (ITA No. 1 362 &1032/Del/2012 (Refer page 150 to 361) e Decision of the Chennai ITAT in the case of EIH Associated Hotels Ltd. v. DCIT (ITA No. 1503/Mds/20I2) (Refer pages 362 to 370)”
5. On appraisal of the above mentioned finding, we noticed that the appellant has own fund more than investment. The capital and ITA. No. 1945/M/2016 A.Y. 2011-12 reserves fund was to the tune of Rs.26,433.77 lacs. The investment was to the tune of Rs.9,453.07/- lacs. In view of law settled in Reliance Utilities & Power Ltd. (313) ITR 340) and HDFC Bank Ltd. (366 ITR 505) investment portion was not liable to be considered in computing the disallowance u/s 14A r.w. Rule 8D of the I.T. Act. The matter of controversy has rightly been adjudicated by the CIT(A) . Facts are not distinguishable at this stage also. No distinguishable material has been produced before us. In view of the said circumstances, we are of the view that the CIT(A) has rightly adjudicated the matter of controversy on this issue, therefore, we found no ground to be interfere with in this issue. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO. 2 6. Under this issue the revenue has challenged the restriction of disallowance made u/s 14A of the Act r.w. Rule 8D of the Rules to the extent of dividend income from non-trade investment. The Ld. Representative of the revenue has argued that the investment is liable to be considered for the purpose of disallowance u/s 14A of the Act r.w. Rule 8D of the Act. On the other hand, the Ld. Representative of the assessee has refuted the said contention and argued that the Ld. CIT(A) has rightly restricted the disallowance to the extent of dividend income from non-trade investment. It is also argued that the case of the assessee has duly been covered by the decision of the A.Y. 2011-12 Special Bench title as ACIT, Circle 17(1) New Delhi Vs. Vireet Investment P. Ltd. (2017) 82 taxmann.com 415 (Delhi Trib.) Before going further we deemed it necessary to advert the finding of the CIT(A) on record: -