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Income Tax Appellate Tribunal, “H”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These appeals are filed by Revenue against the order of CIT(A)-51, Mumbai dated 26/08/2016 for A.Y.2012-13 & 2013-14 in the matter of order passed u/s.153A r.w.s.143(3) of the Income Tax Act, 1961.
The following grounds have been taken by the Revenue:- (i) “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the Assessing Officer to exclude the strategic investment made for the purpose of disallowance to be made under Rule 8(2)(ii) & 8D(2)(iii).” (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in directing the Assessing Officer to exclude convertible ITA 6829/Mum/2016 M/s. Wind World Wind Farms (Krishna) Ltd., debentures from the average investment for computation of total income u/s.14A r.w.Rule 8D.”
Rival contentions have been heard and record perused.
The brief facts of the case are that there was a search operation u/s. 132 of the I.T. Act on the assessee, who is engaged in the generation of wind energy, on 14/03/2013. Assessee filed the Return of Income declaring total income of Rs. Nil and Rs. 15,47,55,341/- for A.Ys. 2012-13 and 2013-14 respectively. Assessments for both these years were completed on 27/03/2015 u/s. 143(3) rws 153A determining the total income at Rs. 3,44,69,481 and 1,31,69,701 for AY 2012-13 and 2013-14 respectively after setting off brought forward losses and allowing deduction u/s. 80IA(4)(iv). Book Profit u/s. 115JB was determined at Rs. 14,04,22,724/- and Rs. 14,12,86,263/- respectively for A.Y. 2012-13 and 2013-14 as against Rs. 8,31,58,271/- and Rs. 8,83,30,227/- declared by assessee. Only addition made is u/s. 14A amounting to Rs. 5,74,64,453/- and Rs. 5,29,56,036/- for A.Y. 2012-13 and 2013-14 respectively.
By the impugned order, CIT(A) deleted the disallowance so made by the AO after observing as under:-
Ground No. 1- Exclusion of Strategic Investments - As already discussed, assessee claimed to have made strategic investments of Rs. 2,00,00,000/- in the sister concerns and claimed that the same should have been excluded for the purposes of disallowance u/r. 8D(2)(ii) and 8D(2)(iii). Assessee in support of its arguments relied on the decisions of Hon'ble Delhi ITAT in the case of Inter Globe Enterpriese Ltd. (ITA No. 1032/Del/13), the Hon'ble Mumbai ITAT in the case of Garware Wall Ropes Ltd. (ITA No. 5408/M/12) and Hon'ble Kolkata ITAT in case of REI Agro Ltd. (ITA 1331/KOL/2O11). I have considered the arguments of the assessee and gone through the decisions cited. As held by the Hon'ble Delhi HC ITA 6829/Mum/2016 M/s. Wind World Wind Farms (Krishna) Ltd., in Cheminvest Ltd. 347 ITR 272, strategic investments which are not for the purpose of earning dividend should be excluded for the purposes of calculation of disallowance u/r. 8D. Various other decisions also support the view of the assessee. Following the same, I direct the AO to exclude the strategic investments made by the assessee in the sister concerns while calculating the average value of investments. However, the claim of the assessee that Rs. 2 cr is strategic investments, needs to be factually examined by the AO before allowing the same. In the result, Ground 1 is partly allowed.
Ground 2 - Exclusion of convertible debentures from the average investments - It is claimed by the assessee that it invested an amount of Rs. 95 crs. in convertible debentures on which the assessee is earning interest and the same is being reflected in the Return. On verification of the P&L A/c., it is observed that the assessee credited Rs. 3,80,00,000/- as interest out of the investment in the above convertible debentures. Therefore, I agree with the contention of the assessee that these debentures should be excluded while calculating the average value of- the investment for the purposes of Rule 8D. AO is directed accordingly. Assessee raised another proposition that disallowance u/r. 8D cannot be made in the absence of dividend income earned. Assessee relied on various decisions in support of its contentions. However, I find that this issue is decided against the assessee in case of Garware Wall Ropes in wherein the Hon'ble ITAT held that earning dividend is not necessary for invoking provisions of Sec. 14A. In view of the binding jurisdictional Tribunal decision, this contention of the assessee is dismissed. 8.1 However Ground 2 pertaining to exclusion of income yielding debentures from calculation of average investments is allowed.
Ground 3 is general in nature and does not need any specific adjudication.
Ground 4 - This ground is raised against making addition u/s. 14A for the purposes of computation of book profit. This issue is now settled against the assessee as various judicial forums have held that invoking of provisions of Sec. 14A for the purposes of computation of book profit is valid. AO is however directed to recompute the disallowance u/r. 8D keeping in view the directions while dealing with grounds 1 & 2. In the result this ground is partly allowed.
We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that disallowance of