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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by revenue for Assessment Year [AY] 2012-13 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-5 [CIT(A)], Mumbai, Appeal No. IT-473/14-15/266/15-16 dated 15/02/2016 by raising the following grounds of appeal:-
Infina Finance Private Limited Assessment Year 2012-13 1. The Order of the CIT(A) is opposed to law and facts of the case.
On the facts and circumstances of case, the CIT(A) has erred in holding that while calculating disallowance u/s 14A r.w.r.8D, investments lying as stock in trade should not be included in average investments.
On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to restrict the disallowance u/s 14A r. w. Rule 8D(2)(iii) by excluding the long term investments which are in the nature of strategic investments relying on the decision of ITAT in case of Garware Wall Ropes Ltd (65 SOT 86), without appreciation the fact that the decision of the ITAT has not been accepted by the department and appeal has been admitted by the Hon’ble High Court.”
The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax Circle 2(2)(1), Mumbai [AO] u/s 143(3) of the Income Tax Act on 18/02/2015. None has appeared for assessee despite notice and therefore, we proceed to dispose-off the appeal on the basis of material available on record and after hearing Ld. Departmental Representative [DR]. 2.1 Facts leading to the same are that the assessee being resident corporate assessee engaged as Non-Banking Finance Company (NBFC) was assessed for impugned AY under normal provisions at Rs.113.38 crores after sole disallowance u/s 14A for Rs.1.29 crores as against returned income of Rs.112.08 crores filed by the assessee on 28/09/2012. The solitary issue involved in the appeal is quantum of disallowance u/s 14A. 2.2 During Assessment proceedings, it was noted that the assessee was engaged in the business of investment in shares and securities, financing and granting loans and advances against shares. The assessee earned exempt dividend income of Rs.3,28,05,806/- and made suo-moto Infina Finance Private Limited Assessment Year 2012-13 disallowance against the same u/s 14A for Rs.16,66,810/-. However, not convinced with the working made by assessee, Ld. AO, applying the provisions of Section 14A read with Rule 8D, computed the same u/r 8D(2)(iii) @0.5% of average value of investments. The disallowance, thus worked out, came to Rs.1,46,59,004/- and after adjusting suo-moto disallowance of Rs.16,66,810/- already made by the assessee, the net disallowance came to Rs.1,29,92,194/- which was added to the income of the assessee.
3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 15/02/2016 where Ld. CIT(A), relying upon certain judicial pronouncements, directed Ld. AO to make adjustment in the figures of investments and concluded the matter in the following manner:- 3.4 In the submissions appellant states that from his computation on average investment in stock-in-trade is Rs.2,40,52,76592/- at the end of 31.03.2012 and this amount at the end of 31.03.2011 is Rs.1,06,35,14,887/-. The average investment as included in the computation under Rule 8D(2)(iii) is Rs.1,73,43,95,739/-. According to the appellant this has to be excluded from the computation of disallowance under Rule 8D(2)(iii) in view of Bombay High Court decision in the case of CIT v/s India Advantage Securities Ltd. IT No.1131 of 2013 where it is held that no disallowance can be made for securities held as stock-in-trade. Further, the appellant states that there were strategic investments in Business Standard Ltd. and the said investments at the end of the year was Rs.89,43,57,090/-. Appellant claims that this also should be excluded from the computation of disallowance u/s.14A r.w.r.8D(2)(ii)(iii) r.w.Rule 8D(2)(iii) in view of the decision of Mumbai ITAT in the case of Garware Wall Ropes in I.T.Act,1961 No.5409/2012. 3.5 In view of the above Bombay High Court decision and Mumbai ITAT decision, AO is directed to compute the disallowance u/s 8D(2)(iii) after excluding stock-in- trade average investment of Rs.1,73,43,95,739/- and average strategic investment of Rs.86,40,43,240/-. AO is directed to compute the above disallowance after excluding both the investments and is also further directed to give credit to the appellant’s suo-moto disallowance of Rs.16,66,810/-. The balance amount which arises after excluding above two investments and after giving credit to appellant’s disallowance is upheld. This ground is partly allowed.
Infina Finance Private Limited Assessment Year 2012-13 Aggrieved, the revenue is in further appeal before us.
The Ld. DR supported the stand taken by Ld. AO and drew our attention to the fact that statutory provisions do not envisage any adjustment in the value of investment and therefore, the stand of Ld. CIT(A) was not justified.
We have carefully heard the contentions and perused relevant material on record. The short issue to be decided by us is whether the investments kept as stock-in-trade and strategic investments are to be excluded or not while arriving at disallowance u/s 14A? 6. So far as the question whether Section 14A disallowance is called for in case the shares are held as stock-in-trade is concerned, we find that the issue stood squarely in assessee’s favor by the ratio of following judicial pronouncements:- (i) DCIT Vs. India Advantage Securities Ltd. [ITAT Mumbai order dated 14/09/2012] [as confirmed by Hon’ble Bombay High Court by way of non-admission of revenue’s appeal 2015 79 Taxmann.com 370] (ii) CCI Ltd. Vs. JCIT [Hon’ble Karnataka High Court 2012 20 Taxmann.com 196] (iii) PCIT Vs. State Bank of Patiala [Hon’ble Punjab & Haryana High Court 2017 78 Taxmann.com 3] (iv) CIT Vs. G.K.K. Capital Markets (P.) Ltd. [Hon’ble Calcutta High Court 2017 78 Taxmann.com 341] Respectfully following the ratio of above decisions, we conclude that investments held as stock- in-trade do no attract disallowance u/s 14A.
Infina Finance Private Limited Assessment Year 2012-13 7. Further, Ld. CIT(A) has noted that the assessee has made strategic investment in certain business entities. The stated fact has not been disputed by the revenue. We find that the predominant object of the strategic investment is to earn business profits and not to earn exempt income thereupon and the same also stood covered in assessee’s favor by the decision of this Tribunal rendered in Garware Wall Ropes Ltd. Vs. ACIT [46 Taxmann.com 18]. The revenue could not point out any contrary decision of higher authority to controvert the same. Hence, we do not find any infirmity in the order of Ld. CIT(A).
Resultantly, the revenue’s appeal stands dismissed. Order pronounced in the open court on 17th January, 2018.
Sd/- Sd/- (C. N. Prasad) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 17. 01.2018 Sr.PS:- Thirumalesh आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. आयकर आयु�(अपील) / The CIT(A) 3. आयकर आयु� / CIT – concerned 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,