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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Ruchi Tamhankar Department by: Shri V. Jenardharan (DR) Date of Hearing: 30.10.2017 Date of Pronouncement: 17.01.2017 O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the above mentioned appeals against the different order passed by the Commissioner of Income Tax (Appeals)- 2, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment years 2008-09 & 2010-11.
The revenue has filed the present appeal against the order dated 29.04.2016 passed by the Commissioner of Income Tax (Appeals)-2, ITA. No. 4818/M/14 & 4819/M/16 A.Ys. 2008-09 & 2010-11 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment years 2008-09.
The revenue has raised the following grounds:- “
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the disallowance made u/s 14Ar,w, r. 8D by including the investments made in partnership firms in respect of which the assessee claimed share of profit as exempt.
2. On facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the disallowance made u/s 14A r.w.r. 8D despite the fact that Circular No.5 of 2014 issued by the CBDT clarifies that even when exempt income is not earned during the year, disallowance u/s 14A can be worked out on the investments which are likely to generate exempt income.” 4, The appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal.”
4. The brief facts of the case are that the assessee filed its return of income for the A.Y. 2008-09 on 30.09.2008 declaring total income to the tune of Rs. Nil. The return was processed u/s 143(1) of the Act. Thereafter, the case was reopened u/s 147 of the I.T. Act, 1961 on the basis of information received from DGIT(Inv.), Mumbai in which the assessee was found to take the hawala entries. Thereafter, the bogus purchase of the assessee was assessed to the tune of Rs.13,85,690/- and disallowance u/s 14A r.w. Rule 8D of the Act was assessed to the tune of Rs.36,63,490/-. The income of the assessee was assessed to the tune of Rs.50,49,180/- under the normal provision of the Act and Rs.6,38,69,468/- u/s 115JB of the Act. The assessee was not satisfied, ITA. No. 4818/M/14 & 4819/M/16 A.Ys. 2008-09 & 2010-11 therefore, filed an appeal before the CIT(A) who allowed the claim of the assessee in connection with the expenses incurred to earn the exempt income u/s 14A r.w. Rule 8D of the Act, therefore, the revenue has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the revenue has argued that even the assessee did not earn any exempt income then in the said circumstances also the disallowance u/s 14A r.w. Rule 8D of the Act is justifiable in view of the Circular No. 5 of 2014 issued by the CBDT, hence, in the said circumstances the finding of the CIT(A) is not justifiable and is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has placed reliance upon the order passed by the CIT(A) in question. Before going further we deemed it necessary to advert the finding of the CIT(A) on record.:- “4.4 I have gone through the submissions of the AR and findings of the AO in respect of addition on account of disallowance of expenses of Rs.36,63,490/- u/s 14A r.w.r. 8D of the Rules. The appellant has objected to the disallowance made by the AO for the following reasons: (i) No satisfaction recorded-The AO has not recorded his dissatisfaction with the correctness of claim of the appellant. The AO ought to have complied with the mandatory requirements of sub-section (2) of Section 14A of the Act. & 4819/M/16 A.Ys. 2008-09 & 2010-11 (ii) Strategic Investments- 100% Investment in shares is made into subsidiaries/group companies as strategic investments where dividend is not the primary purpose. In fact the appellant has not received dividend during the year from the said companies. The appellant has relied on various decisions of High Court and Tribunals. (iii) Investments in partnership firms- (a) The said firms have independent monitoring teams and therefore no expenditure is incurred. (b) Share of profit has already suffered tax in the hands of the firms and therefore is no exempt in absolute sense and amounts to double taxation (Hitesh D Gajaria Vs. ACIT (ITA No. 993/M/2007) dt. 14.11.2008 and Sachin Kapadia Vs. ITO (ITA No. 7888/M/03. (c) The investment in partnership firm are also in the nature of strategic investments to control the affairs of the various firms in the group.”
On appraisal of the above said finding, we noticed that the Assessing Officer nowhere recorded the satisfaction. The CIT(A) has directed to exclude the strategic investment in view of the law settled in Garware Wall Ropes Ltd. Vs. Addl CIT in Mumbai Tribunal and other law which has been mentioned above. Further the CIT(A) has also noticed that the Reserves & Surplus fund of the assessee was to the tune of Rs.122,44,76,638/- whereas the investment was to the tune of Rs.73,26,98,102/- so their investment was well within the own fund of the company. In brief, the CIT(A) excluded the investment made in the subsidiary companies for computing the average value of investment for the purpose of disallowance of u/s 14A of the Act. The ITA. No. 4818/M/14 & 4819/M/16 A.Ys. 2008-09 & 2010-11