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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against the order dated 24/07/2014 passed by the Commissioner of Income Tax (Appeals)-14, Mumbai, for the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee company engaged in the business of trading, filed its return of income for the relevant assessment year declaring nil income, after claiming current year’s loss of Rs. 66,99,702/-. Since, the case was selected for scrutiny notices u/s 143 (2) and 142 (1) were served on the assessee. In response thereof the authorized representative of the assessee appeared before the AO and furnished the details called for by the AO.
2 Assessment Year: 2010-11 It was noticed that assessee had received an amount of Rs. 3,79,213/- and claimed the same as exempt u/s 10(34) of the Act. After hearing, the AO computed the disallowance of expenditure u/s 14A read with Rule 8D as under:-
1. 1. Under Rule 8D (ii) Rs. 26,52,745/- 2. Under Rule 8D(iii) Rs. 51,08,570/-. Total Rs. 77,61,315.
3. Since, the assessee had made suo moto disallowance of Rs. 1,63,200/- in the computation, the AO restricted the addition to Rs. 75,98,115/-.
Aggrieved by the assessment order, the assessee carried the matter to the Ld. CIT (A) in first appeal. The Ld. CIT (A) after hearing the assessee, partly allowed the appeal and directed the AO to modify the computation u/s 14A read with Rule 8D.
Still aggrieved, the assessee has preferred this appeal before the Tribunal on the following effective ground:-
Under the facts and in law, the Learned CIT (A), has erred in confirming disallowance expenses u/s 14A r.w.r. Rule 8D (2)(iii), ignoring the disallowance of Rs. 163,200/- made by the appellant.
The assessee has further raised an additional ground which reads as under:- “While computing the book profit u/s 115JB, the learned Dy.CIT was not justified in adding an amount of Rs. 75,98,115/- as disallowance u/s 14 A r.w. Rule 8D”
Before us, the Ld. counsel for the assessee submitted the additional ground raised
is purely legal and does not require any fresh verification of the Facts. After hearing the Ld. Departmental Representative (DR), we 3 Assessment Year: 2010-11 admitted the additional ground in view of the law laid down by the Hon’ble Supreme Court in NTPC Ltd. vs. CIT 299 ITR 383 and allowed the Ld. counsel to argue on both the grounds. On merits the Ld. counsel submitted that since the assessee has made suo moto disallowance of Rs. 1,63,200/-, the Ld. CIT (A) has wrongly upheld the disallowance made u/s 14A read with Rule8D(2)(iii) of the Income Tax Rules. The Ld. counsel further submitted that as per the law laid down by the Hon’ble Delhi High Court in Joint Investment Pvt. Ltd. Vs. CIT 372 ITR 694 (Del), Hon’ble Punjab and Haryana High Court in CIT vs. Empire Package P. Ltd. 286 CTR 457 (P & H) and Hon’ble Madras High Court in Tecpro System Ltd. vs. Union of India, the disallowance u/s 14A cannot exceed dividend income. Further, the Ld. Counsel submitted that provisions u/s 14A of the Act do not apply to strategic investments in group/subsidiaries companies in view of the decision of Mumbai Tribunal in Garware Wall Ropes Ltd. vs Addl. CIT 65 SOT 86 (Mum-Trib), J M Financial Ltd. v Add. CIT, Asst. CIT v Smart Chip Ltd. ITA No 1923/Mum/2012 and Twinkle Enviro Tech Ltd. v DCIT, ITA No 1752 to 1754/Mum/2013.
8. On the other hand, the Ld. (DR) relying on the order passed by the Ld. CIT (A) submitted that the Ld. CIT (A) has rightly upheld the disallowance made by the AO under section 14A of the Act read with Rule 8D(2)(iii) as the disallowance has been made in accordance with the provisions of the law.
We have heard the rival submissions and also gone through the material on record including the cases relied upon by the assessee. One of the grievance of the assessee is that The Ld. CIT (A) has wrongly confirmed the disallowance made by the AO u/s 14A of the Act read with Rule 8D(iii) of the Income Tax Rules 1962. So far as disallowance u/s 14A read with 4 Assessment Year: 2010-11 Rule 8D(2)(ii) is concerned we notice that the Ld. CIT(A) has partly allowed this ground of appeal by issuing direction to the AO to exclude investment in PMS, Debentures of Citi Finance Consumer Finance Property, Painting and sculpture, venture/Pvt. Equity as they will generate taxable income and not exempt income. Therefore the same cannot be considered for computation of average value of investment generating exempt income. So far as the disallowance u/s 14A read with Rule 8D (2)(iii) is concerned the Ld. CIT (A) has upheld the findings of the AO holding that the argument of Ld. AR regarding apportionment of staff and other expenses is dismissed as no documentary evidence to substantiate the same has been produced.
The AO has worked out the disallowance at Rs. 51,08,570/- under Rule 8D(2)(iii), whereas the assessee has claimed the exempt income of Rs. 3,79,213/-. In the light of the judgment of the Hon’ble Delhi High Court passed in Joint Investments Pvt. Ltd. the disallowance cannot exceed the exempt income claimed by the assessee. Hence, we set aside this issue to the file of AO for determining the amount of disallowance in accordance with the law laid down by the Hon’ble Delhi High Court in Joint Investments Pvt. Ltd. (supra). We further direct the AO to given credit of suo moto disallowance made by the assessee while computing the amount of disallowance. Hence, we allow this ground of appeal for the statistical purposes.
So far as the additional ground is concerned, the Special Bench of Delhi ITAT in ACIT vs. Vireet Investments Pvt. Ltd. for the A.Y. 2008-09, has held that the computation under clause f of explanation-I to section 115JB (2) is required to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income Tax Rules, 1962. The Bench has further held that only those 5 Assessment Year: 2010-11 investments are to be considered for computing the average value of investments, which yield exempt income during the year. We, therefore, restore this issue to the file of the AO for deciding afresh in accordance with the decision of ITAT, Delhi Bench aforesaid. Hence, this ground of appeal is allowed for the statistical purposes.
In the result, appeal filed by the assessee for assessment year 2010-2011 is partly allowed.