DCIT 14(3)(1), MUMBAI vs. RELIANCE BROADCAST NETWORK LTD, MUMBAI

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ITA 7255/MUM/2016Status: DisposedITAT Mumbai22 November 2017AY 2012-133 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to delete the disallowance. Investments were in subsidiary companies and growth-oriented mutual funds, which did not yield dividend income.

What were the facts?

The Assessing Officer disallowed expenses under Section 14A for investments made by the assessee in group concerns. The assessee had substantial interest-free funds but the AO believed borrowed funds were used for investments, applying Rule 8D.

What were the issues?

Whether disallowance under Section 14A is warranted when no dividend income is earned and investments are strategic in nature.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “L” Bench, Mumbai

For Appellant: Shri Jitendra Sanghvi
For Respondent: Shri M.V. Rajguru
Hearing: 8.11.2017Pronounced: 22.11.2017

O R D E R Per B.R. Baskaran (AM) :-

The appeal filed by the Revenue is directed against the order dated 19.9.2016 passed by the learned CIT(A)-52, Mumbai and it relates to A.Y. 2012-13. The Revenue is aggrieved by the decision of the learned CIT(A) in deleting the disallowance of 151.19 lakhs made by the Assessing Officer u/s. 14A of the Act.

2.

We heard the parties and perused the record. The assessee is engaged in the business of FM radio broadcasting event management, out of home advertising interactive services. The Assessing Officer noticed that the assessee has made investment in shares of group concerns to the tune of ` 5351.26 lakhs. The assessee did not make any disallowance u/s. 14A of the Act. The Assessing Officer noticed that the assessee was having interest free funds in the form of securities premium account to the tune of ` 37471.28 lakhs. However, he took the view that the same cannot be used for making investment in shares and mutual funds as per provisions of the Companies

2 Reliance Broadcast Network Limited Act. Since the assessee had accumulated losses, the Assessing Officer took the view that the assessee must have utilised borrowed funds for making investments. Accordingly, he computed disallowance u/s. 14A of the Act to the tune of ` 151.19 lakhs by applying the provisions of Rule 8D of IT Rules. The learned CIT(A) deleted the same and hence the assessee has filed this appeal before us.

3.

Learned AR submitted that the assessee has not earned any dividend income and hence no disallowance is called for as per the decision of the Special Bench of the Delhi ITAT in the case of Vireet Investment (P) Ltd. (82 taxamnn.com 415) and also decision rendered by Hon'ble Delhi High Court in the case of Cheminvest Ltd. CIT (378 ITR 33). He further submitted that investments have been mainly made in the subsidiary companies and hence, on that count also, no disallowance u/s. 14A is called for. In this regard, he placed reliance on the decision rendered by the Coordinate Bench in the case of Garware Wall Ropes Ltd. Vs. Addl. CIT (46 Taxamn.com 18). The Learned AR submitted that investment portfolio of the year under consideration consists of investment in the subsidiary companies only. He submitted that the assessee held investments in mutual funds growth plan in the immediately preceding year and the same has been redeemed during the year under consideration. Accordingly, he submitted that the order passed by the learned CIT(A) does not call for any interference.

4.

On the contrary, learned Departmental Representative strongly supported the order passed by the Assessing Officer.

5.

Having heard the rival submissions, we are of the view that the decision taken by the learned CIT(A) in reversing the disallowance made by the Assessing Officer u/s. 14A of the Act does not call for any interference for the reason that the assessee has made investments only in the subsidiary companies, which are strategic in nature and in growth plan of mutual funds, which do not yield dividend. In the case of Garware Wall Ropes Ltd. (supra), it

3 Reliance Broadcast Network Limited has been held that strategic investments have to be excluded for the purpose of computing disallowance u/s. 14A of the Act in which case, there is no requirement to make any disallowance u/s. 14A of the Act. Further it is an admitted fact that the assessee did not receive any dividend income during the year under consideration and in the case of Cheminvest Ltd. (supra) it has been held that disallowance u/s. 14A is not called for when there is no exempt income. In view of the above, we uphold the decision taken by the learned CIT(A) on this issue.

6.

In the result, appeal filed by the Revenue is dismissed. Order has been pronounced in the Court on 22.11.2017.

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