DCIT 2(3)(2), MUMBAI vs. SUBHKAM VENTURS (I) P.LTD, MUMBAI

At the outset, we observe that there is a delay of 25 days in filing the appeal. The ld.DR was put a query to this effect which was replied by submitting that there is no delay in filing of appeal as the date has wongly 2 been mentioned in form 16. The ld. DR also vide letter No. DCIT- I(3)/(1)/ITAT-J Bench/2017-18 dated 14.11.2017 stated that there is no delay in filing the appeal the appellate order from CIT(A) was received on 22.3.2016 and the appeal was filed on 17.5.2016 which is well within the time limit as prescribed under the Act. However, it was pointed out that inadvertently the date of receipt of the appellate order was wrongly mentioned in Form No.36 as 22.2.2016 instead of 22.3.2016.

After considering the explanation offered by the ld. DR, we are of the opinion that there is no delay in filing the appeal. We, therefore take the appeal for hearing on merits by ignoring the objection raised by the registry.

Brief facts of the case are that in the assessment proceedings, the AO noticed that the assessee has disallowed an amount of Rs.2,65,203/- under section 14A of the Act. The AO, not satisfied with the explanation of the assessee, invoked the provisions of the section 14A of the Act read with rule 8D by following the decision of the jurisdictional High Court in the case of Daga Capital Management PVT Ltd (2009) 117 ITD 169 (Mum) SB, working out the disallowance at Rs.62,55,244/- by framing the assessment under 3 section 143(3) vide order dated 27.2.2015 assessing the total income at Rs.1,21,83,22,385/-.

In the appellant proceedings, the ld.CIT(A) allowed the appeal of the assessee by observing and holding as under : ―4.4 I have carefully considered the facts of the case and submission made by the Ld. AR. I have also gone through the decisions relied on by the AO and Ld. AR. The appellant has relied on the decision of the Ld. CIT(A) in its own case for A.y'2010-11. The appellant has voluntarily disallowed Rs.2,65,203/- whereas AO has disallowed Rs.60,91,612/-. Once the AO is not satisfied with the suo moto disallowance of the assessee, he can proceed with the application of rule 8D. Let us now consider the disallowance needed under rule SO. Appellant has initially offered total disallowance of Rs.2,65,203/-. This has now been revised to Rs.18,05,609/-. The disallowances under rule 8D(2)(i), 8D(2)(ii) and 8D(2)(iii) are Rs.29,338/-, Rs.38,,315/- and Rs.17,37,956/- respectively. On the other hand, AO has disallowed Rs.29,33S/-, Rs.1,34,294/- and Rs.60,91,612/- respectively. There is no dispute regarding disallowance under rule.8D(2)(i). As regards the disallowances under rule 8D(2)(ii) and SO(2)(iii), the appellant has taken investment in quoted shares only whereas, the AO has taken the total investments as on 1st April and so" April of the previous year. In this connection, the appellant has stated that strategic investment and investment which give rise to taxable income should be excluded from the average value of investment. As per provisions of rule SO(2)(ii), the average value of investment is the investment, the income from which does not or shall not from part of total income. Therefore taxable investments such as Venture Capital fund are to be excluded while determining average value of investment. Further, as held by Garware Wall Ropes Ltd. (supra), JM Financial Limited (supra), JM Financial Limited (supra), Piem Hotels Limited (supra) and Selvel Advertising (P.) Ltd. (supra), investment in group concerns and strategic investments are to be excluded and cannot be taken into account for making disallowance under rule 8D. Therefore, the AO is directed to exclude the investment in subsidiary and associate companies and other strategic investment as well as investment yielding taxable income while working of the average investment under rule 8D(2)(ii) and rule 8D2(iii). The appellant has given a working of 4 the disallowance u/s 14A r.wr8D determining the amount at Rs.18,05,609/- by excluding such investments. The AO is directed to verify the same and restrict the disallowance as per above direction. The ground is partly allowed.‖

We have heard the rival contentions and perused the material placed before us including the orders of authorities below and the case law cited before us. We find that the ld. CIT(A) has recorded the finding of facts that there are some investments in the subsidiary companies and associate concerns which are not to be included in the income while calculating the average investments for the purpose of calculating disallowance under rule 8D(2)(iii). Accordingly directed the AO to exclude the said investments while calculating the disallowance u/r 8D and further directed that the appellant has given working of disallowance u/s 14A r.w.r 8D of Rs. 18,05,609/- and disallowance be restricted to that amount only. After examining the order of the FAA and the prevalent provisions of law and the ratio laid down by the various coordinate benches of the tribunal , we are of the considered view that the ld. CIT(A) has passed a reasoned and cogent order and hence no interference is called for. Accordingly, the order of the ld.CIT(A) is confirmed and the appeal of the revenue is dismissed.