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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI, M. BALAGANESH
आदेश /O R D E R
PER M. BALAGANESH, ACCOUNTANT MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-1, Chennai dated 04.04.2016 pertaining to assessment year 2011-12.
At the outset, there is a delay of 4 days in filing the appeal by the revenue. The reason stated for the said delay in the condonation petition has been verified and found to be convincing. Hence we are ITA No.1960/Mds./2016 :- 2 -:
inclined to condone the delay and admit the appeal of the revenue for adjudication.
The first issue to be decided in this appeal is as to whether the ld CITA was justified in restricting the disallowance made u/s 14A of the Act read with Rule 8D of the Rules in the sum of `19,16,302/- in the facts and circumstances of the case.
3.1. The brief facts of this issue is that the assessee is engaged in the business of executing EPC contracts for power generation plants. The assessee filed its return of income on 30.9.2011 for the Asst Year 2011-12 admitting total loss of `34,38,720/-. During the course of assessment proceedings, the ld AO observed that the assessee had claimed exempt dividend income to the tune of `2,23,60,660/-. The ld. AO sought to make disallowance u/s 14A of the Act read with Rule 8D(2) (ii) and (iii) of the Rules. The submission of the assessee that only dividend bearing investments should be considered for the purpose of making disallowance under second and third limb of Rule 8D(2) of the Rules, was ignored by the ld AO and total disallowance of ` 68,00,206/- in the assessment. Before the ld CITA, the assessee submitted that it has received share capital during the year to the tune of ` 9,605.97 lakhs which was used for investment in mutual funds for earning income. The additional investment in mutual funds during the ITA No.1960/Mds./2016 :- 3 -: year was only to the tune of `6,553.87 lakhs. Further as per schedule 4 of the current investments, it could be observed that an amount of `3,01,21,221/- has been rolled over to other schemes and the fresh investment during the year out of interest free funds was `65,53,87,293/- only. The ld CITA appreciated this contention of the assessee and by placing reliance on the decision of the Hon’ble Gujarat High Court in the case of CIT vs UTI Bank Ltd reported in 32 taxmann.com 370 (Guj) and decision of Hon’ble Jurisdictional High Court in the case of CIT vs L&T Infrastructure Development Projects Ltd reported in 357 ITR 763 (Mad), deleted the disallowance made under second limb of Rule 8D(2) of the Rules. Moreover, it was further pleaded that the investment made in subsidiaries have to be excluded considering the same as strategic investments and to protect the business interest of the assessee company and they were not made with a view to earn dividend income. Reliance in this regard was placed on the co-ordinate bench decision of Chennai Tribunal in the case of EIH Hotels Ltd vs DCIT in & 1624/Mds/2012 dated 17.7.2013. Accordingly the ld CITA accepted the workings of disallowance under third limb of Rule 8D(2) of the Rules by considering the average value of investments (excluding investment in subsidiaries) and restricted the disallowance to `19,16,302/-.
ITA No.1960/Mds./2016 :- 4 -:
Aggrieved, the revenue is in appeal before us on the following grounds:-
2.1 The Ld.CIT(A) erred in directing the AO to restrict the disallowance u/s.14A r.w.Rule 8D to Rs.19,16,302/- instead of the actual disallowance made by the AO to the tune of Rs.68,00,206/-. 2.2 The Ld.CIT(A) erred in directing the AO to exclude the investments made in subsidiaries while working out the computation of disallowance u/s.14A r.w.Rule 8D in terms of the ratio laid down in the jurisdictional ITAT in the case of EIH Hotels Ltd., Vs. DCIT in & 1624/Mds/2012 dated 17.7.2013. 2.3 The Ld.CIT(A) ought to have appreciated that the decision of the jurisdictional ITAT in the case of EIH Hotels Ltd., Vs. DCIT has not been accepted by the Department and further appeal is pending before the higher forum.
3.2. We have heard the ld DR. None appeared on behalf of the assessee. We find that the ld CITA had rightly followed the co-ordinate bench decision of this tribunal in the case of EIH Hotels Ltd supra and excluded the investment in subsidiaries while making disallowance under third limb of Rule 8D(2) of the Rules. We further hold that since the assessee was able to prove beyond doubt that it had sufficient own funds to make investments, no disallowance is warranted towards interest under second limb of Rule 8D(2) of the Rules, which has been rightly deleted by the ld CITA. Hence we do not find any infirmity in the order of the ld CITA with regard to the issue of disallowance u/s ITA No.1960/Mds./2016 :- 5 -:
14A of the Act read with Rule 8D of the Rules. Accordingly, the Grounds 2.1. to 2.3. raised by the revenue are dismissed.
The last issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of Rs 40,73,644/- made towards provision for investment, in the facts and circumstances of the case.
4.1. The brief facts of this issue is that in the statement of income filed along with the return of income, the assessee claimed `40,73,644/- as ‘provision for investment disallowed last year to be allowed current year’. The assessee was asked to furnish evidence for the disallowance made last year and for the allowability during this year. The ld AO proceeded to make disallowance of the same in the assessment. The assessee explained that it had claimed an amount of `40,73,644/- being the diminution in the value of investments as at 31.3.2010 and it had rightly disallowed the entire amount during the Asst Year 2010-11. Since such diminution and the loss in the value of investments has been absorbed during the Asst Year 2011-12, the disallowance made in Asst Year 2010-11 was claimed as an allowable expenditure during Asst Year 2011-12. The ld CITA observed that the ld AO had not furnished any explanation or evidences regarding the ITA No.1960/Mds./2016 :- 6 -: claim while making the disallowance and agreed to the explanation given by the assessee before him and deleted the disallowance thereon. Aggrieved, the revenue is in appeal before us on the following grounds:-
“3.1 The Ld.CIT(A) erred in directing the AO to allow the provision for investment to the tune of Rs.40,73,644/- being diminution in the value of investments. 3.2 The Ld.CIT(A) ought to have appreciated the fact that the assessee has failed to provide evidences before the AO on the actual loss incurred on sale of investments during the assessment proceedings and hence the same was brought to tax. 3.3. The Ld.CIT(A) ought to have called for a Remand report from AO under Rule 46A of th I.T.Rules. 3.4. The Ld.CIT(A) erred in not giving any finding in the appellate order on the nature and actual loss incurred by the assessee.”
4.2. We have heard the ld DR. We find that the ld CITA had taken due cognizance of the fact that the provision for diminution in investments was disallowed in Asst Year 2010-11 by the assessee and since the loss on investments had been absorbed in the books during the year under appeal, the same was rightly allowable as deduction.
Moreover, we find that there was no additional / fresh evidence that were filed before the ld CITA by the assessee. The ld DR was not able to bring on record as to what additional evidences were filed before the ld CITA by the assessee. Hence the ground raised by the revenue
ITA No.1960/Mds./2016 :- 7 -: for Rule 46A violation is factually incorrect. From the reading of the ld CITA’s order, we find that the assessee had only accepted the explanation of the assessee and no fresh evidences were filed thereon.
We find that the ld CITA had rightly deleted the disallowance in the facts and circumstances of the case. Hence we do not find any infirmity in the order of the ld CITA with regard to the issue of provision for diminution in investments. Accordingly, the Grounds 3.1 to 3.4 raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed. Order pronounced on 18th January, 2018 at Chennai.