DCIT CEN CIR 5(2), MUMBAI vs. PRIME PROEPRTY DEVELOPMENT CORPORATION LTD, MUMBAI

In all the years, the solitary issue contested by the revenue relates to the relief granted by Ld CIT(A) in respect of disallowance made u/s 14A of the Act.

The assessee is a real estate developer and during the years under consideration, the assessee had received dividend income, which was claimed as exempt. However, the assessee did not make any disallowance as per requirements of Sec. 14A of the Act. Accordingly, the AO computed disallowance u/s 14A of the Act in each of the years as per Rule 8D as detailed below:-

In the appellate proceedings, the Ld CIT(A), reduced the disallowances by following the decision rendered by Hon’ble Delhi High Court in the case of Chemvest Ltd and by holding that only those shares which had earned dividend income should be considered for the purpose of working out disallowance u/s 14A of the Act. Accordingly the Ld CIT(A) sustained disallowance to the extent as detailed below:- Assessment year 2010-11 - Rs.1,45,658/- Assessment year 2011-12 - Rs.3,54,441/- Assessment year 2012-13 - Rs.2,84,730/- Aggrieved, the revenue has filed these appeals.

At the time of hearing, the Ld D.R fairly admitted that the tax effect involved in the appeals relating to AY 2010-11 and 2012-13 is less than Rs.10.00 lakhs and hence these two appeals are liable to be dismissed in view of the Circular No.21 of 2015 dated 10-12-2015 issued by CBDT. Accordingly we dismiss the appeals filed by the revenue for assessment years 2010-11 and 2012-13.

With regard to the appeal filed by the revenue for assessment year 2011- 12, the Ld D.R supported the order passed by the AO. On the contrary, the A.R submitted that the dividend income earned by the assessee was only Rs.1,18,155/- and the Ld CIT(A) has sustained addition u/s 14A to the extent of Rs.3,54,441/-. He submitted that the Hon’ble Delhi High Court has held in the case of Joint Investment P Ltd Vs. CIT (372 ITR 694) that the disallowance u/s 14A of the Act should not exceed the exempt income. He submitted that the Ld CIT(A) has sustained disallowance u/s 14A in excess of dividend income. He submitted that the assessee has accepted the decision of Ld CIT(A)

We heard the parties and perused the record. We notice that the average value of investments was Rs.31.78 crores, out of which a sum of Rs.30.10 crores represent strategic investment made in its subsidiary company. Further a sum of Rs.1.40 crores was invested in 2005 and hence the same has been brought forward from earlier years. The co-ordinate bench has held in the case of Garware Wall Ropes (ITA No.7899/M/2011) that the strategic investments are required to be excluded while computing average value of investments. If we exclude the strategic investments from the value of investments, the disallowance of Rs.3,54,441/- made u/s 14A of the Act by Ld CIT(A) would work out to more than reasonable amount. Hence, having regard to the submissions made by Ld A.R and considering the facts prevailing in the case, we are of the view that the order passed by Ld CIT(A) for AY 2011-12 does not require any interference.

In the result, all the three appeals of the revenue are dismissed. Order has been pronounced in the Court on 8.11.2017.