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Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal filed by the assessee u/s.253 of the Income Tax Act (“the Act”) is directed against the order of ld. Commissioner of Income Tax (Appeals)-52, Mumbai dated 11.07.2016 for Assessment Year (AY) 2012-
The assessee has raised the following grounds of appeal:
1.1 In the facts and circumstances of the case and in law, the learned CIT(A) erred both in facts and in law in sustaining the disallowance made by A.O. under section 14A of the Income Tax Act, 1961. 1.2 Your appellant craves leave to add to, amend, alter, delete and/or modify the above ground of appeal on or before the final date of hearing of this appeal petition.
Brief facts of the case are that the assessee-company is engaged in the business of running retail store/outlets in various big cities across the country, filed its return of income for relevant AY on 27.09.2012 declaring total income of Rs. 78,50,58,330/-. The assessment was completed on 23.03.2005 under section 143(3) of the Act. The Assessing Officer (AO) while passing the assessment order besides other disallowance, disallowed Rs. 6,61,94,455/- under section 14A of the Act. On appeal before the ld. CIT(A), the addition/disallowance was confirmed. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard Ld. Authorized Representative (AR) of the assessee and Ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld.AR of the assessee argued that assessee has not earned any exempt income during the period of relevant AY. The assessee made investment in its associate concerns. The investment was made out of the interest free funds available with the assessee. The assessee voluntarily made a disallowance of Rs. 13.10 Lakhs on account of administrative expenses for investment in associate company. The Assessing Officer (AO) invoked the provision of Rule 8D holding that direct link between the investment and interest free fund is not established. The AO disallowed a sum of Rs. 5,44,69,565/- under Rule 8D (ii) and Rs. 1,30,35,122/- under Rule 8D(iii). The ld. AR of the assessee further argued that investment is made in the subsidiaries for strategic reasons. The ld. AR of the assessee also filed the copy of financial statement for AY 2012-13 (Page No. 7 to 10 of PB). In support of his submission, the ld. AR of the assessee relied upon the decision of Nimbus Communication Ltd. vs. ACIT (ITA No. 1424/Mum/2014) , DCIT vs. M/s Excel Industries Ltd. (ITA No. 8278/Mum/2011, and assessee’s own case for AY 2008-09 vide ITA No. 1753/Mum/2012. On the other hand, the ld. DR for the Revenue supported the order of authorities below. 4. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have seen that the assessee has no exempt income during the period relevant to the assessment year under consideration. The assessee has not made any investment during the year under consideration. There is no dispute that all investment has been made in the subsidiaries companies as strategic investment so as to get controlling interest in such subsidiaries. The Hon’ble Delhi High Court in case of Cheminvestment Ltd. Vs. CIT reported in 378 ITR 272 (Del), held that, if there is no dividend income, then there cannot be any correspondence allowance. We have noted that the assessee has voluntary disallowed Rs. 13.10 Lakhs as administrative expenses for investment in its associate companies/subsidiaries. The assessee has placed on record fund flow statement (Page 33 of PB), which clearly show that the assessee has sufficient own interest free fund of Rs. 1,26,289.65/- Lakhs as on 31.03.2012 . Thus, in our considered view there was no justification for making disallowance as per the provisions of section 14A r.w. Rule 8D.
Further, we have noted that similar disallowance was made in AY 2008- 09, the assessee carried the matter to the Tribunal and the co-ordinate bench in passed the following order: “7.We have heard the rival submissions and perused the material before us. We find that assessee had not claimed any deduction in respect of exempt income nor has it claimed any expenditure against the income which does not form part of the total income. Thus, both the basic ingredients for making a disallowance u/s.14A are missing. Secondly, the fund flow statement made available to the FAA, during the appellate proceedings, clearly show that it had sufficient own funds to make investments(Pg-1 of the PB).The FAA has admitted that funds available to the assessee were more than the investments made during the year under consideration. Therefore, in our opinion there was no justification for making disallowance as per the provisions of section 14A r.w.r 8D of the Rules. Considering all these factors we are of the opinion that the FAA was not justified in upholding the order of the AO. Hence, reversing his order we decide the effective ground of appeal in favour of the assessee.”
Considering the facts of the case and the decision of Tribunal in assessee’s own case, the disallowance made by AO and confirmed by ld. CIT(A) is uncalled for and therefore, we direct the AO to restrict the disallowance to Rs. 13.10 Lakhs, which was voluntary disallowed by assessee. Thus, the ground of appeal raised by assessee is allowed.
In the result, appeal filed by assessee is allowed. Order pronounced in the open court on this 8th day of November, 2017.