HINDOOSTAN MILLS LTD,MUMBAI vs. DCIT 2(1), MUMBAI

M/s Hindoostan Mills Ltd 2. Briefly stated the facts are that assessee during the Assessment Year received dividend income of ₹.96,45,546/-. Assessee in its computation suomoto disallowed ₹.10,13,448/- as the expenditure attributable for earing the dividend income. The Assessing Officer was of the view that assessee has attributed the above expenses for earning the exempt income without considering any indirect expenses but might have been incurred for earning the same and he has not accepted the suomoto disallowance made by the assessee because according to A.O assessee has average investments of ₹.25.53 crores as on 31.03.2011 on funds from which exempt income is earned. A.O was of the view that these investments cannot be managed without inherent expenses since no investments can be made without market analysis and expertise. Thus the Assessing Officer invoking Rule 8D(2)(iii) computed the disallowance at ₹.12,76,687/- and disallowed the same.

On appeal the Ld.CIT(A) confirmed the disallowance. The Learned Counsel for the assessee before us submits that there is no objective satisfaction recorded by the Assessing Officer for invoking Rule 8D. Without prejudice to the above, the Learned Counsel for the assessee submits that the submission of the assessee that strategic investments have to be excluded was not considered by the Ld.CIT(A). The Learned Counsel for the assessee submits that if strategic investments are M/s Hindoostan Mills Ltd excluded and disallowance is computed under Rule 8D(2)(iii) the disallowance works out to ₹.5,44,688/- as extracted by the Ld.CIT(A) in his order. The Learned Counsel for the assessee further submits that in assessee’s own case for the Assessment Year 2010-11 in ITA.No.373/Mum/2014 dated 09.09.2016 the Coordinate Bench held that the strategic investments should be excluded. Learned Counsel for the assessee referring to the Page No.13 of the Paper Book which is the investments schedule of balance sheet submits that the strategic investments were made in the group company namely Hindoostan Spinning & Weaving Mills Limited as non-trading investments and this was made in the previous year ending 31.03.2010 and if these strategic investments are excluded the disallowance works out to ₹.5,44,688/- which may be considered for disallowance.

Ld.DR vehemently supported the orders of the Assessing Officer. He further submits that there is a recording of satisfaction by the Assessing Officer in invoking section 14A r.w. Rule 8D. He further submits that it is not clear what are the strategic investments.

Heard both sides, perused the orders of the authorities below and the decision relied on in assessee’s own case. We agree with the submission of the Ld.DR that Assessing Officer has recorded the satisfaction for invoking Rule 8D of I.T. Rules. However, coming to the M/s Hindoostan Mills Ltd disallowance, on strategic investments we find that similar issue came up before the Coordinate Bench in assessee’s own case wherein the strategic investments have been excluded observing as under: -

Thus, respectfully following the said decision we hold that the strategic investments should be excluded. We also find that these investments were made in the previous Assessment Year relevant to the Assessment Year 2010-11 and since the Coordinate Bench has already excluded these investments for 2010-11 they have to be necessarily excluded for the Assessment Year 2011-12. After excluding those

In the result appeal of the assessee is partly allowed.