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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI D.T. GARASIA, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by the assessee for Assessment Year [AY] 2011-12 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 22 [CIT(A)], Mumbai dated 10/03/2016 qua addition u/s 14A read with rule 8D and consequential computation of book profit u/s 115JB.
2. Briefly stated, the assessee, being resident corporate assessee, was subjected to an assessment u/s 143(3) of the Income Tax Act, 1961 for impugned AY vide Assessing Officer [AO] order dated 27/03/2014, wherein the total loss of the assessee was determined at Rs.4,51,53,615/- under normal provision, Book Profit u/s 115JB at Rs.7,09,59,812/- as against returned loss of Rs.4,40,76,922/- e-filed by assessee on 30/09/2011 after making certain adjustments / disallowances including disallowance u/s 14A for Rs.14,49,584/-. The assessee was engaged in the business of Leasing, Business Process outsourcing [BPO] and Transport Services. During assessment proceedings, it was noticed that the assessee had investment in equity shares at year-end amounting to Rs.52.24 Crores which attracted disallowance u/s 14A. The assessee provided bifurcation of the investments in the following manner:-
No. Nature Amount (Rs.) 1. Investments in Shares of unlisted company FOR-SHE 24,99,400/- Travels & Logistics Pvt. Ltd.
Investments in Shares of unlisted company OAIS Auto 1,99,99,300/- Financial Services Ltd.
3. Investments in Shares of unlisted company OAIS Auto 49,99,99,990/- Financial Services Ltd. Total 52,24,98,690/- Orix Auto Infrastructure Services Limited Assessment Year 2011-12 The assessee contended that first two investments were made in the earlier AY and no interest bearing funds were used to make the same. Regarding third investment, it was contended that pursuant to scheme of reorganization, the assets and liabilities of finance business were transferred to Oais Auto Financial Services Ltd. against which the assessee received the fresh shares and hence no borrowings were used to make these investments and therefore, no disallowance qua interest could be made against those investments. The assessee further contended that interest free net-worth of the assessee at year-end was sufficient enough to cover the said investments. However, partly accepting the contentions, AO computed interest disallowance with respect to first two investment as per Rule 8D(2)(ii) and also computed administrative expenses disallowance @0.5% against average investments u/r 8D(2)(iii) which came to Rs. 14.49 Lacs & Rs.13.62 Lacs respectively. The disallowance computed by AO u/r 8D(2)(iii) towards administrative expenses @0.5% was Rs.13.62 Lacs which was the same that had already been disallowed suo-moto by the assessee in the return of income. Therefore, the net addition made by AO was under Rule 8D(2)(ii) which amounted to Rs.14.49 Lacs. The same was contested with partial success before Ld. CIT(A) vide order dated 10/03/2016 where the assessee contested not only the interest disallowance but even the suo-moto disallowance of 0.5% made by him by placing reliance on various judicial pronouncements. The Ld. CIT(A) concluded that in view of the fact that the assessee had sufficient interest free owned funds so as to cover the said investments and therefore, no disallowance u/r 8D(2)(ii) was called for. However, he sustained disallowance u/r 8D(2)(iii) by noting that the same was in accordance with the formulae prescribed by the rule and the same was in line with suo-moto disallowance made by the assessee in the return of income. Aggrieved, the assessee is in appeal before us.
The Ld. Counsel for Assessee contended that disallowance u/r 8D(2)(iii) was not warranted for in view of the fact that all the investments were made by the assessee in associated / sister / subsidiary concerns and moreover, the assessee did not earn any exempt income and hence no disallowance u/r 8D(2)(iii) could be made and therefore the Orix Auto Infrastructure Services Limited Assessment Year 2011-12 suo-moto disallowance deserves to be deleted. Per contra, Ld. DR contended that the addition u/r 8D(2)(iii) was not additional disallowance rather it was the disallowance made by the assessee suo-moto in the return of income and what assessee is seeking is revision of income without filing revised return of income which was not permissible as per the ruling of Apex Court in Goetze (India) Ltd. Vs CIT [284 ITR 323]. Moreover, the acceptance of assessee’s claim would have resulted into amendment / lowering of income beyond returned income which was not possible without filing a revised return of income. Further, the assessee never raised this issue before Ld. AO and contested the same for the first time before Ld. CIT(A) whereas the issue was factual one only. Our attention was also drawn to the fact that the investment during the impugned AY rose substantially and therefore, it was difficult to digest the fact that no expenses qua administrative expenses were incurred by the assessee to make those investments. Reliance was placed on the judgment of The Saraswat Co-operative Bank Limited Vs DCIT [ITA No. 8622/Mum/2010 order dated 31/10/2016]. In the rejoinder, Ld. AR contended that the issue was legal one which could be admitted at any stage. Reliance was placed on various judgments placed in the paper book to contend that no such disallowance could be made against the strategic investments.
We have heard the rival contentions and perused relevant material on record. We note that the additions made by the Ld. AO in the quantum order was to the extent of Rs.14.49 Lacs, being disallowance u/r 8D(2)(ii) and the same has been deleted by Ld. CIT(A) after considering the factual matrix and various contentions of the assessee. The revenue has not challenged the same and hence the same has already attained finality. The only dispute is with regard to disallowance u/r 8D(2)(iii) made suo-moto by the assessee in the return of income at 0.5% of average investments and reiterated by AO in the assessment order. The AO accepted the disallowance computed by the assessee in the return of income. This being the position, we find that what the assessee is seeking, at the most, is rectification of mistake made by the assessee in the return of income for which separate procedure / remedy has been provided in the Act. The calculation made Orix Auto Infrastructure Services Limited Assessment Year 2011-12 by assessee as well as AO were made as per the formulae prescribed u/r 8D(2)(iii) @0.5% of average investments. Even on merits, we find that the investment made by the assessee during impugned AY substantially rose from Rs.0.22 crores as on 31/03/2010 to Rs.52.24 Crores as on 31/03/2011 and it is hard to accept that such huge investments did not entail even a single rupee of expenses in terms of manpower / administrative resources. The Ld. AR has contested that these being strategic investments, the main objective is not to earn the dividend but to serve the business purposes of the assessee and therefore, do not warrant such addition. However, we find that Rule 8D(2)(iii) uses the following expression:- (iii) an amount equal to 0.5% of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (emphasis, being supplied by us)
Therefore, no distinction has been made between strategic and non-strategic investments. The Ld. AR has contested that the disallowance could not be made as the assessee did not earn any dividend and secondly, the investments were strategic and placed reliance various judicial pronouncements in this regard placed in the paper book. However, we have already noted that Rule 8D(2)(iii) uses the expression ‘shall not form’ which shows that the factum of actual receipt of dividend is not material so as to attract this disallowance. Regarding judicial pronouncements relied upon by Ld. AR, we find that this issue in the case of REI Agro Ltd. Vs DCIT [ITAT Kolkatta 35 taxmann.com 404], was restored back to the file of AO. The case before Hon’ble Delhi High Court in ACB India Ltd V ACIT [374 ITR 108] dealt with a situation where the assessee had earned dividend. In the case of ACIT Vs Oriental Structural Engineers (P) Ltd. (ITAT Mumbai 4245/Del/2011 02/12/2011], the assessee suffered disallowance of 2% u/s 14A and not u/r 8D. In the case of Garware Wall Ropes Limited Vs ACIT [ITA NO 5408/Mum/2012 dated 15/01/2014], the investments were found to be old on nature. In J.M.Financial Limited Vs ACIT [ITA No. 4521/Mum/2012 dated 26/03/2014] the assessee was able to show that no expenditure was incurred by him to make the investments in the Orix Auto Infrastructure Services Limited Assessment Year 2011-12 subsidiaries. Therefore, we find all the judgments are being rendered on peculiar facts and circumstances of the case and therefore, could not be applied straightway rather a view has to be taken on the basis of totality of facts and circumstances.
Therefore, on the basis of all the preceding observations, the matter, in our opinion, requires no interference on our part and we are unable to agree with various contentions raised by Ld. AR. The ground of appeal
raised by the assessee in this regard stands dismissed.
6. In another ground, the assessee has pleaded for adjustment of book Profit u/s 115JB vis-à-vis disallowance u/r 8D(2)(iii). Since, we have already dismissed the assessee’ appeal on the issue of disallowance u/r 8D(2)(iii), the same being, consequential in nature, also gets dismissed. To summarize, whatever disallowance has been suffered by assessee u/s 14A read with Rule 8D, corresponding adjustment thereof shall also be made in Book Profit u/s 115JB.
7. In nutshell, the appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 17th April, 2017.