ITO 3(3)(3), MUMBAI vs. SOLITAIRE APPLIANCES P.TLD, MUMBAI

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ITA 6922/MUM/2014Status: DisposedITAT Mumbai10 April 2017AY 2011-123 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that given the low business expenditure and the nature of investments (strategic investment in a group company and brought forward unquoted investments), no disallowance under Section 14A was warranted. The CIT(A)'s order deleting the disallowance was upheld.

What were the facts?

The assessee did not offer any disallowance under Section 14A, claiming no expenditure was incurred for investments. The Assessing Officer, however, disallowed a sum of Rs. 68,95,883/- under Section 14A read with Rule 8D(2)(iii). The CIT(A) deleted this disallowance.

What were the issues?

Whether disallowance under Section 14A is required when no dividend income is earned and investments are strategic or brought forward.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” Bench, Mumbai

Before: Shri B.R. Baskaran (AM)& Ramlal Negi (JM)

For Appellant: Shri Bhupendra Karkhanis
For Respondent: Dr. A.K. Nayak
Hearing: 10.4.2017Pronounced: 10.4.2017

O R D E R Per B.R. Baskaran (AM) :-

The appeal filed by the Revenue is directed against the order dated 29.8.2014 passed by the learned CIT(A)-7, Mumbai and it relates to A.Y. 2011- 12. The Revenue is aggrieved by the decision of the learned CIT(A) in deleting the addition made by the Assessing Officer u/s. 14A of the Act.

2.

We have heard the parties and perused the record. The assessee held long term investment of ` 161 crores and ` 114 crores respectively as on 31.3.2011 and 31.3.2010. The assessee did not make any disallowance u/s. 14A of the Act. When questioned, the assessee submitted that it did not incur any expenditure for the investment activity. The Assessing Officer was not satisfied with the explanations of the assessee and accordingly computed the disallowance u/s. 14A of the Act read with rule 8D(2)(iii) at the rate of 0.5% of the average value of investment, which worked to ` 68,95,883/-.

2 M/s. Solitaire Appliances Pvt. Ltd.

3.

Before the learned CIT(A), the assessee submitted that the total expenditure incurred by the assessee other than those related to the trading activity was ranging around ` 96,000/- only. It was further submitted that the major portion of its investment was made in a group company named M/s. Videocon Industries Ltd. It was further submitted that such kind of strategic investment have to be excluded for the purpose of computing disallowance under rule 8D as per decision rendered by Mumbai Tribunal in the case of Garware Wall Ropes Ltd. Vs. Addl. CIT (46 Taxamnn.com 18). The learned CIT(A) was satisfied with the contentions of the assessee and accordingly, directed the Assessing Officer to delete the disallowance made by the Revenue. Aggrieved, the Revenue has filed this appeal before us.

4.

Learned Departmental Representative strongly supported the order passed by the Assessing Officer.

5.

Learned AR, in addition to supporting the order passed by the learned CIT(A), further submitted that the assessee did not earn any dividend income during the year under consideration and hence there is no requirement of making any disallowance u/s. 14A of the Act as per decision rendered by Hon'ble Delhi High Court in the case of Principal CIT Vs. Mitsubishi Corporation India Pvt. Ltd. (ITA 45/2016 dated 10.2.2016).

6.

We have heard the rival contentions and perused the record. Perusal of the annual report filed by the assessee would show that the assessee has classified its investment into two categories, viz., quote and unquoted Investments. Quoted investments have been made in Videocon Industries Ltd. (major portion of investment) & Value Industries Ltd. It was submitted that M/s Videocon Industries Ltd is a group company and hence it falls in the category of strategic investments. Unquoted investment costing ` 101.19 crores have been brought forward from immediately preceding year, meaning thereby the assessee did not make any fresh investment during the year under consideration in unquoted investments. Perusal of the profit and loss account

3 M/s. Solitaire Appliances Pvt. Ltd. would show that the assessee has incurred expenditure towards salaries to the tune of ` 84,000/- only. Administrative expenses incurred by the assessee consisted of, inter alia, freight forwarding expenses of ` 1.60 lakhs and loss on investment of ` 1.90 lakhs. If we exclude both these items, total expenses incurred by the assessee on account of salaries and administrative expenses worked out to around ` 96,000/- only. Sales turnover reported by the assessee was ` 2.57 crores and hence the above said expenditure of Rs.96,000/- might relate entirely to business activities. Under these set of facts, we are of the view that there is no requirement for making any disallowance u/s. 14A of the Act and hence we agree with the view taken by the learned CIT(A) on this issue. Accordingly, we uphold his order.

7.

In the result, appeal filed by the Revenue is dismissed.

Order has been pronounced in the Court on 10.4.2017.

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