ITO 3(1)(3), MUMBAI vs. EMERGIC VENTURE CAPITAL P.LTD, MUMBAI

I have heard the parties and perused the record. The assessee-company is an investment company. It has made investment of ` 72.42 crores in shares and mutual funds. The assessee did not receive any dividend during the year under consideration and it also did not make any disallowance u/s. 14A of the Act. The Assessing Officer took the view that the disallowance under section 14A should be computed in terms of the provisions of Rule 8D and accordingly computed the disallowance under Rule 8D(2)(iii) of the I.T. Rules at 0.5% of the average value of investments, which worked out to ` 35,81,324/-. The Assessing Officer added the same to the total income of the assessee. In the appeal filed by the assessee, the learned CIT(A) took the view that the 2 M/s. Emergic Venture Capital P. Ltd.

Learned Departmental Representative submitted that the disallowance u/s. 14A is mandatory as per Circular No. 5 of 2014 dated 11.2.2014 issued by CBDT, even if, the assessee did not receive any exempt income.

The learned Authorized Representative pointed that the assessee has incurred expenditure of ` 2,31,701/- only during this year, out of which major expense was travelling expenses amounting ` 1,82,023/- and the same is not connected with the Investment activity. He submitted that the common expenses relate to subscription for magazines & journals ` 26,189/- and audit fee ` 11,030/- only. He further submitted that the assessee did not earn any exempt income during this year and hence the learned CIT(A) was justified in deleting the disallowance made by the Assessing Officer u/s. 8D(2)(iii) of the I.T. Rules.

I noticed from the arguments of the Ld A.R that the common expenditure incurred by the assessee related to the subscription for magazines & journals and audit fees both aggregated to ` 37,000/-. The assessee has used its own funds for making investments and hence the Assessing Officer has not computed any disallowance u/r. 8D(2)(ii) of the I.T. Rules. Considering the details and quantum of the expenditure incurred by the assessee (referred supra), I am of the view that this is not a fit case for applying provisions of rule 8D of the I.T. Rules. Since the assessee has made investments of ` 72.42 crores, I am of the view that a reasonable sum may be disallowed out of the two expenses discussed above as relating to investment activity. Accordingly, I modify the order of the learned CIT(A) and direct the Assessing Officer to make

In the result, appeal filed by the Revenue is partly allowed. Order has been pronounced in the Court on 3.5.2017.