JSW HOLDINGS LTD,MUMBAI vs. DCIT 5(2), MUMBAI

This appeal is filed by the assessee against an order of the CIT(A)-10, Mumbai dated 01-12-2014 for the assessment year 2007-08 arising out of the assessment order passed u/s 143(3) r.w.s 254 of IT Act.

The only issue in the appeal of the assesse is that the CIT(A) erred in law in confirming the ad-hoc disallowance of Rs.70,00,000/- u/s 14A of the Act.

Briefly stated the facts are that the assesse is a non-banking finance company and assessment was completed u/s 143(3) of the Act on 06/11/2009 determining the taxable income at Rs. 2,23,7660/-. The assessing officer while completing the assessment disallowed Rs. 81,30,631/- u/s 14A of the Act. The assessee preferred appeal before CIT(A) and CIT (appeals) by order dt. 24-05-2010 confirmed the said disallowance. Assessee preferred further appeal to this Tribunal and the Tribunal by order in dated 02-12-2011 restored back matter to the assessing officer for examining afresh. Consequential assessment order was passed on 30-03-2013 u/s 143(3) r.w.s 254 of the Act determining taxable income at Rs. 2,12,04,029/-. The assessing officer while completing assessment noticed that assessee made investments of Rs. 462,81,1900/- and incurred expenditure of Rs. 86,08,855/-. He also observed that the funds available to the company are mixed funds and no direct nexus is proved to say that interest free funds were used for investment purpose. Therefore, he rejected the contention of assessee that entire investment was made out of interest free funds. He further observed that though Rule 8D is not applicable but looking to the quantum of investment and borrowed funds he thought that it is quite reasonable that if an amount of Rs. 70,00,000/- is treated as expenses incurred for earning dividend income of Rs. 36,90,56,836/-.

The Ld. Counsel for the assessee submits that the assesse received dividend income of Rs. 36,90,56,836/- from four companies as under:

The Ld. Counsel for the assessee submits that (out of total divided of Rs. 36.91 Crores) 99% of the dividend income of Rs. 36.56 Crore was received from JSW Steel Ltd.. Therefore, he submits that only because of single huge dividend received from JSW Steel Ltd, the apportionment of substantial of the expenditure for earning such exempt income is not correct. Ld. Counsel submits that assesse has not taken extra

The Ld. Counsel for the assessee further submits that there were no new investments during this assessment year but the investments on which dividend was earned during the current year was made in the previous year ending 31-03-2016. Therefore, he submits that assesseee has not incurred any expenditure to earn dividend income of Rs.36.91 Crores except the D Mat charges of Rs 3,39,184/- and some expenditure which are more of administrative out of statutory compulsion. The Ld. Counsel submits that the D Mat charges of Rs. 3,39,184/- were already disallowed by the assesse in its computation of income and therefore he submits that ad-hoc disallowance of Rs. 70,00,000/- made u/s 14A is not justified.

Ld. counsel further submits that all the investments are strategic investments in the group concerns therefore since and the investments were made to hold control over business and not to earn any dividend income the provision of Section 14A have no application. For this proposition he places reliance on the decision in the case of Twinkle Enviro Tech Ltd. Vs. DCIT to 1754/M/2013 dt. 15/06/2016. Ld. Counsel for the assesse further submits that in any case ad-hoc disallowance made by (A.Y: 2007-08) M/s. JSW Holdings Ltd Vs.DCIT the assessing officer is on high side and therefore he requests for reasonable estimate of expenses attributable for earning exempt income.

The Ld. DR vehemently supported orders of the authorities below. He submits that disallowance made by the assessing officer and which was confirmed by the CIT(A) was quite reasonable when it compared to the quantum of huge divided earned by the assessee.

We have heard rival submissions, perused orders of the authorities below. The assesse is a non-banking finance company made investments in various companies and earned dividend income of Rs.39,90,56,836/-. The assessee in the computation on income disallowed Rs.3,39,184/- being the D Mat changes incurred as the expenses attributable for earning the dividend income. However, assessing officer taking note of the fact that the quantum of dividend is high, he made adhoc disallowance of Rs. 70,00,000/- u/s 14A of the Act which was confirmed by the Ld. CIT(A). Admittedly for this assessment year being assessment year 2007-08, the provisions of Rule 8D have no application. However, at the same time reasonable disallowance should be made towards expenditure for earning exempted income in view of the jurisdictional High Court decision in the case of Godrej & Boys Ltd. The assessee contends that all the investments were made in group concerns, they are strategic investments and therefore the provisions of section 14A have no application. He also contended that the adhoc

We have noticed in the earlier paragraphs the assessee earned 99% dividend from only the investment was made with JSW Steel Ltd. and the rest of the 1% dividend is from the other three companies which are also group companies. In so far as the contention of the assessee that all investments are strategic investments made to have control over the business, there is no material on record to show how these investments are strategic investments and there is no intention behind these investments to earn dividend income. At the same time, we noticed that the assessee has earned this dividend income only from four companies from the investments made in the previous year but not in the current assessment year. Therefore, even assuming that there should be some expenditure which could have been incurred by the assesse in earning exempt income in the circumstances of the present case disallowing Rs.70,00,000/- on adhoc basis out of total expenditure of Rs. 86,08,855/- debited to P&L a/c is totally unjustified. Therefore, we direct the A.O to disallow 20% of the expenditure debited to P&L a/c as the reasonable expenditure which can be said to be attributable for earning the dividend income.