EMKAY GLOBAL FINANCIAL SERVICES LTD,MUMBAI vs. DCIT CR 4(1), MUMBAI

आदेश / O R D E R

Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against order of Ld. Commissioner of Income Tax(Appeals), Mumbai-8 (in short ‘CIT(A)’}, dated 13.03.2014 passed order against u/s 143(3) of the Act, dated 30.12.2011 for Assessment Year 2009- 10 on the following Grounds: 1.The Learned CIT(A) has grossly erred in confirming the disallowance Rs.16,85,305/- u/s 14A of the Income Tax Act, 1961 disregarding the detailed submissions made by the appellant and the reasons assigned by him in 2 Emkay Global doing so are wrong and are contrary to the provisions Income Tax Act, 1961 and Rules made there under. 2. The Appellant craves leave to add to/or amend and/or delete and/or modify and/or alter the aforesaid ground of appeal

as and when U occasion demands.

2. During the course of hearing, arguments were made by Shri Sanjiv M. Shah, Authorised Representatives (AR) on behalf of the Assessee and by Shri T.A Khan, Departmental Representative (CIT-DR) on behalf of the Revenue.

3. The only ground raised in this appeal with regard to disallowance made u/s 14A. 3.1. The brief background is that in this case the assessee had suo moto disallowance of Rs.21,699/- u/s 14A in its return of income. But, the AO was of the view that disallowance is to be made under Rule 8D(2)(iii), and therefore, he computed total disallowance to be made for Rs.17,07,004/-. Thus, he made net disallowance of Rs.16,85,395/- (i.e. 17,07,004-21699). The assessee contested disallowance before the Ld. CIT(A) inter alia on the ground that the major investment was made in the group companies for the purpose of strategic reasons. But, Ld. CIT(A) did not accept submissions of the assessee and disallowance made by the AO was confirmed. 3.2. During the course of hearing before us, it was stated at the outset by Ld. Counsel of the assessee that disallowance u/s 14A was made in identical manner by the AO in the assessment year 2010-11 wherein the issue had reached before the Tribunal and Tribunal deleted the disallowance vide its order dated 13.07.2016 in ITA No.7218/Mum/2014. He 3 Emkay Global requested for deleting the disallowance in this year also following order of the Tribunal in earlier years. 3.3. Per contra Ld. DR relied upon the orders of the lower authorities. 3.4. We have gone through the orders passed by the lower authorities as well as order of the Tribunal for A.Y. 2010-11. It is noted that while deleting the disallowance u/s 14A in A.Y.2010-11, the Tribunal observed as under: 5. We have heard the rival submissions and perused the material before us. We find that the assessee had earned dividend income of Rs.2.58 lakhs, that it had made a disallowance of Rs. 21,568/-on its own with regard to earning of exempt income, that the FAA upheld the disallowance of Rs. 40.51 lakhs,made by the AO u/s.14A of the Act, that assessee had made investment in the subsidy companies, that the said fact was ignored by the AO and the FAA while working out the disallowance, that they did not consider the availability of assessee’s own funds including the reserves and surplus before making the disallowance. In our opinion, without considering this vital fact they should not have made the disallowance of Rs.40.51 lakhs against the exempt income of Rs. 2.58 lakhs. In our opinion, disallowance to be made u/s.14A of the Act should not exceed the exemption claimed by the assessee. The basic purpose behind introducing the section was to prevent the assessee claiming double deduction i.e. showing exempt income and claiming expenditure with regard to the same exempt income. Therefore, the Hon’ble courts are of the view that disallowance should be restricted to the interest-free income only. The AO and the FAA have mechanically applied the provisions of Rule 8D. In our opinion, the approach of both the authorities was not as per the provisions of the Act. The assessee had, on its own, made a disallowance with regard to the expenditure incurred for earning exempt income. The FAA has not pointed out any defect in the approach of the assessee. It had disallowed the amount that was incurred by it for earning exempt 4 Emkay Global income. If there was no other expenditure related with the tax free income then there was no justification for disallowing it. Considering the above, we reverse the order of the FAA and decide the effective ground of appeal in favour of the assessee.” 3.5. It is thus, noted from the above that the disallowance has been deleted by the Tribunal mainly on the ground that the investments was made by the assessee in the subsidiary companies for strategic reasons. It was also observed by the Tribunal that the suo-moto disallowance was made by the assessee with regard to expenditure incurred in the earning exempt income. The lower authorities did not point out any defect in working out the amount of disallowance. It was stated during the course of hearing that facts are identical in this year also. No distinction has been made by the Ld. DR between the facts of the two years. Thus, respectfully following the order of the Tribunal for A.Y.2010-11, disallowance made u/s 14A is deleted in the year before us.

4. In the result, the appeals of the assessee is allowed.

Order was pronounced in the open court at the conclusion of the hearing.