MIRAH HOSPITALITY & FOOD SOLUTONS P.LTD,MUMBAI vs. ACIT CEN CIR 14, MUMBAI

Since, the grounds raised

Briefly stated relevant facts of the case are that the assessee, who is engaged in the business of „Hotels & Resorts‟, filed the return of income for the AY 2009-2010 declaring the total loss of Rs.43,15,534/- after set off of LTCG of Rs. 1,31,36,082/-. Assessee is a group concern of M/s. Twinkle Group. There was a search and seizure action on the said M/s. Twinkle Group u/s 132 of the Act. Accordingly, in response to the notice u/s 153A of the Act, assessee filed the return of income declaring the same total loss (Rs. (-) 43,15,334/-). AO completed the assessment u/s 143(3) r.w.s 153A of the Act determining the total loss of Rs. 3,82,977/- which include certain disallowances and Rs. 27,68,422/- is one such disallowance made u/s 14A r.w. Rule 8D of IT Rules, 1962. Aggrieved, assessee carried the matter in appeal before the first appellate authority.

During the proceedings before the first appellate authority, assessee submitted that the investment were made with a view to acquiring strategic business stake and not to earn exempt income in the form of dividend. After considering the submissions of the assessee, CIT (A) confirmed the disallowance made by the AO. Aggrieved, assessee is in appeal before the Tribunal by raising the above mentioned grounds. 5. During the proceedings before us, at the outset, Ld Counsel for the assessee filed various precedents vide paper book, which contains 65 pages. Ld Counsel for the assessee demonstrated the fact that the assessee is having excess interest free funds / own funds more than the interest bearing funds. He further mentioned that since the assessee made the investments out of interest free funds no disallowance is required to be made u/s 14A of the Act. In support of his contention Ld Counsel for the assessee brought our attention to judgment of the Hon‟ble jurisdictional High Court in the case of HDFC Bank Ltd vs. DCIT [2016] 383 ITR 529 (Bom) which is relevant for the proposition that when the assessee is having interest-free funds or own funds more than the interest bearing funds, then the presumption is that the investment in tax free securities has been made from interest free funds and therefore, no disallowance is permissible u/s 14A of the Act. Ld Counsel for the assessee further, mentioned that the investments are made by the assessee only in the group concerns of the assessee and not in any unrelated party. Therefore, the said investments constitute only passive investments made for the purpose acquiring strategic business stake and nor for the purpose of earning any dividend income. Ld Counsel for the assessee vehemently argued that when there is no expenditure incurred directly or indirectly for the purpose of earning the exempt income and in that eventuality no disallowance can be made u/s 14A of the Act. In this regard, Ld Counsel for the assessee relied on various decisions of the Tribunal viz (i) M/s. Twinke Enviro Tech Ltd vs. DCIT in to 1754/Mum/2013; (ii) CIT vs. M/s. Smart Chip Ltd in ITA No.1923/M/2012; (iii) M/s. J M Financial Ltd vs. Addl. CIT in ITA No.4521/Mum/2012; (iv) Garware Wall Ropes Ltd vs. Addl. CIT; (v) Jigar P Shah vs. JCIT in ITA No.4366/M/2014. Bringing our attention to decisions of the Tribunal in the case of Garware Wall Ropes Ltd (supra) wherein the Tribunal concluded that when the assessee has prima facie brought out case that no expenditure has been incurred for earning exempt income, which does not form part of total income, then in the absence of any finding that expenditure has been incurred for earning exempt income, provisions of section 14A cannot be applied. Ld Counsel for the assessee further mentioned that in the year under consideration, assessee earned dividend income of Rs. 2,47,613/-, whereas the AO made disallowance u/s 14A to the extent of Rs. 27,68,422/-. In this regard, it is the contention of the assessee that at best, if the disallowance u/s 14A could be made, the same cannot exceed exempt income ie to say disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. For this proposition, Ld Counsel for the assessee relied on various precenets. viz (i) judgment of the Hon‟ble Delhi High Court in the case of Joint Investments P Ltd vs. CIT (372 ITR 694) (Delhi HC); (ii) decision of the Tribunal in the case of Daga Global chemical P Ltd vs. ACIT in ITA No.5592/M/2012 and (iii) another decision of the Tribunal in the case of Diligent Investment Ltd vs. ITO in ITA No.222/Mum/2012. Ld Counsel for the assessee also brought our attention to the working of the disallowance u/s 14A of the Act and mentioned that the disallowance u/s 14A is required to be made only in respect of the investments which have yielded exempt income. In this regard he relied on certain decisions viz (i) the order of the ITAT, Kolkata in the case of REI Agro Ltd vs. DCIT [2014] 144 ITR 141 (Kolkata – Trib) dated 19.6.2013 and (ii) decision of the ITAT, Mumbai in the case of Sylvex Cable Co. Pvt Ltd vs. JCIT.

On the other hand, Ld DR for the Revenue relied on the orders of the Revenue Authorities.

We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decisions of the Tribunal and the relevant material placed before us. On perusal of the facts of the case, we find, the issues involved in this appeal are (i) whether the assessee used own and interest free funds for investment; (ii) whether the investments are only in the group concerns of the assessee for the purpose of acquiring strategic business stake or in any unrelated companies with a moto to earn exempt income and (iii) whether the disallowance u/s 14A r.w. Rule 8D can exceed the exempt income etc. Considering the precedents as well as the decisions of the Tribunal (supra) cited by the Ld Counsel for the assessee before us, we find, the issues involved in this appeal are settled in nature and therefore, in our opinion, the issues are required to be remanded to the file of the AO for deciding them afresh in the light of the above cited decisions and comparing the facts of the said cases with that of the instant appeal. We order accordingly and AO is directed to decide the issues afresh and grant relief to the assessee if the facts are identical. AO shall grant a reasonable opportunity of being heard to the assessee as per the principles of natural justice. Accordingly, grounds raised