PANKAJ D. SHAH,MUMBAI vs. ACIT 21(1), MUMBAI

1. This appeal has been filed by the assessee against the order of Commissioner of Income-tax (Appeals) [hereinafter called Ld.CIT(A)] dt 19/05/2014 passed against the assessment order of the AO dt 25/03/2013 u/s 143(3) for A.Y. 2010-11 on the following grounds:

Commissioner of I.T. (A) erred in confirming application of Rule 8D (2)(iii) being 0.5% of average investment by ignoring fact that all investments are in group companies for maintaining control of group and investment was out of own net worth and appellant need not incur any administrative expenses to earn exempt income.

CCI Ltd vs JCIT – 20 Taxmann.com 196 (Kar) 3. Garware Wall Ropes Ltd vs Addl CIT – 46 taxmann.com 18 (Mum) 4. Rajendra D Shah – The Ld.Counsel also submitted that although arguments were made before the lower authorities in this regard, but, since the law in this regard was not properly evolved and since now various courts have clarified the correct position of law in this regard, this issue may be sent back to the file of the AO for proper verification of facts to decide this issue afresh accordingly.

Per contra, the Ld.DR relied upon the orders of the lower authorities.

We have gone through the orders passed by the lower authorities and judgements placed before us. It is noted with the assistance of the parties that balance-sheet of the assessee shows that assessee has own funds in the form of his individual capital aggregating to Rs.29.51 crores whereas the total amount of investment is around Rs.17.60 crores. Therefore, apparently, own funds of the assessee are far more than the amount of investment in tax free securities. Thus, in view of the judgement of Hon’ble Bombay High Court in the case of HDFC Bank Ltd (supra), we find that nothing was disallowable out of interest and, therefore, disallowance of interest of Rs.2,72,730 is directed to be deleted.

With regard to exclusion of the investment made in group companies for acquiring controlling interest for the purpose of determining the amount to be disallowed u/r 8D(2)(iii), it is noted with the assistance of the Ld.Counsel that there are various companies in which assessee has made controlling investments along with his other family members. In this regard, reliance has Tribunal in the case of family member of the assessee, viz. Shri Rajendra D Shah in dated 18-05-2016 wherein a view has been taken in favour of the said assessee by the Tribunal with the following observations: 6. After consideration of the rival submissions and arguments and relevant materials, we find from the balance sheet of the assessee that the assessee's own funds were Rs. 17.62 Cr v/s a v/s investments in shares Rs. 5.57 Cr which is placed at page no 11 of the paper book. The jurisdictional High Court in the case of HDFC Vs CIT (supra) has held that where the own funds are more than the investments In shares, the presumption is that the assessee has invested own funds and not loaned money into shares and thus no disallowance can be made under rule8D(2)(i,9. On the second limb of the addition the Id AR referred and relied on the decision Bombay Tribunal in the case of Garware Wall Ropes Ltd V Add. CIT (supra) in which the Tribunal has held that where the investments are made in the group companies and not in the shares of unrelated parties and the primary object is to hold the controlling stake in the group concern and not earning income out of investments then the disallowance under rule 8D cannot be applied and thus deleted the additions. In the case of the assessee, we find from details filed by the assessee during the course of hearing that the 99.78% of the total investments were made in the group concerns with the motive to hold the control in the said concern and not to earn any dividend or income. In our opinion, the case of the assessee is fully covered by the above cited decisions and therefore, following the ratio laid in the said decisions, we allow the appeal of the assessee by deleting the addition as made u/s14A read with Rule 8D of Rs. 4,57,101/-. Accordingly, grounds raised by the assessee are allowed.”

In this case, it was requested by the Ld.DR that since facts in this case are not Assessing Officer for which the Ld.Counsel did not raise any objection. Therefore, we send this issue back to the file of the Assessing Officer with the direction to allow the assessee the opportunity to submit requisite details in this regard. The assessee should furnish details of investment made in the case alongwith the family members. In case, it is found that the assessee, along with his family members has acquired controlling interest and the investee companies are group companies of the assessee, then the investment would be a strategic investment and in view of the judgments relied upon by the Ld.Counsel, the same needs to be excluded for the purpose of computing disallowance u/s 14A of the Act. Thus, with these directions, this issue is sent back to the file of the Assessing Officer to be decided afresh, after giving adequate opportunity to the assessee and keeping in view the judgements relied upon by the Ld.Counsel. Accordingly, the grounds of the assessee are partly allowed.

As a result, appeal of the assessee is partly allowed. Order pronounced in the court on this 21st day of September,2016.