TATA INVESTMENT CORPORATION LTD,MUMBAI vs. ASST CIT 2(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dated 26.12.2012 of the CIT (A)-6,Mumbai, the assessee has filed the present appeal.Assessee an investment company filed its return of income on 26.09.2009,showing income of Rs.28.91Crores under the normal provision and book profit of Rs.148.70 Crores u/s.115JB of the Act.The Assessing Officer (AO),completed the assessment,u/s.143(3)of the Act,on 29. 07.2011,determining the its income at Rs.32.25 crores and at Rs.149.22crores under the MAT Provisions.The assessee has filed an application to admit additional grounds and has stated that the grounds raised through the application were legal in nature.Considering the fact that same deal with legal issues,we allow the assessee to argue them.

2.During the course of hearing before us, the Authorised Representative(AR) stated that assessee was not interested in pressing grounds number 2 &3 as well as additional grounds 1,2,3,4(b).Hence,all those grounds stand dismissed as not pressed. 3.He fairly considered that ground number one is to be decided against the assessee in view of the decision of the Hon’ble Bombay High Court,delivered in 1398/M/13 Tata Investment Corpn.Ltd. the case of Godrej & Boyce Manufacturing Co.(328 ITR 81).We are reproduc- ing the relevant portion of the order and same reads as under: 54. We do not find any warrant for an artificial reading down of the pro visions of section 14A in the manner that is sought to be done. Section 14A plainly stipulates that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Dividend income does not form part of the total income under the Act by virtue of the provisions of section 10(33).Consequently, it is impossible to accede to the submission that section 14A should be confined only to those categories of income, such as agricultural income, where the income is exempt in the hands of any person.” Respectfully,following the above,GOA-1 is decided against the assessee.

4.Remaining grounds,i.e.additional grounds,deal with disallowance to be made under section 14A of the Act.During the assessment proceedings,the AO found that the assessee had earned exempt income under the heads Long Term Capital Gains(LTCG for computation under the normal provisions -Rs.93.83 Crores ), Dividend and Interest on UTI 64 Tax Free Bonds( for computation under the normal and MAT provisions-Rs.55.90 Crores and Rs.0.05 Crores respective - ly).He further noticed that the assessee had disallowed Rs.2.82 Crores being the expenditure incurred to earn exempt income,that it had disallowed the expenditure in the ratio of exempt income to total income.The assessee claimed that the method adopted by it was approved by the Department in the past and that the Tribunal had also confirmed it,that same method should be followed for the year under consideration. After considering the submissions of the assessee, AO held that the method followed by the department in earlier years could not be adopted,that the legisla -ture had specifically prescribed the method to ascertain the expenditure relevant to exempt income,that the assessee was not maintain separate books of accounts for exempt and taxable incomes,that it expressed its inability for explain as to whether a particular expenditure debited in the profit and loss

1398/M/13 Tata Investment Corpn.Ltd. account was for the purpose of earning tax free income or taxable income,that the disallowance of earlier years on proportionate basis did not give the correct quantum of expenditure incurred to earn the tax free income. Without prejudice the assessee reworked the disallowance at Rs.3.34 Crores, u/s.14A of the Act,as against the disallowance of Rs.2.82 Crores made earlier. Accordingly,the AO made a further disallowance of the difference of Rs.55.04 lakhs(Rs.3.34 lakhs-Rs.2.82 Crores)and added it to the income of the assessee. While computing the income under the MAT provisions,he adopted the same disallowance.

5.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that the assessee had disallowed the expenditure as per the ealier years i.e.up to AY.2008-09,that dis - allowance should be reasonable and fair,that it should not be computed by mechanically applying Rule 8D of the Rules,that out of the total expenses of Rs.9.97 Crores it had on its own disallowed Rs.3.15 Crores,that out of the balance expenditure of Rs.6.82 Crores it further made a disallowance of Rs.2.82 Crores, that it amounted to 41% of the balance expenditure,that the disallow - ance made by it was fair and reasonable, that the AO had not recorded the satisfaction as to why he was not satisfied with the correctness of the disallow - ance offered by the assessee.It referred to the cases of Hero Cycles(323 ITR 518),SIL Investment Ltd.,Jindal Photo Ltd.and argued that the AO had not discharged his onus. After considering the submissions of the assessee and the assessment order, the FAA held that legal and factual position of determination of expenditure attributable to exempt income u/s.14A for AY.prior to applicability of Rule 8D of the Income Tax Rules,1962(Rules)and subsequent to applicability of the Rule were quite different, that the provisions of Rule were applicable from AY.2008- 09,that after applicability of Rule 8D the manner of computation of expenditure

1398/M/13 Tata Investment Corpn.Ltd. attributable to exempt income in past years could not be applied in the year under appeal,that had recorded the satisfaction about the disallowance made by the assessee,Finally,he confirmed the order of the AO.

6.During the course of hearing before us,the(AR) argued that assessee had earned dividend income of Rs.55.90 Crores and Long-Term Capital Gain of Rs.93.83 Crores,it had suo motu made a disallowance of Rs.2.82 Crores, that the AO had made the disallowance of Rs.3.34Crores,that it had made proportionate disallowance as per the provisions of section 14A of the Act, that the AO had applied the formula of 0.5% of the investment for making the dis - allowance,that in the AY. 2008-09 the assessee had disallowed the expenditure as per the provisions of Rule 8D of the Rules,that before that the disallowance was made on pro-rata basis,that companies from where tax-free income was not received should be excluded for the disallowance,that investment made for strategic investment should be excluded for making the investment.He referred to the cases of Holcim India Private Limited (58taxmann.com28); Cheminvest Limited(61taxmann.com118);M/s. Lakhani Marketing(49taxmann. Com 257); M/s.Shivam Motors (P) Ltd. (55 taxmann.com 262 );Corrtech Energy Pvt. Ltd. (372ITR97);ACB India Limited (374ITR108);Living Media India Ltd.(70 SOT 536);Delite Enterprises(ITA/No.110/2009 dt.26.2.2009) and REI Agro Ltd.(ITA No.1331/Kol/2011 dt.19.6.2013). With regard to additional Ground one and 4(a),he stated that figure adopted for normal provisions of the Act should also be accepted for MAT purposes. Dealing with Ground no.5,he argued that disallowance u/s.14A should be less than the disallowance under regular provisions.

7.We have heard the rival submissions and perused the material before us.We find that out of the total expenditure of Rs.9. 97Crores the assessee had disallowed a sum of Rs.3.15 Crores initially,that the AO made a disallowance of 1398/M/13 Tata Investment Corpn.Ltd.

Rs.55.04 lakhs as against the further disallowance of Rs.2.82 Crores made by the assessee, that in the earlier year the assessee was making a proportionate disallowance of the expenses and the AO was allowing it,that even in the AY.2008-09,when the Rule 8D was applicable,that the AO had not disturbed the pattern followed in earlier year,that in the year under consideration the AO rejected the pattern followed by the assessee that was also approved by the Tribunal,that the FAA had simply endorsed the order of the AO holding that different treatment was to be given in making the disallowance u/s. 14A of the Act in the pre and post Rule 8D period.We find that the FAA has not passed a speaking and reasoned order.He had not considered the fact that in the immediate earlier AY.,when the provisions of Rule 8D were very much applica -ble the AO had followed the pattern that was being adopted in the earlier years and he had not brought on record any evidence to show that facts for the year under appeal were different than the facts for the earlier AY.Rule of consistency demanded that AO should have brought on record the distinguishing features. But,his order is silent in that regard.Even then in a cryptic order the FAA upheld the stand taken by the AO.Therefore,in the interest of justice we are restoring back the matter to the file of the FAA for fresh adjudication.He would decide the issue raised by the assessee i.e.additional ground no.4 (b)and 5,after afford - ing a reasonable opportunity of hearing to it.Additional grounds raised by the assessee(Addl.GOA 4-b and 5)are decided in its favour,in part.

As a result, appeal filed by the assessee stands partly allowed. फलतः िनधा�रती �ारा दािखल क� गई अपील अंशतः मंजूर क� जाती है. Order pronounced in the open court on 26th August,2016. 2016 को क� गई । आदेश क� घोषणा खुले �यायालय म� �दनांक 26 अग�त , Sd/- Sd/- (सी. एन. �साद / C.N. Prasad ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांकDated : 26.08.2016. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 5

1398/M/13 Tata Investment Corpn.Ltd.