BACHHRAJ & COMPANY P.LTD,MUMBAI vs. ITO 3(1)(2), MUMBAI

The core issue involved in these appeals relates to the application of the provisions of section 14A read with Rule 8D(2)(iii) of the IT Rules, 1962 (the Rules). While quantifying the disallowance under the said clause (iii) of Rule 8D(2) of the Rules, the Assessing Officer considered the average investment of Rs. 25.67 Crs (reounded off) for the AY 2008-2009. Similarly, average investment considered for the AY 2010-2011 is Rs.30.25 Crs (rounded off). Aggrieved assessee carried the matter in appeal before the first appellate authority in both the years.

During the proceedings before the first appellate authority, after considering the submissions of the assessee CIT (A) partly allowed the appeals of the assessee in both the year and confirmed the disallowance made u/s 14 read with Rule 8D(2)(iii) of the Rules. Again aggrieved with the said decision of the CIT (A), assessee is in appeal before the Tribunal for both the AYs 2008-09 and 2010-11.

Before us, for the first time, Ld Counsel for the assessee brought to our notice that the said average investment computed in both the years requires down ward revision in view of the coordinate Bench decision in the case of Garware Wall Ropes Ltd vs. Addl. CIT [2014] 65 SOT 86 (Mumbai-Trib.); decision of the ITAT, Mumbai in the case of M/s. JM Financial Limited vs. Addl. CIT in (AY 2009-2010), dated 26.3.2014 and many other cases qua the strategic investments are become part of the investments of the assessee. Relying on various decisions, Ld Counsel for the assessee mentioned that this issue may be remanded to the file of the AO for recomputing the disallowance under the clause (iii) of Rule 8D(2) of the Rules qua the average investment strictly following the cited decisions on the issue under consideration. 5. On hearing both the parties and also on perusing the orders of the Tribunal in the case of Garware Wall Ropes Ltd (supra) and M/s. JM Financial Limited (supra), we find that it is a settled position of the issue that the strategic investments are basically invested not for earning dividend income and therefore are required to be adjusted while working out the average investments before applying 0.5% as per the clause (iii) of Rule 8D(2) of the Rules. Accordingly, we remand this common issue raised in both the AYs under consideration to the file of the AO for fresh adjudication and decision in the matter. AO is directed to grant a reasonable opportunity of being heard to the assessee as per the set principles of natural justice before finalizing the recomputation under the said clause (iii). We order accordingly. Thus, all the grounds raised