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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: HON’BLE S/SHRI JOGINDER SINGH (JM), & RAJESH KUMAR,(AM)
स्थधमी रेखध सं./जीआइआय सं./PAN No. :AAACT0213D अऩीरधथी ओय से / Appellant by: Shri Haridas Bhat प्रत्मथी की ओय से/Respondent by Shri A Ramchandra सुनवधई की तधयीख / Date of Hearing : 27.7.2016 घोषणध की तधयीख /Date of Pronouncement : 10. 08.2016 आदेश / O R D E R Per RAJESH KUMAR, Accountant Member: These are the two appeals filed by the assessee. Appeal for the assessment year 2001-02 is directed against the order of the Ld. CIT(A)- 12,Mumbai dated 26.9.2014 and appeal for the assessment year 2008-09 is directed against the order dated 1.9.2014 passed by the ld.CIT(A)-12, Mumbai. Since, the appeals before us relate to the same assessee, therefore, for the sake of convenience, they are clubbed together, heard together and disposed of in this consolidated order.
At the time of hearing, the ld.AR of the assessee did not press ground no.2, therefore, dismissed as not pressed.
The issue raised in ground no.1 is against the confirmation of addition of Rs.4,00,210/- u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act) by the ld. CIT(A) as made by the AO under section 14A of the Act.
During the year relevant to the assessment year under consideration, the assessee earned dividend income of Rs.80,232/-, whereas the AO calculated disallowance under section 14A read with rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as Rules) Rs.4,00,210/- comprising disallowances of proportionate u/r 8D 2(ii) Rs.3,55,869/- and Rs.44,341/- under rule 8D (2)(iii) in the assessment completed u/s 143(3) r.w.s.254 of the Act as the Tribunal directed the AO to calculate the disallowance in terms of rule 8D. The ld. CIT(A) upheld the order of AO by invoking the provisions of section 14A r.w.r. 8D of the Rules. Aggrieved by the order of ld.CIT(A), the assessee has preferred an appeal before the Tribunal.
The ld.AR during the course of hearing pointed out that provisions of section rule 8D was not applicable to the year under consideration as the same was applicable from the assessment year 2008-09 and therefore the ld. AR prayed that the reasonable disallowance may be made keeping in view
Per contra, the ld. DR while opposing the submissions of the ld.AR submitted that the disallowance was rightly calculated by the AO under section 14A r.w.r 8D.
We have considered the rival contentions and perused the material placed before us including the orders of authorities below on the issue. We find merit in the submissions of the ld.AR that rule 8D is not applicable to the assessment year 2001-02 as the same was made applicable with effect from assessment year 2008-09. During the course of hearing, we find that the assessee has earned dividend on the investment of Rs.84 lakhs. The disallowance of Rs.4,00,210/- made by the AO by invoking the provisions of rule 8D of the Rules is on the higher side and excessive in view of the amount of dividend and quantum of investment made by the assessee. Therefore, we feel it reasonable and fit to reduce the disallowance to Rs.70,000/- which will be considered as reasonable in the present circumstances of the case. Accordingly, we set aside the order of ld.CIT(A) and direct the AO to delete the addition to the extent of Rs.3,30,210/-. Resultantly, the ground taken by the assessee is partly allowed.
4 and 7026/ M um/ 2014 9. First we shall take the appeal in ITA No. 7026/Mum/2014 relating to the assessment year 2008-09 10. During the year under consideration, the assessee earned an income of Rs.1,59,176/-, whereas the AO invoking the provisions of under section 14A read with rule 8D of the Rules) disallowed a sum of Rs.6,25,478/- comprising Rs.4,87,595/- under rule 8D (2)(iii) and Rs.1,37,884/- under rule 8D(2)(iii). The ld. CIT(A) also upheld the order of AO on this issue by holding that the AO is free to look into the matter in view of the observation in 5.1 of the appellate order. Aggrieved by the order of ld. CIT(A) the assessee is in appeal before the Tribunal.
The ld.AR submitted before us that the assessee has not used any interest bearing borrowed funds for the purpose of investment into the shares and securities and therefore no disallowance is called for under rule 8D(2)(ii) of the IT Rules. The assessee has sufficient own funds to take care of investments. Alternatively, the ld.AR submitted that the investment were made in the sister concern were in the nature of strategic and to gain control over the sister concern and the provisions of section 14A were not applicable to the case of the assessee. On the contrary, the ld DR strongly objected to the submissions of the ld.AR and heavily relied on the orders of authorities below.
We have considered the rival contentions and perused the material placed before us including the orders of authorities below on the issue. The ld. AR vehemently argued that the assessee has made investment in the 5 and 7026/ M um/ 2014 shares and securities which were not interest bearing and also that the investment were made in the shares and securities of associate /subsidiary companies which are not governed by profit or for earning dividend income but are made with the motive of gain control over the subsidiaries/associate concern. We find merit in the submission of the ld.AR that the disallowance under section 14A read with rule 8D(2)(ii) are not attracted in the present case since own funds of the assessee were much more than the investment made in shares and securities and own funds were sufficiently available to cover the amount of investment in shares and securities. We also are in agreement with the ld.AR that section 14A is not applicable at all to the case in hand as the investment made to gain control over the subsidiaries/associate concern. We find that the mater requires verification as no facts are available before us to verify the submissions of theld.AR. We, therefore, set aside the order of ld.CIT(A) and restore the issue to the file of AO with a direction to delete the disallowance under rule 8D(2)(ii) of the rules of Rs.4,87,595/- if the assessee has own funds more than investments and in case, the investments are made in the subsidiaries/associate concerns delete the disallowance completely. While coming to this conclusion, we get support from the decision in the cases of CIT V/s RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (Bom), CIT V/s HDFC BANK LTD. [2014] 366 ITR 505 (Bom) wherein it has been held that if the assessee has interest free and interest bearing funds for making investment and if the interest free funds are more than the interest bearing funds, then no disallowance under 6 and 7026/ M um/ 2014 rule 8D (2)(ii) of the Rules is required. In case of strategic investments in subsidiary concerns, no disallowance u/s 14A is called for as has been held by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. v. CIT (Delhi High Court)(2015) 378 ITR 0033 (Del).
Resultantly, the appeal of the assessee is allowed for statistical purposes.