J.K. HELENE CURTIS LTD,THANE vs. DCIT 2(2), MUMBAI

This is an appeal filed by the assessee and is directed against the order of the Ld. CIT(A)-5, Mumbai dt.12.10.2015 pertaining to A.Y. 2011-12.

Only ground of appeal is against the upholding of disallowance of Rs.3,63,102/- by the ld. CIT(A) as made by the AO under section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962, specially by ignoring the fact that the assessee has sufficient own funds to make investments that too in the group companies and did not use any borrowed funds for the purpose as such.

Facts in brief are that the assessee filed its return of income on 16.9.2011 declaring total income of Rs.22,63,69,550/- which was processed under section 143(1) on 9.1.2012. Thereafter the case of the assessee was selected for scrutiny and statutory notices under section 143(2) read with section 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee has received exempt income by way of dividend to the tune of Rs.4,60,342/-. The AO also observed that the assessee has purchased and sold investments in several mutual funds on which exempt dividend income has been earned. The assessee has suo-mottu made a disallowance of Rs.77,240/- u/s 14A while filing the return. The AO finding fault with the assessee in computation of income issued show cause notice as to why the provisions of section 14A r.w.rule 8D should not be invoked. Finally the AO rejected the submissions of the assessee and calculated the disallowance of Rs.10,02,454/- and made addition to the total income of the assessee u/s 14A by assessing the total income 22,72,94,764/- vide order dated 31.1.2014 passed under section 143(3) of the Act. Aggrieved by the order of AO, the assessee preferred an appeal before the ld.CIT(A), who in turn partly allowed the appeal of the assessee by observing as under : “5. I had considered the appellant's submissions. In this case the appellant received dividend income of Rs 4,40,342/- and the AO had disallowed an amount of Rs.9,25,214/- after considering the suo moto disallowance made by the appellant of Rs.77,240/-. During the appellate proceedings, the appellant submitted that the disallowance cannot be more than the exempt income of Rs 4,40,3421- in view of the Delhi High Court decision in the case of Joint Investments P Ltd V

At the time of hearing, the ld.AR submitted that before us that when the assessee’s own funds is sufficient to cover the investments made in the group companies and therefore the disallowance was wrongly calculated by the AO and also wrongly restricted and sustained by the ld.CIT(A). The ld. AR further submitted that assessee’s own funds were far more than the investments made in the group companies and also the investments is of strategic nature and therefore the disallowance made by the AO and partly allowed by the ld.CIT(A) deserved to be deleted.