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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dt.8.7.2014 of CIT(A)-21,Mumbai, the assessee has filed the present appeal.Assessee-company, engaged in the business of trading and indenting of chemicals, filed its return of income 27.09.2010, declaring total income at Rs.17.37 crores. A revised return was filed on 10.8.2011 wherein the income was revised at Rs.17.45 crores .The Assessing Officer (AO) completed the assessment u/s.143(3) of the Act,determining the total income of the assessee at Rs.17.62 crores.
The effective Ground of appeal is about confirming the disallowance u/s. 14A of the Act to the extent of 0.5% of average investments in the Indian Companies.During the assessment proceedings the AO found that the assessee had earned dividend income of Rs.10.31 lakhs . The AO directed the assessee to explain as to why disallowance u/s. 14A r.w.r. 8D of the rules should not be made. The assessee vide its letter dt15.1.13 stated that dividend was earned on the investment made on mutual funds for short term period when the assessee was having surplus balance, that it had accumulated reserve of 25.75 crores as 6428/M/14-Crescent Info on 31.3.2010, that it had sufficient funds to invest in the securities, that it had not incurred any expenditure by way of interest during the year under appeal, that the AO had considered the investment made in foreign companies while making the disallowance, that the said disallowance was against the provisions of the law .The assessee referred to the case of Hero Cycles Ltd.(189taxmann50).However, the AO did not agree with the assessee and worked out disallowance at Rs.11.42 crores.As the assessee itself had made a disallowance of Rs.4,218/-, therefore an amount of Rs.11,37,000/- was added to the income of the assessee.
3.Aggrieved by the order of the AO, the assessee is in appeal before the First Appellate Authority (FAA). After considering the available material, the FAA held that the share capital and reserve of the assessee was Rs. 26.75 corrodes as on 31/03/2011, investment of Rs. 10.68 corrodes was made in shares, that it invested Rs. 7.35 corrodes in foreign shares.Following the judgement of Reliance Utility and Power Ltd. (313 ITR 340)he held that if the results and surplus along with the own funds were more than the investment it had to be assumed that the assessee had invested from his own funds. He disallowed the interest portion of the 14A disallowance.However, he directed the AO to compute administrative and managerial expenses at 0.5% of the average investments by deducting the foreign investment in shares. During the course of hearing before us,the Authorised Representative (AR) stated that strategic investment made by the assessee in the Indian companies should have been excluded while making the disallowance. He referred to the case of Hon’ble Gujarat High Court,delivered in the case of Suzlon Energy Ltd. (354ITR 630).The Departmental Representative(DR) supported the order of the FAA. After considering the rival submissions,we are of the opinion that,while computing the disallowance under section 14A r.w.r.8D of the Rules,strategic 2
6428/M/14-Crescent Info investments made in domestic companies has to be excluded. In the case under consideration, the FAA had directed the AO to exclude the foreign investment. But,he did not give relief with regard to investments made in Indian companies. We find that in the case of Suzlon Energy Ltd. (supra),the Hon’ble High Court has decided the issue in favour of the assessee.We would like to reproduce the relevant portion of the judgment and same reads as under: “3.Question (2) pertains to the disallowances made by the Assessing Officer under section 14A of the Act in respect of interest expenses incurred for investments made in subsidiaries and administrative expenses. The Commissioner of Income-tax (Appeals) deleted such disallowances, upon which, the Revenue approached the Tribunal. The Tribunal rejected Revenue's appeal, making the following observations (page 403 of 20 ITR (Trib) : "3.5 We have considered the rival submissions, perused the mate rial on record and have gone through the orders of the authorities below. Regarding the grounds raised by the Revenue in respect of disallowance of interest expenditure made by the Assessing Officer under section 14A and deletion made by learned Commissioner of Income-tax (Appeals), we find that no interference is called for in the order of the learned Commissioner of Income-tax (Appeals). We hold so because we find that with regard to the investment of Rs. 5907.18 lakhs in foreign subsidiaries, no disallowance can be made under section 14A because dividend income from foreign subsidiaries is taxable in India. Regarding the balance investment of Rs. 38 crores approximately in Indian subsidiaries, we find that interest-free own funds of the assessee is many time more than this investment because interest-free funds available with the assessee as on March 31, 2005, as per the balance-sheet as on that date is of Rs. 929.57 crores. There is no finding given by the Assessing Officer regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance under section 14A can be made out of interest expenditure in the facts of the present case. Accordingly, ground Nos. 2 and 3 of the Revenue's appeal are rejected." 3.1 From the above portion, we noticed that the Tribunal has bifur cated the expenditure into two parts, the first related to investment of Rs.5907.18 lakhs in foreign subsidiaries, it was held that the dividend income from such subsidiaries is taxable in India and that, therefore, sec tion 14A would have no applicability. The remaining amount pertain to investment of Rs. 38 crores (rounded off) made in Indian subsidiaries. In this respect, the Tribunal noted that the assessee had to its disposal, own interest-free funds many times over the investment in question. As per the balance- sheet as on March 31, 2005, the assessee had interest-free fund of Rs. 929.57 crores. 3.2 Such being the facts, the Tribunal, in our opinion, committed no error. No question of law, therefore, arises.” Respectfully,following the above judgment,effective ground of appeal is decided in favour of the assessee.