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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: Shri C.N. Prasad, & Shri Ashwani Taneja
आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 17 {(in short ‘CIT(A)’}, order dated 09.04.2014 passed against assessment order u/s. 143(3) of the Act, dated 20.03.2013 for the Assessment Year 2010-11 on the following grounds:
2 Jigar Commodities & Derivatives P. L.
“The following ground of appeal is independent of, and without prejudice to, the other grounds of appeal for the year under reference:
1. The Commissioner of Income-tax Appeals - 17, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Income-tax Officer 8(2)(1), Mumbai (hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs 22,69,624, on account of expenses incurred for earning dividend income by invoking the provisions of section 14A read with rule 8D.
2. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have confirmed the action of the Assessing Officer in making the impugned disallowance of Rs 2 2,69,624 inasmuch as the same is not in accordance with the prescription of section 14A read with rule 8D.
3. The appellants further contend that the Assessing Officer ought to have informed the appellants of the correct calculation of disallowance per the provisions of section 14A r.w. Rule 8D (refer Circular no. 14 (XL-35) of 1955).”
During the course of hearing, arguments were made by Shri Rajiv Khandelwal, Authorised Representative (AR) on behalf of the Assessee and by Shri Ashish Heliwal, Departmental Representative (DR) on behalf of the Revenue.
It is noted that the only effective issue raised in this appeal is with regard to disallowance made by the lower authorities u/s 14A. It was submitted by the Ld. Counsel that in this case own funds of the assesse combined with interest free funds are more than the amount of investment made in the shares, and therefore interest cannot be disallowed in view of judgment of Hon’ble Bombay High Court in the case of HDFC 365 ITR 505. In addition to the above, it was further submitted that the 3 Jigar Commodities & Derivatives P. L.
investment made in the shares were substantially in the case of group companies for strategic reasons. On the basis of balance sheet and other papers enclosed on the paper book it was submitted that investment in the group companies was to the tune of 99.93 % and thus investment in other shares was merely 0.07% of the total investment. He, therefore, argued that since the investment was not for the purpose of earning tax free income, therefore, the expenses could not have been disallowed. In support of his arguments, he relied upon the judgment of Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT dated 02.09.2015 as well as CIT vs. Oriental Structural Engineers (P.) Ltd. 216 taxmann 92 and Garware Wall Ropers Ltd. 46 taxmann.com 18 (ITAT Mumba).
3.1. On the other hand, Ld. DR submitted that the assessee has himself made suo moto disallowance, and therefore disallowance to that extent cannot be deleted at this stage. Since the disallowance has been made by the assessee, admitting of the factual position that certain expenses were incurred for earning tax free income, and therefore, assessee cannot take a U- turn and change this factual position.
3.2. We have gone through order of lower authorities and copies of judgment placed before us as well as balance sheet and other documents shown to us. From the perusal of the balance sheet it is noted that own funds of the assessee and interest free funds combined together aggregated to Rs. 48.37 crores whereas, the total
4 Jigar Commodities & Derivatives P. L. investment made in the shares is around Rs.45.33 crores. Thus, apparently, interest free funds are more than the amount of investment. Thus, in view of judgment of Hon’ble Bombay High Court in the case of HDFC, (supra), we find that disallowance of interest u/s 14A was uncalled for. Further it is noted by us that substantial investment made by the assessee is in the group companies only, claimed to be for the strategic reasons, apparently. The position of law which has been emerged as on date is that investment made for strategic reasons and not for earning tax-free income, should not be considered for making disallowance under rule 8D. Therefore, under these circumstances, taking in the accounts all the facts and circumstances of the case, we find that disallowance made by the assessee suo moto could only be sustained, and rest of the disallowance made by the AO is directed to be deleted.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 16th March, 2016.