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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI PAWAN SINGH, JM
O R D E R
Per Pawan Singh, JM:
The present appeal is filed by the Revenue against the order of CIT(A)-8, Mumbai dated 09.7.2013 for A.Y. 2005-06. The sole ground in the present appeal is against the disallowance u/s. 14A r/w Rule 8D of the Act, on the pretext that there is diversion of funds to subsidiary company.
The brief facts of the case are that the assessee company which is involved in the business of real estate and infrastructure development filed its return of income on (A.Y. 2005-06) Dy. CIT vs. Mahindra Infrastructural Projects Pvt. Ltd. 29.10.2005, declaring loss of Rs.3,07,18,605/-. The return of income was selected for scrutiny and while making the assessment the A.O. besides other disallowance/addition disallowed a sum of Rs.6.27 lacs u/s. 14A in the assessment order dated 09.12.2007. The assessee carried the matter before the CIT(A). The CIT(A) deleted the disallowance u/s. 14A and set aside/deleted the addition and directed the A.O. to determine the amount of expenditure incurred in relation to exempt income in accordance with the direction given by CIT(A) dated 24.2.2010 in respect of assessee’s own case for A.Ys. 2003-04, 2004-05 and 2005-06 against which the present appeal is filed before us.
Rival contention of the AR for party heard and record perused. Ld. AR for assessee’s argued that the present appeal is covered by the decision of ITAT Mumbai in assessee’s own case for A.Y. 1994-95 and 1996-97 decided on 25.11.2004 in and 1031/M/2000. DR relied on the order of A.O.
We have perused the order of co-ordinate bench of ITAT in assessee’s own case for A.Y. 1994-95 & 1996-97, wherein it was held as under:
‘5. We have taken note of the undisputed factual position that the investment made by the assessee is mainly in the equity share capital or Corbel Estate & Investments Pvt. Ltd. which is also engaged in the business of property development, and that the said investment represents controlling interest. The question then is whether it can be said that the assessee held these shares only for the purpose of earning the dividends. The answer, in view of the admitted factual position about the investment being in the nature of controlling interest, has to be in negative. In other words, on the facts of this case it could not be said that the investment in Corbel Estate & Investments was for the purpose of earning dividends. In this backdrop, let us now see the principles laid down by Hon'ble Calcutta High Court in the case of CIT Vs Anniversary Investment Agencies Limited (175 ITR 199). Their Lordships referred to and relied upon the judgments in the cases of CIT Vs New India Investment Corporation Ltd 113 ITR 778 and CIT Vs Devenport & Co Pv L d 158 ITR 348 in support of the proposition that (A.Y. 2005-06) Dy. CIT vs. Mahindra Infrastructural Projects Pvt. Ltd. once it is not possible to attribute any particular item of expenditure having been incurred solely for the purpose of earning dividend income, the expenditure, including the interest, has to be allowed in computing the business income. Their Lordships further held that it is only for the purpose of income tax assessment that the dividend is required to be shown under a different head, but it continues to be in the nature of business income and no part of expenditure can be apportioned under the head income from other sources. These observations were made in a case where shares were held as stock in trade but then as clearly noted in the text of the judgment, the important factor was whether or not the expenditure was held solely for the purpose of earning dividend in which case the admissibility could only be considered under section 57(iii). That is not the situation before us. No decision to the contrary by the Hon'ble jurisdictional High Court has been cited before us. As held by the Tribunal in the case of Tej International Pvt. Ltd Vs DCIT (69 TTJ 650), even a non jurisdictional High Court holds the field unless there is a direct jurisdictional High Court judgment is directly to the contrary. The school of thought emerging from these discussions supports the conclusions arrived at by the CIT(A). In this view of the matter, we see no infirmity in the conclusions arrived at by the CIT(A) and approve the same.’
We have further noticed that while deleting the addition/disallowance u/s. 14A, ld. CIT(A), on relying the order of CIT(A) in assessee’s own case for A.Y. 2003-04, 2004-05 and 2006-07, relied on the following observation: “I have considered the submissions. The issue of disallowance u/s. 36(1)(iii) has become irrelevant after introduction of sec. 14A and a notification of Rule 8D. U/s. 14A expenditure incurred in relation to exempt income is not allowable. It cannot be said that no expenditure is attributable in relation to income or potential income by way of dividends. Even if, there is some business purpose behind the investment made in M/s. Corbel Estate, the fact remains that income generated out of investment is in the form of dividends which is not taxable. The issue then is whether any expenditure has been incurred in relation to such exempt income. Rule 8D has been notified u/s. 14A. This Rule applies either when the assessee claims that no expenditure has been incurred or when the AO and the assessee disagree on the amount of such expenditure. This rule provides a uniform and standard method for determining the amount of expenditure incurred in relation (A.Y. 2005-06) Dy. CIT vs. Mahindra Infrastructural Projects Pvt. Ltd. to exempt income. The operation of this rule has been declared as retrospective by the Spl. Bench of the ITAT in Daga Capital Management (117 ITD 169). It has also been held in the same case that expenditure has to be disallowed even if no income by way of dividend is earned during the year. In view of the above, Rule BD has to be applied in the case of the appellant and the proportionate expenditure in relation to exempt income determined. The AO has followed a method which is not fully consonant with the method provided in rule 8D. The AO is directed to determine amount of expenditure incurred in relation to exempt income by applying the method prescribed in Rule BD. The disallowance of proportionate expenditure determined in each year according to the above rule would be the amount of disallowance that is confirmed. Any amount of disallowance which is higher than the amount computed as per rule 8D should be treated as deleted."
Ld. CIT(A) perused the order, on the basis of principle of consistency and directed to the A.O. determine the amount of expenditure incurred in relation to the exempt income. Hence, we do not find any illegality or infirmity in the order of CIT(A). Hence, the appeal filed by the Revenue is dismissed.
In the result, the Revenue’s appeal is dismissed. प�रणामतः राज�व क� अपील खा�रज क� जाती है । Order pronounced in the open court on 07.04.2016