FEDEX FINANCE P.LTD,MUMBAI vs. DCIT (OSD) CIR 3(3), MUMBAI

The above captioned two appeals by different but related assessees have been preferred against the separate orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] both dated 07.01.2013. Since the issue raised in both the appeals is common, hence the same were heard together and are being disposed of with this common order. First we take up ITA No.1067/M/2013.

At the outset, the Ld. A.R. of the assessee has invited our attention to page 14 of the paper book which is the copy of the profit & loss account for the year under consideration to show that the assessee had earned income of Rs.65,03,721/- during the year. Whereas the total interest of finance charges incurred by the assessee are at Rs.5,01,612/-. The Ld. A.R. of the assessee has thus submitted that if the netting of the interest income and interest expenditure is done, then the assessee has earned a positive interest income during the year. He has, therefore, submitted that in view of the above, it cannot be assumed that the assessee has incurred interest expenditure for making investments for earning of exempt income. He has relied upon the decision of the co-ordinate bench of the Tribunal in this respect in the case of its sister concern “M/s. White Water Mass Media Pvt. Ltd. vs. ACIT” vide order dated 17.09.14 and further in the case of “M/s. Westex Infotech Pvt. Ltd. vs. ACIT” in ITA No.2964/M/2013 vide order dated 17.09.14. The Ld. D.R., on the other hand, has relied upon the findings of the lower authorities.

We have considered the rival contentions and have also gone through the decisions relied upon by the Ld. A.R. of the assessee. We find that in identical circumstances, the co-ordinate bench of the Tribunal in the cited decisions has held that where the assessee had a net positive income, under such

So far as the disallowance of administrative expenses is concerned, the Ld. A.R. has submitted that the investments made by the assessee in unquoted shares of the subsidiaries/sister concerns to gain control over the management was not liable to be included in the average value of investments while computing the disallowance of expenditure under rule 8D(2)(iii) because of the reason that such investments are not made for earning of any exempt income but because of the business exigencies of the assessee and that even the capital gains derived there from are taxable. He has further submitted that the assessee has not earned any dividend income from investments in unquoted shares of the subsidiaries during the year. He has further submitted that in making such investments no extra effort requiring incurring of expenditure for planning of such adjustments is required to be incurred.

We have considered the above submissions of the Ld. A.R. We find that the issue is squarely covered in favour of the assessee in the own case of the assessee for the earlier assessment year. The strategic investments in group companies and sister concerns for having control over the management of the said companies are not intended for the purpose of earning of exempt income. Under such circumstances for computing the average value of investment for the purpose of disallowance under rule 8D(2)(iii), the investments made in unquoted shares of the subsidiaries sister concerns/group companies for strategic purposes are required to be excluded. We, therefore, direct the AO to verify as if the assessee has net positive interest income during the year, then no disallowance of interest is to be made under section 8D(2)(ii) and further direct the AO to exclude the strategic investments made in subsidiaries while computing disallowance of administrative expenses under rule 8D(2)(iii) of the IT rules.

In the result, both the appeals of the assessee are treated as allowed for statistical purposes.