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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
स्थधमी रेखध सं./जीआइआय सं./PAN. :AAFPS1912G अऩीरधथी ओय से / Assessee by Shri Rajiv Khandelwal प्रत्मथी की ओय से/Revenue by Shri Vijay Kumar सुनवधई की तधयीख / Date of Hearing : 7.1.2016 घोषणध की तधयीख /Date of Pronouncement: 7. 1.2016 आदेश / O R D E R
Per B R Baskaran, AM:
The assessee has filed this appeal challenging the order dated 19.5.2014 passed by Ld CIT(A)-32, Mumbai for the assessment year 2010- 11 confirming the assessment of Rs.6,96,586/- u/s 14A of the Act.
We heard the parties and perused the record. The facts relating to the issue are that the assessee is engaged in the business of trading in derivatives, equity and commodities besides derives income from salary received from Dolat Investment Ltd and rental income. The assessee disclosed a dividend income of Rs.2000/- during the year under consideration and claimed the same as exempt. However, the assessee
14A of the Act. The assessee also declared Short Term Capital Gains (STCG) of Rs.12.10 lakhs. During the course of assessment proceedings, he agreed with the AO that the STCG may also be assessed as business income, meaning thereby the assessee accepted that he is a trader in shares and securities.
Before the AO, the assessee submitted that no disallowance u/s 14A is required to be made, since average value of investment is ZERO. However, the AO noticed that the assessee has computed the average value of investment by considering only those investments on which the assessee had received dividend. Further, the Balance sheet filed by the assessee disclosed that the assessee is holding investments to the tune of Rs.7.20 crores. Accordingly, the AO held that the disallowance u/s 14A is required to be computed as per Rule 8D of the IT Rules. Accordingly, the AO computed the disallowance as per Rule 8D at Rs.6,96,586/- and assessed the same. The ld. CIT(A) confirmed the addition made by the AO and hence, the assessee has filed this appeal before us.
The ld. AR submitted that the AO has not recorded the satisfaction required u/s 14A before rejecting the claim made by the assessee. However, on a perusal of the assessment order, we notice that the AO has recorded his satisfaction in para 5.4 of the assessment order. Accordingly, we reject the above said contention of the assessee.
The ld. AR further submitted that the assessee has made 99.35% of investment only in group companies and hence they fall in the category of strategic investment. By drawing support from the decision rendered by the Co-ordinate Bench of the Mumbai Bench of the Tribunal in the case of J M Financial Limited V/s ACIT in the ld AR
14A, in the case of strategic investment since the purpose of investment is to hold controlling stake in the group concerns and not for earning any dividend income. The ld. AR submitted that an identical issue was expressed by the Co-ordinate Bench of Tribunal in the case of Garware Wall Ropes Ltd V/s CIT (2014) 65 SOT 86(Mumbai). The ld. AR further submitted that the assessee is dealing in trading in derivatives, equity and commodities and hence the investment held by the assessee forms part of his stock-in-trade. Accordingly, by placing the reliance on the decision of Hon’ble jurisdictional Bombay High Court in the case of CIT vs. India Advantage Securities Ltd, the ld.AR submitted that no disallowance u/s 14A of the Act is called for. The ld.AR further submitted that the assessee has received dividend of Rs.2000/- only and accordingly, the disallowance u/s 14A, if any, should not exceed the amount of Rs.2000/-.
On the contrary, the ld. DR placed strong reliance on the order of ld.CIT(A).
The assessee has furnished the statement of investment made in shares of various companies. We notice that the total investment held in shares by the assessee is Rs.6.23 crores, out of which, the investment made in group companies stand at Rs.6.21 crores. Thus, we notice that the assessee has made investment of Rs.2 lakhs only in other companies. Hence, there is merit in the contention of the assessee that 99.35% of investment have been made in the group companies as strategic investment to retain control over these companies. Further, we notice that the assessee is having its own funds of about 4.27 crores as on at the yearend as against the total investment of Rs.6.23 crores in shares. Hence, the investment of Rs.2.00 lakhs made in other companies is sufficiently covered by the own funds. Further, the assessee earned
Rs.2000/- only during the year under consideration. Hence, by following various decisions relied upon by the assessee, the disallowance out of interest expenditure is not called for.
Under these set of facts and on a conspectus of the matter, we are of the view that the disallowance made u/s 14A should be restricted to the dividend income of Rs.2000/-. Accordingly, we set aside the order of ld. CIT(A) and direct the AO to restrict the disallowance to Rs.2000/-.