DCIT 5(1), MUMBAI vs. ABG KANDLA CONTAINER TERMINAL LTD, MUMBAI

The common issue raised in all the grounds of appeal is against the deletion of disallowance of Rs.53,97,038/- u/s.14A by the CIT(A) without appreciating the fact that assessee did not furnish any details in respect of expenses u/s.14A.

The brief facts of the case are that the assessee filed its return of income on 29.09.2010 declaring a loss of Rs.33,34,68,544/-. The assessee in its balance sheet had shown investments of Rs.107,94,07,693/- as on 31.03.2010 in its subsidiary and same investment was as on 31.03.2009 meaning thereby that no new investment was made during the year. A.Y. 10-11 [DCIT vs. ABG Kandla Container Termianl Ltd.] Page 3 3.1 The ld. A.O. while framing the assessment at a loss of Rs.32,81,02,067/- mad additions inter alia of Rs.53,97,038/- on account of disallowance u/s.14A r.w.r. 8D on the ground that in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, the Hon’ble Bombay High Court had held that dividend income was to be considered for the purpose of Section 14A and also the fact that tax free investment made by the assessee out of own funds did not mean that there was no expenditure incurred to earn tax free income and therefore, Section 14A was applicable. The disallowance was worked out equal to ½ % of the average investments as per the provision of Section 14A Rule 8D(iii).

The ld. CIT(A) deleted the addition by holding as under: “5.1 I have carefully and dispassionately considered the facts and circumstances of the case, statement of facts, relevant assessment order, written submission, relied upon case laws and the arguments made by the LAR before the undersigned. After considering the rival submission I do agree with the contention of the appellant that during the year under consideration neither the appellant had earned any exempt income nor the A.O. has pointed out any possibility of any direct or indirect expenditure which could be related in connection with the investment of the appellant in its parent company, therefore, under these circumstances there appears no justification at all for invoking the provisions of section 14A / rule 8D. The A.O. appears to have misunderstood the principle laid down by the Hon’ble Bombay High Court in the case of M/s. Godrej & Boyce Mfg. Co. Ltd. (Supra), which does not make it compulsory to apply rule 8D in each and every case, specially in the cases like the instant case, where neither there is any exempt income nor the appellant has incurred any expenditure relatable to such exempt income. Under these circumstances, the disallowances, the disallowance mechanically made by the A.O. cannot be upheld. The same is directed to be deleted.”

Ld. D.R. relied on the order of A.O. and submitted before us that the same may kindly be restored. A.Y. 10-11 [DCIT vs. ABG Kandla Container Termianl Ltd.] Page 4

We have heard the ld. D.R. and perused the material on record. We find from the orders of CIT(A), A.O. and paper book filed that the assessee had made huge investments to the tune of Rs.107,94,07,693/- in the fellow subsidiary company as a holding company and during the year did not receive any income by way of dividend. The ld. CIT(A) had given a clear finding that the assessee neither earned any exempt income nor any expenditure of direct or indirect nature were incurred in relation to the investment made in the subsidiary company. In the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT (2010) 328 ITR 81, the Hon’ble Bombay High Court has held that the provisions of rule 8D of the Rules which have been notified with effect from March 24, 2008, would apply with effect from assessment year 2008-09. Even prior to assessment year 2008- 09, when rule 8D was not applicable, the Assessing Officer had to enforce the provisions of sub-section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. In our considered view, the CIT(A) has rightly came to the conclusion that there is no exempt income nor any expenditure was incurred relating to exempt income and rightly interoperated the ratio laid down in the above decision by the Hon’ble Bombay High Court. The Hon’ble High Court held that when there is an exempt income which does not A.Y. 10-11 [DCIT vs. ABG Kandla Container Termianl Ltd.] Page 5 form part of the total income, then the A.O. has to apply the provision of Section 14A Rule 8D. In the instant case, there was no income during the year nor any expenditure was incurred in relation to the investments made in the earlier year. We, therefore, find no infirmity in the order of CIT(A) and affirm the same by dismissing the appeal of the Revenue.

As a result, appeal filed by Revenue is dismissed.