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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO
सुनवाई की तायीख / Date of Hearing : 25.8.2015 घोषणा की तायीख /Date of Pronouncement : 13.10.2015 आदेश / O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the assessee on 18.11.2014 is against the order of the CIT (A)-12, Mumbai dated 7.8.2014 for the assessment year 2010-2011. In this appeal, assessee raised the following grounds which read as under: “1. On the facts and in law, the Ld CIT (A) had failed to appreciate that applying Rule 8D without rejecting the claim of the appellant is bad in law. Under the facts and circumstances of the matter, he ought to have directed the AO not to apply Rule 8D without rejecting the clam of the appellant while computing the disallowance u/s 14A of the Act.
2. On the facts and in law, the Ld CIT (A) had failed to appreciate that no amount of exempt income was received and accordingly, no disallowance u/s 14A is attracted.
3. On the facts and in law, the Ld CIT (A) had failed to appreciate that no amount of interest is disallowable u/s 14A as the own funds were in excess of investments as on 31.3.2009 and earlier years and in view of the ratio laid down by the Hon‟ble Bombay High Court in the case of Reliance Utilities & Power ltd (313 ITR 340) no disallowance should be upheld u/s 14A out of interest paid.
4. On the facts and in law, the Ld CIT (A) ought to have directed the Ld AO to restrict the disallowance u/s 14A of 2% of the exempt income as claimed by the appellant based on the order of Hon‟ble ITAT in appellant‟s own case in AY 2004-05.
5. On the facts and in law, the Ld CIT (A) had erred in confirming the disallowance of Rs. 2,64,271/- u/s 14A r.w. Rule 8D while computing the book profit u/s 115JB. Under the facts and circumstances of the mater, he ought to have deleted the said disallowance of Rs. 2,64,271/-.”
During the proceedings before the Tribunal, at the outset, Ld Counsel for the assessee brought my attention to the above grounds and submitted that they revolve around the arguments in view of the judgment of the Hon‟ble Bombay High Court in the case of Reliance Utilities & Power Ltd (313 ITR 340) wherein it was held that no disallowance is called for u/s 14A r.w. Rule 8D of the Act. Further, Ld Counsel for the assessee mentioned that in earlier assessment year 2004-05, the Tribunal passed an order restricting the disallowance u/s 14A read with Rule 8D of the Act to 2% relying on the Bombay High Court judgment in the case of M/s. Godrej Agrovet Ltd vide Income Tax Appeal No. 934 of 2011, dated 8.1.2013. Further, Ld Counsel for the assessee also mentioned that the assessee made investment of Rs. 3.86 Crs (rounded of) out of which Rs. 2,50,12,500/-was invested in the Creative Textile Mills Private Limited, which is a 100% subsidiary company of the assessee. Relying on the coordinate Bench decision in the case of Garware Wall Ropes Limited vs. Addl. CIT in (AY 2009-2010), dated 15.1.2014 and another decision of the ITAT in appeal ITA No. 4521/M/2012 (AY 2009-2010), dated 26.3.2014, Ld Counsel for the assessee submitted that these decision are relevant for the proposition that no disallowance u/s 14A of the Act is required to be made when the investments involved the sister / subsidiary concerns for strategic investment purposes ie for control and management of concerns and not for earning of dividend income.
After hearing both the parties, I find that this issue relating to strategic investment in the subsidiary companies and the applicability of the cited decisions of the Tribunal (supra) were not examined and applied to the facts of the present case by the Revenue Authorities. Therefore, keeping in view the above facts of the case, I am of the considered opinion that this matter should be remanded to the file of the AO. Accordingly, I remand this matter to the file of the AO with a direction to the AO to examine the claim of the assessee and apply the ratio laid down in the above referred orders of the Tribunal (supra). In respect of the other investments appearing under the „current investment‟ head, AO is directed to examine the issue afresh after considering the ratio laid down by the jurisdiction High Court in the case of Reliance Utilities (supra). AO shall grant a reasonable opportunity of being heard to the assessee in accordance with the set principles of natural justice. Thus, all the grounds raised
by the assessee are allowed for statistical purposes.
4. In the result, appeal of the assessee is allowed for statistical purposes.