2019 (4) TMI 1781 - AT - Income Tax

Addition u/s 14A - HELD THAT - We find that assessee s claim of relief from disallowance under section 14A for strategic investment is liable to be rejected on the touchstone of Hon'ble Apex Court decision in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT . As regards other direction that disallowance under section 14A should not exceed the exempt income and that for the purpose of computation of disallowance only those investments should be considered which have yielded exempt income, we find that the same is duly sustainable on the touchstone of case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT and Delite Enterprise 2009 (2) TMI 498 - BOMBAY HIGH COURT and Ballarpur Industries Ltd. and Special Bench ITAT decision in the case of Vireet Investment. The decision referred by learned Departmental Representative is not applicable on the facts of this case. Hence, qua these issues we uphold the order of learned CIT(A). In the result, appeals filed by the Revenue stand dismissed. Set off of carry forward of speculative loss - HELD THAT - In the present case the amended provisions of sec 73(4) of the Act are applicable. Since the provisions of sec 3(4) of the Act mandates that speculative loss shall not be carry forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed, so the speculative loss computed in AY 2005-06 could be carried forward upto AY 2009-10 and not beyond the same. The present assessment year is AY 2010-11 and hence the speculative loss of AY 2005-06 cannot be carried forward to the present assessment year. In view of the above discussion the disallowance of claim of the appellant of carry forward of speculative loss is confirmed - Decided in favour of revenue

Summary

Issues Involved:
1. Deletion of addition under Section 14A of the Income Tax Act, 1961.
2. Set off of carried forward speculative loss of AY 2005-06.
3. Computation of disallowance under Section 14A in respect of shares/investment in mutual funds.
4. Disallowance under Section 14A for strategic investment.

Issue-wise Analysis:

1. Deletion of Addition under Section 14A of the Income Tax Act, 1961:

The Revenue's appeal contended that the CIT(A) erred in deleting the addition under Section 14A, arguing that the provisions apply even if no exempt income is earned or received during the year. The Revenue also cited CBDT Circular No. 5/2014 and the Delhi High Court decision in Cheminvest Ltd. The Assessing Officer had made a disallowance of ?3,13,17,324/- under Rule 8D, which the CIT(A) reduced to ?13,25,774/- based on the investments that yielded dividends. The CIT(A) held that disallowance under Section 14A cannot exceed exempt income and investments not yielding exempt income should be excluded. The Tribunal upheld the CIT(A)'s order, referencing the Delhi High Court's decision in Cheminvest Ltd. and the Supreme Court's decision in Maxopp Investment Ltd.

2. Set off of Carried Forward Speculative Loss of AY 2005-06:

The assessee's appeal argued that the CIT(A) erred in not granting the set off of carried forward speculative loss of AY 2005-06, asserting that the amendment restricting the set off to four years was prospective. The CIT(A) rejected this contention, stating that the amendment by Finance Act, 2005, effective from 01.04.2006, applies and speculative loss can only be carried forward for four years. The CIT(A) referred to the Supreme Court's decision in Reliance Jute & Industries Ltd., which held that the law in force in the assessment year governs the assessment. The Tribunal upheld the CIT(A)'s order, finding no fallacy in the reasoning provided.

3. Computation of Disallowance under Section 14A in Respect of Shares/Investment in Mutual Funds:

The CIT(A) directed the AO to compute the disallowance under Section 14A read with Rule 8D only for shares/investments that yielded dividends. The Tribunal upheld this direction, referencing the decisions of the Delhi High Court in Cheminvest Ltd. and the Bombay High Court in Delite Enterprise, which support the principle that disallowance should not exceed exempt income.

4. Disallowance under Section 14A for Strategic Investment:

The assessee argued that disallowance under Section 14A should not apply to strategic investments. The CIT(A) rejected this contention, and the Tribunal upheld this decision, citing the Supreme Court's ruling in Maxopp Investment Ltd., which clarified that strategic investments are not exempt from disallowance under Section 14A.

Conclusion:

The Tribunal dismissed the appeals filed by both the Revenue and the assessee, upholding the CIT(A)'s order in its entirety. The Tribunal's decision was based on established legal precedents and a thorough examination of the facts and applicable laws.