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TMI Blog2017 (1) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... holding company of M/s. Hari Infrastructure Pvt. Ltd. and the assessee has floated two companies i.e. M/s. Nagar Kopergaon Infrastructure Pvt. Ltd. and M/s. Pranjal Infrastructure Pvt. Ltd. as Special Purpose Vehicle to carry out the project allotted by state Government. During the course of scrutiny assessment, the Assessing Officer observed that the assessee has made investment to the tune of Rs. 65,65,64,310/- in shares as on 31-03-2008. The Assessing Officer further observed that the assessee has utilized borrowed funds for making investment in shares and repayment of loan of one of its subsidiary company. The Assessing Officer invoked the provisions of section 14A r.w. Rule 8D and made disallowance of Rs. 5,63,75,093/- in respect of interest paid. Apart from the above, the Assessing Officer made addition/disallowance of Rs. 5,72,150/- on account of unproved expenditure and Rs. 4,600/- on account of difference in the books of assessee and Raisoni Brothers. Aggrieved by the assessment order dated 09-12-2011, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order upheld the addition made u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rakesh Joshi appearing on behalf of the assessee submitted at the outset that he is not pressing ground Nos. 1 and 3 raised in the grounds of appeal. 4.1 In respect of ground Nos. 2 and 4 relating to disallowance u/s. 14A r.w. Rule 8D, the ld. AR submitted that the assessee has not received any dividend income from investment in shares. The investments are made by the assessee in group concerns and are strategic investments, therefore, no disallowances u/s. 14A could be made on such investments. To support his submissions the ld. AR placed reliance on the following decisions : i. Cheminvest Limited Vs. Commissioner of Income Tax, 378 ITR 33 (Delhi); ii. Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. in ITA 605/2012 decided on 15-01-2013 (Delhi-HC); 4.2 The ld. AR further submitted that the assessee is eligible to claim deduction u/s. 80(IA) even if addition is made u/s. 14A of the Act in view of CBDT Circular No. 37/2016 dated 02-11-2016. 4.3 In respect of ground Nos. 5 and 6 raised in the grounds of appeal, the ld. AR submitted that the Commissioner of Income Tax (Appeals) has made addition of Rs. 7,37,68,681/- u/s. 2(22)(e) of the Act by searching a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O Vs. Direct Information P. Ltd., 18 ITR 562 (Mum-Trib.); iii. DCIT Vs. Vikas Oberoi in ITA 4362/M/2011 for assessment year 2002-03 decided on 20-03-2013. 5. Shri Suhas Kulkarni representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals) in confirming the addition u/s. 14A r.w.r. 8D as well as making addition u/s. 2(22)(e) of the Act. The ld. DR submitted that the assessee agreed for the addition u/s. 14A. The ld. DR referred to the concession granted by the assessee and recorded by the Assessing Officer in assessment order. The ld. DR submitted that although the assessee has agreed for the addition the matter can be restored back to the Assessing Officer for verification and to ascertain, whether disallowance can be made u/s. 14 or u/s. 36(1)(iii) of the Act. The ld. DR in support of his contentions placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Tamil Nadu Silk Producers Federation Ltd. reported as 105 ITD 623 (Chennai). In respect of addition made by the Commissioner of Income Tax (Appeals) u/s. 2(22)(e) of the Act the ld. DR submitted that it is not a new source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said disallowance. To support his submissions the ld. AR has placed reliance on the CBDT Circular dated 02-11-2016. 9. We find that the Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) has upheld the order of Tribunal where disallowance made u/s. 14A r.w. Rule 8D was deleted under similar circumstances. In the said case the assessee had made investment in the subsidiary company out of borrowed funds. The said subsidiary company was formed as SPV to obtain contracts from NHAI. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT in ITA No. 848/PN/2013 for the assessment year 2009-10 decided on 18-01-2016, under similar circumstances by following the decision rendered in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) deleted the disallowance made u/s. 14A r.w. Rule 8D in respect of investments made in the subsidiary companies which were created as SPV to obtain and execute Government contracts. The relevant extract of the findings of Tribunal are as under : "17. We have considered the rival arguments made by both the sides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court dismissed the appeal filed by the Revenue by observing as under : "This appeal has been preferred by the revenue against the order dated 02.12.2011 passed by the Income Tax Appellate Tribunal, New Delhi in ITA No.4245/Del/20 11 in respect of the assessment year 2008-09. The issue before the Tribunal, which is also an issue before us, was whether in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) had erred in restricting the disallowance under section 14A of the Income Tax Act, 1961 to 2% of dividend income of Rs. 20,27,812/-. It was the contention of the revenue that Rule 8D of the Income Tax Rules, 1962 had not been applied properly in respect of the assessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under: - 6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs. 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases the business profit to that extent is acceptable. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the disallowance made u/sa.14A. Ground of appeal No.1 as well as the first issue in the additional ground raised by the assessee are accordingly allowed." 10.. We further observe that the CBDT vide Circular No. 37/2016 dated 02-11-2016 has clarified that where disallowance has been made u/s. 32, 40(a)(ia), 40A(3), 43B etc., of the Act and other specific disallowance relating to business activity deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. The relevant extract of the circular is as under : "Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contentions of the assessee in respect of disallowance u/s. 14A on both the grounds. Thus, in view of the facts of the case, the order of Coordinate Bench and the CBDT Circular, we direct the Assessing Officer to delete the disallowance made u/s. 14A of the Act. Accordingly, ground Nos. 2 and 4 raised in the grounds of appeal by the assessee are allowed. 12. In ground Nos. 5 and 6 the assessee has assailed the addition of Rs. 7,37,68,681/- made u/s. 2(22)(e) of the Act by the Commissioner of Income Tax (Appeals). The Assessing Officer in his order has not touched upon the issue of deemed dividend. The Commissioner of Income Tax (Appeals) has observed that the assessee has violated the provisions of section 42 of the Companies Act. The subsidiary of the company has made investment in the share capital of the assessee (a holding company). The ld. AR of the assessee has made two fold submissions. The first contention of the assessee is that the Commissioner of Income Tax (Appeals) cannot made addition on the basis of new source of income during first appellate proceedings. The Hon'ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible." 13. The Hon'ble Apex Court thereafter in the case of Commissioner of Income Tax Vs. Rai Bahadur Hardutroy Motilal Chamaria (supra) has reaffirmed its view taken in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (supra). The Hon'ble justice V. Ramaswami speaking for the court stated: "As we have already stated, it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) of the Act is restricted to the sources of income which have been the subject matter of consideration by the Income tax Officer from the point of view of taxability. In this context " consideration " does not mean " incidental " or " collateral " examination of any matter by the Income tax Officer in the process of assessment. There must be something in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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