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TMI Blog2017 (5) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... wance under section 14A r.w. Rule 8D Rs. 3,67,730/- (iii) Difference of interest on Loan Advance Rs. 4,91,328/- 2.2 Aggrieved by the order of assessment dated 21.03.2013 for A.Y. 2010-11, the assessee preferred an appeal before the CIT(A) 48, Mumbai challenging (i) the disallowance under section 14A r/.w. Rule 8D and (ii) the disallowance of interest on loan advance. The learned CIT(A) disposed off the appeal vide the impugned order dated 19.03.2015 allowing the assessee partial relief. 3. The assessee being aggrieved by the order of the CIT(A)-48, Mumbai dated 19.03.2015, has preferred this appeal raising the following grounds:- "1. On the facts and circumstances of the case and in law, the learned CIT(A)] erred in confirming the action of the AO in making disallowance of Rs. 3,67,730/- u/s 14A. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in ignoring the fact that the Appellant had not incurred any expense for the purposes of earning of exempt income, hence, the disallowance u/s 14A was uncalled for. 3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the above disallowance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Vakrangee Ltd. vs. ACIT (ITA No. 6988/Mum/2014 dated 10.08.2016) 4.2 The learned D.R. placed strong support on the order of the learned CIT(A), on the issue of disallowance under section 14A of the Act. In written submissions dated 01.05.2017 Revenue contends as under: - "The above mentioned case came up for hearing today before the Hon'ble Bench wherein Ld. Counsel of the assessee relied on Delhi High Court judgement in the case of Cheminvest Ltd. ITA No.749/2014 as there was no exempt income received by the assessee during the year. Therefore, according to the Ld. Counsel of the assessee, no disallowance u/s. 14A of the Income Tax Act r.w. Rule 8D was to be made. 2. In this regard, it is submitted that as per the scheme of the Act as envisaged in sec. 14A related to disallowance of expenditure incurred in relation to income not includable in total income, there need not be actual receipt of exempt income for actual disallowance. This is a constant position of the Department as elucidated in CBDT's Circular No. 5/2014 dt.1l.2.2014. The relevant portion of the circular is reproduced as under: "Thus, legislative intent is to allow only that expenditure which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, or paid by such company by way of dividend. For domestic company this is in the form of appropriation, while the same is receipt in the hands of the shareholder. Thus, Sec. 115-0 (5) of the act restricts any deduction under any other provision of the act to be allowed to shareholder in respect of such dividend receipt. It is, therefore, for computing income by way of dividend from the dividend receipt so as to claim exemption u/s. 10(34) of the Act, no expenditure can be allowed under any other provision. 6. In view of the above submissions, and the fact that Delhi High Court has not considered judgement of Supreme Court in the case of Baroda Distributors as cit above, it is respectfully prayed that order of the CIT(A) may kindly be upheld." 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record. Admittedly, the assessee has not earned any exempt income in the year under consideration. This fact has been recorded by the AO at para 5 of the order of assessment for the year under consideration, after perusal of the assessee's Profit & Loss account and also acknowledged by the learned CIT(A) at para 4.6 of the impugned order. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and legal matrix of the case, as discussed above, we find that Revenue has not been able to controvert the findings rendered by the Hon'ble High Courts of Bombay (supra) and Delhi (supra). Therefore, respectfully following the decision of the Hon'ble Bombay High Court in the case of Ballarpur Industries Ltd. in ITA No. 51 of 2016 dated 13.10.2016, of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT (378 ITR 33) (Del) and of the Coordinate Bench of this Tribunal in the case of Vakrangee Ltd. vs. ACIT (ITA No. 6988/Mum/2014 dated 10.08.2016), we hold that no disallowance under section 14A of the Act can be made in the case on hand for the year under consideration since the assessee has not earned any exempt income. We, therefore, set aside the decision of the authorities below and direct the AO to delete the disallowance of expenditure amounting to Rs. 3,67,730/- under section 14A of the Act. Accordingly, grounds 1 to 3 of assessee's appeal are allowed. 4.4.1 Further, the learned A.R. of the assessee in respect of grounds 4 & 5 (supra) had contended that, even otherwise, the said disallowance under section 14A r.w. Rule 8D ought not have been made, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above referred to decisions and respectfully following the same, we direct the AO to exclude the strategic investments made by the assessee in group companies while calculating the disallowance under section 14A read with rule 8D of the Income Tax Act." 3.5.2 Following the aforesaid decision of the Coordinate Bench of this Tribunal in the case of Fiduciary Euromax Global Markets Ltd. (supra), we hold and direct that the strategic entire investments made by the assessee in group companies are to be excluded while computing the disallowance under section 14A r.w. Rule 8D. 4.4.2 Following the aforesaid decision of the Coordinate Bench of this Tribunal in the case of M/s. Vakrangee Ltd. (supra) and Fiduciary Euromax Global Markets Ltd. (supra), we hold and direct that entire strategic investments made by the assessee in the shares of its subsidiary company, M/s. Shreeniwas Cotton Mills Ltd. is to be excluded while computing the disallowance under section 14A r.w. Rule 8D. Consequently, grounds No. 4 & 5 of the assessee's appeal are allowed. 5. Ground No. 6 - Disallowance under section 36(1)(iii) - Rs. 4,81,328/- 5.1 The learned A.R. of the assessee submitted that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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