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TMI Blog2017 (6) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and against the assessee by a decision of Reliance Infrastructure & Consultants Ltd., V/s ACIT [2012 (10) TMI 1144 - ITAT MUMBAI] as relying on Reliance Infrastructure & Consultants Ltd., V/s ACIT [2003 (1) TMI 99 - SUPREME Court] as relying on case of Shambhu Investment Pvt Ltd V/s CIT reported (2003 (1) TMI 99 - SUPREME Court ) came to the conclusion that the rental income has to be taxed as income from house property and not business income - Decided against assessee. - ITA NO.6266/Mum/2011, And ITA NO.6452/Mum/2011 - - - Dated:- 12-4-2017 - SHRI MAHAVIR SINGH, JM, AND SHRI RAJESH KUMAR, AM For The Assessee : Shri Jitendra Sanghvi For The Revenue : Shri Rajat Mittal ORDER PER RAJESH KUMAR, A. M: The cross appeals are filed by the respective parties against the order dated 22.6.2011 passed by the ld.CIT(A)-21, Mumbai for the assessment year 2008-09. Since issue involved in these appeals is same and therefore were clubbed together, heard together and are being dispose of by this consolidated order for the sake of convenience. ITA No.6266/Mum/2011 2. The grounds of appeal taken by the revenue are as under : 1) On the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above the appellant submits that the addition to book profit is excessive and unreasonable and the same ought to be reduced substantially. b) The learned CIT(A) failed to appreciate that Rule 8D is prescribed under the authority of Sec. 14A which is only for the limited purpose of computing total income under chapter IV and cannot be extended to work out the addition under s. 115JB. Your appellant submits that Rule 8D cannot be applied for working out the disallowance u/s .14A for the purpose of S.115J B. 4. The assessee also taken additional ground vide application dated 1.7.2016 which reads as under : 1. On the facts and circumstances the case, the Learned Assessing Officer ought to have restricted the disallowance under section 14A of the Act to exempt income earned by the appellant during the year under consideration. The Appellant submits that the disallowance under section 14A of the Act ought to have restricted to ₹ 17,50,000/-- i.e. exempt income earned by the Appellant during the year under consideration ITA No.6452/Mum/2011 5. At the outset, the ld.AR took us through the application for admission of additional grounds dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.ll, 6 7,648/ - pertaining to expenditure incurred for earning of dividend. However, out of investment shares of various companies, the appellant earned dividend on shares of only one company i.e. on shares of Emco Ltd. The appellant had explained that expenditure of ₹ 1l,67,648/- offered for disallowance was pertaining to expenditure incurred on investments which had yielded dividend income. The appellant has argued that the expenditure incurred on investments which had riot yielded exempt income is, not required to be considered for disallowance. The appellant's argument is not correct. The Special Bench ITAT Delhi in the case of Chimenvest Ltd. Vs. ITO (2009) 121 ITD 318 has held that the. expenditure incurred on all investments are required to be considered for the purpose of disallowance u/s 14A whether or not the investments have yielded exempt income. In the facts and circumstances the appellants working of disallowance u/s 14A at ₹ 11,67,648/- was not correct and was not as per provisions of section 14A of the Act. 2.3(b) As per decision of Bombay High Court in the case of Godrej Boycee Mfg. Co Ltd 234 CTR 1 the provisions of section 14A r.w. ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D (2). 2.3(e) In the case under consideration, the AD had determined indirect interest expenditure of ₹ 1,,58,26,788/- as per sub-clause (ii) of Rule 8D (2). In the said working the AO considered closing balance of investments at ₹ 100,28,06,328/-. The appellant has argue at e investments in shares of KLG systems Ltd at ₹ 22,08,83,436/- and in shares of Magma Shirachi Finance Ltd at ₹ 75,64,19,780/- totaling to ₹ 97,73,02,216/- were incorrectly considered by AD in the closing balance of investments for the reasons that the payments thereof was made in next financial year and therefore no interest expenditure was incurred during the year for making these two investments. The appellant's argument is correct. The appellant has satisfactorily demonstrated that the payments for these two investments were made in next financial year. In the facts and circumstances the appellant's claim is correct that no interest expenditure was incurred during the year in respect of these two investments. Therefore, these two investments could not have been considered inclosing balance of investment for determining indirect interest expenditure under sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.. 1,58,26,788/ ( iii) 0.5% of average investments ₹ 26,45,331/ ₹ 1,84,75,704/- In the above para 2.3(e) it has been explained that the total investments at ₹ 97,73,02,216/- in the shares of M/s.KLG Systems Ltd. and Magma Shirachi Finance Ltd. were not required to be considered for the purpose of closing balance -of investment and average investments for the reasons that no interest expenditure was incurred in respect of these two investments since the payments thereof were made in the next financial year. In the facts and circumstances in sub clause [ii] of Rule 8D(2) the closing balance of investments was required to be considered by A.O. at ₹ 5,42,95,245/- and therefore, the average investments was to be considered at ₹ 5,48,lO,605/-. In para 2.3(e) above, the appellant's this claim has been held to be correct. If these figures are applied in the formula provided in Rule 8D(2), the disallowance as per A.O. would have been as under.- ( i) Direct expenditure ₹ 3,586/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ii) Indirect interest expenditure (there were no indirect interest expenditure In view of the discussion made above) Rs. Nil ( iii) 0.5% of average investments ₹ 26,45,331/ ₹ 72,34,402/- The disallowance made by A.O. u/s. 14A at ₹ 1,84,75,704/- is reduced to ₹ 72,34,402/-. This ground of appeal is partly allowed. 9. The ld.AR vehemently submitted before us that the dividend income of the assessee during the year on various investments in shares was ₹ 17,50,000/- which was claimed exempt u/s 10(34) of the Act. The assessee itself disallowed an amount of ₹ 11,67,648/- as expenses pertaining to earning of the said exempt income. The ld. AR vehemently submitted that in view of several judicial pronouncements of the High Courts and Income Tax Appellate Tribunal, the amount of disallowance u/s 14A r.w.s.Rule 8D should not exceed the amount of exempt income. In defense of his arguments, the ld.AR relied upon the following decisions: 1) Joint Investments V/s CIT (372 ITR 694) (del) 2) Mls Daga Global Chemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,362/- as dividend income, therefore, there is no question of disallowance of ₹ 14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld. counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income. At best, if any disallowance could be made that can be restricted to ₹ 1,485/- which were claimed as demat charges. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed. In the case of Ms Pinnacle Brocom Pvt Ltd, the Tribunal held as under 7. We have carefully perused the orders of the authorities below and the relevant documentary evidences brought on record before us. It is an undisputed fact that the assessee is having own funds at ₹ 1.16 crores and the investment is only ₹ 30.44 lakhs. Thus it can be safely concluded that the investments have come out of own funds. Even the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of the Co-ordinate Benches of the Tribunal. We, therefore, respectfully following the decisions as mentioned hereinabove, we set aside the order of ld.CIT(A) and direct the AO to restrict the disallowance to ₹ 17,50,000/- only. The appeal of the assessee is allowed. 14. Since we have decided the issue of additional ground filed by the assessee, therefore, the main grounds raised by the assessee require no adjudication. 15. The appeal of the assessee is partly allowed. ITA No.6266/Mum/2011 16. Ground no.1 taken by the revenue needs no adjudication, therefore dismissed. 17. Ground of appeal no.3 is not pressed therefore dismissed. 18. Grounds of appeal no.2 is in respect of disallowance u/s 14A amounting to ₹ 72,34,402/-. 19. The ld. DR at the outset submitted that the issue raised in this ground is against the assessee and in favour of the department by the decision of the Tribunal. The ld. AR very fairly agreed with the submissions of the ld.DR. 20. We have carefully considered the rival submissions and perused the material placed before us. We find that the assessee has let out its office building at Vakola, Santacruz to M/s Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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