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TMI Blog2018 (9) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income In the present case, since the assessee suo motto made the disallowance of ₹ 29,44,969/- u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962, more than the exempt income claimed at ₹ 18,48,394/-. Therefore, no further disallowance was called for. - Decided in favour of assessee. - ITA No. 4115/Del/2017 - - - Dated:- 10-7-2018 - Sh. N. K. Saini, Accountant Member For the Assessee : Sh. M. P. Rastogi, Adv. For the Revenue : Ms. Ashima Neb, Sr. DR ORDER This is an appeal by the assessee against the order dated 14.03.2017 of ld. CIT(A)-3, Delhi. 2. Following grounds have been raised in this appeal: 1. That both the Ld C1T(A) and Ld AO erred similarly in law and in facts that the investment advisory fees paid to Tusk Investment Fund 1 and Tusk Investment Fund 2 of ₹ 60,46,010 respectively is without any basis and hence cannot be allowed deduction u/s 37(1) of the Income-tax Act. 2. That both the Ld CIT(A) and Ld AO erred similarly in law and in facts that the investment advisory fees paid to Tusk Investment Fund 1 and Tusk Investment Fund 2 of ₹ 60,46,010 respectively is for earning tax free income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade and there was no opening as well as closing stock, hence, no business activities were undertaken by the assessee during the year under consideration except investments in quoted and unquoted shares on which, it had earned dividend income and claimed it exempted u/s 10 of the Act which required disallowance under the provisions of Section 14A of the Act. The AO held that the expenses of ₹ 1,20,92,020/- claimed by the assessee were related to the investment, income from which did not or shall not form part of the total income for the taxation. Therefore, the amount of ₹ 1,20,92,020/- was not allowable expense under the provisions of Section 14A of the Act. He, therefore, disallowed the said amount and as the assessee in the computation of income had suo motto made disallowance of ₹ 29,44,969/- u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962. Therefore, the AO made a further disallowance of ₹ 91,47,051/- (Rs.1,20,92,020- ₹ 29,44,969). 5. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submissions which have been incorporated by the ld. CIT(A) in para 2 of the impugned order which read as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year. The relevant portion of the circular is reproduced below for reference: Considering the facts mentioned above, it is imperative to held that the expense of ₹ 1,20,92,020/- claimed by the assessee are related to the investment, income from which does not or shall not form part of total income for the taxation. Therefore the amount of ₹ 1,20,92,020/- is not an allowable expense under the provisions of Section 14A of the Income Tax Act, 1961. Hence the amount of ₹ 1,20,92,020/- is disallowed u/s 14A of the Act As the assessee in the computation of income has sub motto made disallowance of ₹ 29,44,969/- u/s 14A r. w. Rule 8D, therefore the balance amount of ₹ 91,47,051/- is hereby added to the total income of the assessee for the year under consideration . 1.2 The from above, it can seen that the id. AQ disallowed a sum of ₹ 120,92,020 as paid by the company to the foreign ponies who were investment advisors of the company stating that the entire expenses paid were for the purpose of exempt income u/s 10 and thus no expenses incurred primarily for earning such income shall be allowable for tax deduction. While coming to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NA 2. EIH Limited 2008 2009 753526 8,50,25,171 6,78,173 3. Nitco Limited 2008 2,87,929 6,87,19,167 1,43,965 4. Param Investments Private Limited Not known 100 10,000 NA 5. Amar Chitra Katha Private Limited 2010 2011 15,042 4,23,37,399 NA 6. Air Works (I) Engineering Private Limited 2011 7,357 3,22,01,074 NA 7. RBL Bank Limited 2010 2011 51,31,280 33,91,77,608 10,26,256 60,99,58,393 18,48,394 Not Applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business activities has not been doubted by the AO and thus in given circumstances there is no merit in disallowing such expenses. 1.7 Elucidating further, the Hon ble Delhi Court in Holcim India's case (supra) held that Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. 1.8 The, above ruling of Hon'ble Delhi High Court is a land mark judgment as per the Appellant, as the facts of the case are same or similar to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able and against the tenets of law and hence, should kindly be deleted. 6. The ld. CIT(A) after considering the submissions of the assessee observed that the assessee vide order sheet entry dated 17.08.2015 was directed to establish the rendering of services by bringing on the record genuinity and capability of the investment advice in the field of the equity market and the complete details of work executed in India. In response, the assessee submitted that it had debt free funds and intended to maximize returns in India from the equity market, despite having some knowledge about the Indian Equity Market but was not sure how it can reliably and in well informed manner maximize value from the Indian Equity Market. It was further stated that the assessee became aware of some FIIs who had an investment strategy in Indian Equity Market with an projected investment of ₹ 400 crores in year 2008 and was keen to get associated that FIIs and entered into agreement for the portfolio management advisory and agreed to pay 2% fees to two companies, namely, Tusk Investment Fund 1 (T1) and Tusk Investment Fund 2 (T2) based in Mauritius and that by going on the advice of T1 and T2, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment Fund 1 Tusk Investment Fund 2 and no such disallowance was made in the earlier years. It was further stated that for the year under consideration, the payment had been accepted and the disallowance was made u/s 14A of the Act. However, the ld. CIT(A) discussed the provisions of Section 37(1) of the Act which were not before him. It was further submitted that the assessee earned the dividend income of ₹ 18,48,394/- only which was claimed exempt u/s 10 of the Act and suo motto made the disallowance of ₹ 29,44,969/- which was more than the exempt income. Therefore, the arbitrary disallowance made by the AO to ₹ 1,20,92,020/- was not justified. The reliance was placed on the judgment of the Hon ble Jurisdictional High Court in the case of Joint Investment (P.) Ltd. Vs CIT reported at (2015) 373 ITR 694 (Del.). 9. In her rival submissions, the ld. Sr. DR reiterated the observations made by the authorities below in their respective orders and strongly supported the impugned order passed by the ld. CIT(A). She made a reference to para 2.1 of the impugned order and stated that the disallowance was made by the ld. CIT(A) u/s 37(1) of the Act, since no e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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