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TMI Blog2019 (8) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 pertain to ay:2013-14 and is directed against appellate order dated 06.10.2017 passed by learned CIT(A) for ay: 2013-14, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 17.02.2016 passed by AO u/s 143(3) of the 1961 Act for ay: 2013-14. 2. The grounds of appeal raised by Revenue in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 3092/Mum/2016 for ay:2012-13, reads as under:- "Whether on facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in restricting the disallowance to Rs. 4,59,998/- as against Rs. 1,54,62,223/- made by the AO, without appreciating the fact that section 14A r.w. Rule 8D is squarely applicable in this case and disallowance has to be made as per the formula given in Rule 8D." 2.2. The grounds of appeal raised by assessee in memo of appeal filed with the tribunal in ITA no. 7061/Mum/2017 for ay:2013-14, reads as under:- "1. "Whether on the facts and circumstances of the case and in law, the learned CIT (A) erred in not deleting the addition made by A.O without appreciating the facts that under clause a) treating Rs. 1,61,000/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st day of the previous year 11,04,053 Total disallowance u/s. 14A 1,54,62,223 Since, the assessee had suo motu voluntarily disallowed an amount of Rs. 4,59,998/- u/s 14A of the 1961 Act, the AO disallowed balance amount of Rs. 1,50,02,225/- by invoking provisions of Section 14A of the 1961 Act read with Rule 8D of the 1962 Rules, vide assessment order dated 13.02.2015 passed by the AO u/s 143(3) of the 1961 Act 4. The assessee being aggrieved by an assessment framed by the AO u/s 143(3) of the 1961 Act vide assessment orders dated 13.02.2015 filed first appeal before Ld. CIT(A) and submitted that majority of borrowings were directed towards Inter Corporate Deposits and investments in Debentures which generated interest income which was chargeable to income-tax. It was also submitted that some of the investments were made in Mutual Fund-Growth Scheme wherein no tax free income could have been received. It was also claimed that assessee has also earned an interest income of Rs. 532.92 lacs and net interest figure after setting off interest expenses against interest income, were to the tune of Rs. 68.53 lacs and bank charges were to the tune of Rs. 2000. The assessee subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted before learned CIT(A) that so far as administrative expenses being disallowed by invoking Rule 8D2(iii) of the 1962 Rules @0.5%, it was submitted by the assessee that the AO even included investments in Properties/Mutual Funds/Debentures & Bonds wherein no tax-free income is receivable which in any case should be excluded while computing disallowance of expenditure u/s 14A of the 1961 Act. The assessee claimed before learned CIT(A) that it has rightly made disallowance of expenditure to the tune of Rs. 4,59,998/- @ 0.5% of the average investments by invoking Section 14A read with Rule 8D(2)(iii) of the 1962 Rules. 5. The learned CIT(A) observed that the assessee has earned dividend income of Rs. 83,48,000/- which was claimed as an exempt income. The assessee claimed before learned CIT(A) that it has interest free funds to the tune of Rs. 1343.42 lacs whereas long term investments made in shares are to the tune of Rs. 1127.11 lacs. The assessee also submitted that it has both interest income(Rs. 532.92 lacs) as well interest expenses ( Rs. 601.46 lacs) and the net interest expenses incurred by the assessee are to the tune of Rs. 68.54 lacs which should be considered for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1204.24 3211.97 5.6. The assessee claimed that out of total investments of Rs. 7,182.19 lacs, the assessee has investments of Rs. 639.48 lacs in equity shares which is capable of generating dividend income which is not chargeable to tax and further it was submitted by assessee that it has investment of Rs. 487.63 lacs in Venture Capital Fund which is capable of giving investors by way of interest and dividend. The assessee claimed that investment as per Note No. 9 has been shown under Current Assets-Current Investments are not for earning tax free income. The assessee submitted before learned CIT(A) that income from growth fund is chargeable to tax as per normal provisions of the 1961 Act. The assessee also claimed that short term capital gains (without STT) of Rs. 1,99,63,962/- from sale of Investment in Growth Mutual Fund ( shown under current assets) is also chargeable to tax. The assessee submitted that investments in Growth Mutual Fund should not be taken for computing disallowance of expenses u/s 14A read with Rule 8D(2)(iii) of the 1962 Rules and the amount of Rs. 4,59,998/- offered for disallowance u/s 14A read with Rule 8D(2)(iii) by the assessee be accepted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t recorded satisfaction before invoking provisions of Section 14A of the 1961 Act read with Rule 8D of the 1962 Rules. The learned counsel for the assessee relied upon the decision of Hon'ble Supreme Court in the case of PCIT v. Moonstar Securities Trading and Finance Company Private Ltd., (2019)263 Taxmann 458(SC), wherein SLP against judgment of Hon'ble Delhi High Court in the case of PCIT v. Moonstar Securities Trading and Finance Company Private Limited, (2019) 105 taxmann.com 274(Delhi) stood dismissed by Hon'ble Delhi High Court. The learned counsel for the assessee also relied upon decision of Hon'ble Bombay High Court in the case of CIT v. Jubilant Enterprises Private Ltd., in ITA no. 1512 of 2014, vide judgment dated 28.02.2017. The learned counsel for the assessee also relied upon decision of Hon'ble Gujarat High Court in the case of PCIT v. Nirma Credit & Capital Private Ltd., in Tax Appeal no. 409 and 514 of 2017,dated 31.08.2017. 7. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee has claimed itself to be NBFC engaged in the business of providing finance and making investments. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of Maxopp Investment Limited(supra). The assessee has made investments in properties and also made investments in Debentures, Bonds, Mutual Fund- Growth Fund, wherein it is claimed that these investments which yield taxable income cannot be included for the purposes of computing disallowance of expenses u/s 14A of the 1961 Act, we agree with this proposition of the assessee as it is only those securities and investments which are capable of yielding an exempt income is to be considered for making disallowances of expenditure u/s 14A of the 1961 Act.We also agree with the proposition that in case the assessee hold both interest free funds as also interest bearing funds and in the absence of specific co-relation of interest bearing borrowed funds with investments made, the presumption will apply that the assessee made investments in securities capable of yielding tax-free income out of interest free funds available with it. The decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited(supra) and CIT v. HDFC Bank Limited (2014) 366 ITR 505(Bom.) are relevant and applicable. The assessee has claimed to be NBFC and to be engaged in in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rranging its affairs and managing investments which ought to be firstly brought by assessee before the AO in discharge of primary onus as is cast on the assessee. No such details are filed before us to prove that the assessee discharged its primary onus. The assessee rather made suo motu disallowance of expenditure u/s 14A of the 1961 Act, accepting and admitting applicability of Section 14A. It applied of its own 0.5% of average investments for making disallowance u/s 14A of the 1961 Act by invoking Rule 8D(2)(iii) of the 1962 Rules, towards administrative expenses. Now, to resile from its own admitted position at this stage is not warranted. The AO on its part has duly recorded satisfaction albeit cryptic in para 5.1 and 5.2 of its assessment order. Thus, under these factual matrix, the AO is directed to make disallowance of expenditure u/s 14A of the 1961 Act in accordance with our aforesaid directions. The assessee is directed to file complete details and modus operandi for making and managing investments to that effect before the AO in denovo proceedings. Needless to say that the AO shall grant proper and adequate opportunity of being heard to the assessee in denovo assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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