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TMI Blog2019 (10) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... Though, there is no discussion about the acceptance of contention of the assessee in its reply dated 11.02.2013, filed during the assessment proceeding. We are of the considered view that the order passed by Assessing Officer was not erroneous and thus the twin condition as laid down by Hon ble Apex Court in Malabar Industrial Co. Ltd. [ 2000 (2) TMI 10 - SUPREME COURT] the recourse of section 263 cannot be invoked against the assessment order. Therefore, the assessee succeeds on legal ground. Since, the assessee succeeded on legal ground, therefore, adjudication on other contentions and issues raised by assessee have become academic. - ITA No. 3214/Mum/2015 - - - Dated:- 18-9-2019 - Shri G.S. Pannu, Vice-President And Shri Pawan Singh Judicial Member For the Appellant : Shri Yogesh Thar/Ms. Niyanta Mehta and Manish Shah (AR s) For the Respondent : Shri R.P. Meena (CIT-DR) ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. The appeal by assessee is directed against the order of ld. Principle Commissioner of Income Tax-9 [ld. PCIT), Mumbai d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for computing the average investments under rule 8D(2)(ii) of the Rules would amount to the double disallowance of the proportionate interest attributable to the said investments i.e. ₹ 560.85 crores. 3. The Appellant therefore prays that the direction of the Pr. CIT in this regards should be quashed. GROUND III 1. On the facts and circumstances of the case and in law, the Pr. CIT erred in directing the AO to modify the assessment order passed u/s. 143(3) of the Act dated 08 March 2013, to make proportionate disallowance on account interest expenditure on the borrowed funds utilised for making investments in the mutual funds, which ultimately resulted in the capital gain. 2. He failed to appreciate that Appellant had made investments in the mutual funds from the funds from the day to day operation and not from the borrowed funds. 2. Facts in brief are that the assessee is a company engaged in the business of running departmental stores and retailing household articles, filed its return of income for Assessment Year 2010-11 on 27.09.2009 declaring loss of ₹ 480 crore (approx.). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred for earning exempt income. It was further stated that computation was made in accordance with the mechanism provided in Rule 8D, which was accepted by Assessing Officer. The assessee also furnished the copy of working filed before the Assessing Officer. For calculating the average value of asset under Rule 8D(2)(ii), the assessee stated that total asset as appearing in the balance-sheet (including P L A/c and debit balance amounting to ₹ 890,32,72,961/-) after excluding current liability and investment on which interest expenses has already been considered separately for disallowance under Rule 8D(2)(i). Accordingly, the assessee stated that the proposed disallowance in this regard would result into double disallowance on the same investment under clause (i) as well as clause (ii) of Rule 8D which is not logical. The assessee further stated that investment made for the purpose of purchase of units of mutual fund considered as a part of its average investment and the same should be considered as a part of average investment for working of disallowance under section 14A. With regard to excess deduction allegedly allowed by Assessing Officer on such investment made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utual fund being assessed under Capital Gain is not acceptable as the earning of income by assessee under the head Capital Gain and not under the Business Income . There is no provision in the Act that any expenses attributable to earning of income from Capital Gain are to be allowed except provided under section 48 and 49 of the Act. The deduction claimed by assessee under section 36(1)(iii) cannot be considered. The said deduction is to be allowed against the working of Business Income and not for earning Capital Gain. For the contention of assessee that Assessing Officer raised queries about the issue during the assessment, the ld. PCIT concluded that although the issue was raised relevant reply in the form of computation of disallowance was filed but the Assessing Officer mechanically accepted the same without applying his mind and thereby made less disallowance. No issue regarding disallowance of direct and indirect expenses attributable to its earning of Capital Gain was neither raised nor discussed. The ld. PCIT finally concluded that Assessing Officer failed to exclude the amount of investment of ₹ 561 crore (approx.) and the amount of investment made in the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that provision of section 14A r.w. Rule 8D can be invoked whether no exempt income was earned by the direct relevant Assessment Year. Thus, when suo-moto disallowance is made in absence of exempt income, there is no question of order being erroneous or prejudicial to the interest of revenue. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon ble Delhi High Court in Cheminvest Ltd. Vs. CIT [378 ITR 33 (Del.)], CIT vs. Delite Enterprises (ITA No. 110/2009 (Bom), CIT vs. Holcim India (P.) Ltd. (57 taxmann.com 28) (Del.), Redington (India) Ltd. Vs. ACIT [392 ITR 633 (Madras)], CIT vs. Chettinad Logistics (P.) Ltd. [80 taxmann.com 221 (Madras)], DCIT vs. M/s. Apex Realty Pvt. Ltd. (ITA No. 2855/M/2013 ACIT vs. M. Baskaran [152 ITD 844 (Chennai Trib.)]. 9. In alternative submission, the ld. AR of the assessee submits that if investment has already considered in Rule 8D(2)(i) are once again considered under Rule 8D(2)(ii), it would neither be in-compliance with the law nor in consonance with the affidavit filed by revenue before the Hon ble Bombay High Court in case of Godrej Boyce s case reported vide [3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 23.40 crore under section 14A and that computation of suo-moto disallowance was made in accordance with the mechanism prescribed under Rule 8D. The assessee further vide its reply dated 17.03.2015 has again reiterated before ld. PCIT that the assessee has not received any exempt income during the year under consideration and that no disallowance under section 14A is warranted. We have noted that the ld. PCIT despite the firm stand of the assessee that no exempt income, the income was earned and that no disallowances under section 14A is warranted, has not examined the fact about the non-receipt of exempt income. Moreover, we have noted that during the assessment, the Assessing Officer examined the issue if disallowance under section 14A and after receipt of reply, no disallowance was made. 14. The Hon ble Delhi High Court Cheminvest Ltd. Vs. CIT (supra) held that the provision of section 14A will not apply if no exempt income is received or receivable during relevant previous year. The Hon ble Delhi High Court in CIT vs. DLF Ltd. (supra) held that disallowance of expenditure of exempt income is debatable and the order of Assessing Officer could not be held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in units of mutual fund (growth scheme) and the income of such investment is not exempted. Thus, as per the decision of Hon ble Delhi High Court in Cheminvest Investment Ltd. (supra), Hon ble Madras High Court Redington (India) Ltd. (supra) that when there is no exempt income in the relevant period, there cannot be disallowance of expenditure under section 14A. Accordingly, the assessment order under section 143(3) is not erroneous. The Assessing Officer has adopted a possible view for not making any disallowance under section 14A. Though, there is no discussion about the acceptance of contention of the assessee in its reply dated 11.02.2013, filed during the assessment proceeding. 18. In view of the aforesaid discussion, we are of the considered view that the order passed by Assessing Officer was not erroneous and thus the twin condition as laid down by Hon ble Apex Court in Malabar Industrial Co. Ltd. (supra), the recourse of section 263 cannot be invoked against the assessment order. Therefore, the assessee succeeds on legal ground. Since, the assessee succeeded on legal ground, therefore, adjudication on other contentions and issues raised by a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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