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TMI Blog2019 (11) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... the year for working out disallowance u/s 14A r.w. Rule 8D. The aforesaid decision of the Special Bench of the Tribunal has also been relied upon by the Co-ordinate Bench of the Tribunal in the case of M/s. Quick Heal Technologies Ltd [ 2019 (3) TMI 699 - ITAT PUNE] . Before us, Revenue has not placed any contrary binding decision in its support. We therefore relying on the aforesaid decisions restore the issue back to the file of AO to re-work the disallowance u/s 14A r.w. Rule 8D(2)(iii) of I.T. Rules in line with the decision of Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments Pvt Ltd. (supra) Disallowance u/s 14A r.w. 8D - A.Y. 2013-14 - HELD THAT:- Disallowance u/s 14A r.w Rule 8D(2)(ii) on account of interest expenses on account of availability of sufficient interest free funds and Rule 8D(2)(iii) with respect to indirect expenses from the investments from which no exempt income being earned respectively is concerned, in view of the submission of both the parties and the fact being similar to A.Y. 2012-13, we for the reasons stated hereinabove while deciding the issue in A.Y. 2012-13 and for similar reasons and directions, restore the issue back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following grounds : 1. The learned CIT(A) erred in confirming the disallowance u/s 14A of ₹ 38,95,049/- out of the total disallowance of ₹ 58,92,941/- made by the learned AO. 2. The learned CIT(A) failed to appreciate that no disallowance u/s 14A r.w.r. 8D was warranted over and above, the disallowance of ₹ 50,000/- already made by the appellant company in its return of income particularly, since no objective satisfaction was recorded by the learned A.O. to demonstrate that the disallowance made by the appellant was not correct. 3. The learned CIT(A) erred in confirming the disallowance of ₹ 44,204/- u/s 14A r.w.r. 8D(2)(ii) in respect of proportionate interest expenditure incurred for earning tax free income without appreciating that the appellant had own funds available in excess of the tax free investments and therefore, there was no reason to make any disallowance. 4. The learned CIT(A) erred in partly confirming the disallowance on account of indirect expenditure u/s 14A r.w.r. 8D without appreciating that no objective satisfaction was recorded by the A.O. to demonstrate that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e thereafter worked out the disallowance u/s 14A of the Act as per the methodology prescribed under Rule 8D of the I.T. Rules and worked out the disallowance at ₹ 59,42,941/-. He thereafter granted credit of ₹ 50,000/- which was suo moto disallowed by the assessee and made net addition of ₹ 58,92,941/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A). Before Ld.CIT(A), apart from other contentions it was further contended that AO had made the disallowance by also considering the investments in shares and mutual funds, the income from which was taxable and therefore should have been excluded while working out the disallowance Ld.CIT(A) after considering the submissions of assessee, granted partial relief to the assessee by directing the AO to compute the disallowance u/s 14A r.w. Rule 8D of I.T. Rules after excluding the investments in mutual funds, the income from which is taxable, and thus given relief of ₹ 20,47,892/- and confirmed the addition to the extent of ₹ 38,95,049/-. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us. 6. Before us, Ld.A.R. reiterated the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received from various companies as tax free dividends. He therefore submitted that in view of these facts, the matter may be remitted back to the file of AO to work out the disallowance accordingly. Ld. D.R. on the other hand supported the order of lower authorities. 8. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance u/s 14A r.w. 8D of I.T Rules. We find that AO has proceeded to make the disallowance of expenditure u/s 14A r.w. Rule 8D of I.T. Rules. Before us, it is assessee s contention that since assessee has sufficient interest free funds in the form of Share Capital, Reserves Surplus which are more than the investments, no disallowance of interest under Rule 8D(2)(ii) is called for. We find force in the submission of the Ld.A.R. We find that Hon ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd., (2014) 160 DTR 140 has held that if the assessee has interest free funds which are more than the investments, then there is a presumption that interest free funds have been utilized for making investments and no disallowance of interest under Rule 8D(2)(ii) is called for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad earned dividend income to the extent of ₹ 11,64,13,033/- and had suo moto disallowed ₹ 50,000/- u/s 14A of the Act. The assessee was asked to show cause as to why the disallowance u/s 14A r.w.r. 8D has not been made, to which assessee made the submissions which were not found acceptable to the AO. AO thereafter worked out the disallowance u/s 14A on the basis of Rule 8D of I.T. Rules at ₹ 75,92,184/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dated 09.01.2017 (in appeal No.PN/CIT(A)-3/Cir.3, Pn/4/2016-17) granted partial relief to the assessee by directing the AO to work-out the disallowance u/s 14A r.w.r 8D by excluding the investments in mutual funds, the income from which were taxable in the hands of the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : 1. The learned CIT(A) erred in not deleting the entire disallowance made by the learned AO of ₹ 75,92,184/- u/s 14A r.w.r 8D. 2. The learned CIT(A) failed to appreciate that no disallowance u/s 14A r.w.r. 8D was warranted over and above, the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal issue in the impugned year which is also required to be adjudicated is assessee has shares of ₹ 30.10 crore which are held by it as stock-in-trade. He submitted that while working out the disallowance u/s 14A of the Act, AO has also included the aforesaid shares for working out the disallowance. He submitted that since the shares are held as stock-in-trade, it needs to be excluded for working out the disallowance u/s 14A and in support of which he relied on the decision in the case of Pune Tribunal in the case of Bank of Maharashtra Vs. DCIT which is placed at Page 33 of the Paper Book. He therefore submitted that in view of the aforesaid decision, the matter be remitted back to the file of AO. Ld. D.R. on the other hand supported the order of AO and Ld.CIT(A) and relying on the decision of Apex Court in the case of Maxopp Investment (2018) 402 ITR 640 supported the action of lower authorities. 14. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance u/s 14A r.w. 8D of IT Rules. As far as the issue of disallowance u/s 14A r.w Rule 8D(2)(ii) on account of interest expenses on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 109 of 2015, aforesaid is the scenario. Though, in some other cases, there may be little difference in fact situation. However, all these cases pertain to dividend income, whether it was for the purpose of investment in order to retain controlling interest in a company or in group of companies or the dominant purpose was to have it as stock-in-trade. . 33. There is no quarrel in assigning this meaning to section 14A of the Act. In fact, all the High Courts, whether it is the Delhi High Court on the one hand or the Punjab and Haryana High Court on the other hand, have agreed in providing this interpretation to section 14A of the Act. The entire dispute is as to what interpretation is to be given to the words in relation to in the given scenario, viz. where the dividend income on the shares is earned, though the dominant purpose for subscribing in those shares of the investee company was not to earn dividend. We have two scenarios in these sets of appeals. In one group of cases the main purpose for investing in shares was to gain control over the investee company. Other cases are those where the shares of investee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as stock-in-trade , it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever di ..... 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