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TMI Blog2021 (11) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... me, while holding that "the AO is directed to re-work the disallowance under Rule 8(2)(ii) and Rule 8(2)(iii) by considering all investments other than the investments which yield taxable income while working out the average of investments for the application of the said rules", as the Honb'le Supreme Court in Maxopp Investment Ltd., vs. CIT, New Delhi, 91 Tamann.com 154 has only held that "expenditure attributable to exempt income has to be apportioned to be disallowed under section 14A, with respect to an investment which yield both taxable as well as exempt income, without specifying the basis as to how such apportionment would be made. 2. For that holding by CIT(A) that contention of the assessee that "the investments made in subsidiary and associated companies and other strategic investments should not be considered while working out the average investments under Rule 8D (2)(ii) and Rule 8D(2)(iii) of the Rules is not acceptable" is arbitrary, bad in law and perverse inasmuch as the Honb'le Supreme court in aforesaid Maxopp Investment Ltd., vs. CIT (supra) has nowhere held so. Moreover, Apex Court dismissed the SLP in CIT (Central) 1 v. Chettinad Logistics (P) Ltd [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting total disallowance at Rs. 1,40,44,074/- comprising direct expenses of Rs. 31,379/- under rule 8D2(i), Rs. 1,24,67,062/- under rule 8D2(ii) and Rs. 15,45,633/- under rule 8D(2)(iii) and after allowing the deduction for suo-moto disallowance made an addition of Rs. 1,37,53,328/-. 5. So far as the disallowance under rule 8D2(i) and rule 8D2(iii) is concerned, there is no dispute and the assessee has disputed only the disallowance of Rs. 1,24,67,062/- as made by the AO under rule 8D2(ii). 6. In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee on this issue by directing the AO to work out the disallowance under rule 8D2(ii) and rule 8D2(iii) by considering the investments other than those investments which did not yield any exempt income during the year while calculating the average investments and thus partly allowed the appeal for statistical purposes by observing and holding as under: "6.3 I have carefully considered the facts of the case, discussion of the AO in the impugned order as well as oral contentions and written submissions of the appellant. The appellant has relied on the decision of my learned predecessor CIT(A) for A.Y.2012-13 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Their Lordships have further observed that keeping this objective behind section 14A of the Act in mind, the said provision has to be interpreted particularly the word "in relation to income" that does not form part of the total income. It has further been observed that considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engraved in section 14A of the Act. In view of such observations of Hon'ble Apex Court in the case of Maxopp Investments Ltd. vs. CIT (supra), the contentions and submissions of the assessee that the investments in stock which are held as stock-in-trade or such investments in stock which are made in subsidiary and associated companies and other strategic investments should be excluded while working out the average investments under Rule 8D(2)(ii) and Rule 8D(2)(iii), are not found to be acceptable. The appellant, in their submission, by reproducing para 34, 41 and 42 of the said decision of Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and therefore no disallowance could be made under rule 8D2(ii). The Ld. A.R. submitted that the issue is squarely covered by the decision of Jurisdictional High Court in the case of CIT vs. HDFC Bank (2014) 366 ITR 505 (Bom.), CIT vs. SBI, DHFL Ltd. (2014) 376 ITR 296 (Bom.) and HDFC Bank vs. CIT (2016) 383 ITR 529 (Bom.). The Ld. A.R. therefore prayed that since the assessee's average investments in the securities yielding exempt income being less than the average own funds, therefore, no disallowance can be made under rule 8D2(ii). The second without prejudice propositions made by the Ld. A.R. is that these investments which held by the assessee as stock in trade which yielded both exempt as well as taxable income the Ld. A.R. submitted that the Ld. CIT(A) has grossly erred in applying the decision of Hon'ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT New Delhi 91 taxmann.com 154 and holding that dominant purpose for which the investments in all the shares is made by the assessee is not relevant in determining the issue of disallowance under section 14A of the Act. The Ld. A.R. took us through the decision of Maxopp Investments Ltd. vs. CIT (supra) and tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain directions. The Ld. D.R., therefore, prayed that the order passed by Ld. CIT(A) is very reasoned order by following the decision of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT (supra) and therefore may kindly be affirmed. 9. We have heard the rival contentions of both the parties and perused the material on record. The Ld. A.R. has filed before us the working of average investments and average own funds which were also filed before the authorities below, which are extracted below are for the sake of ready reference and convenience. 10. We find from the above that the total investments as per note No.9 were Rs. 77,53,86,357/- which comprised of investments in growth funds Rs. 7,50,85,700/-, investments in foreign companies Rs. 2,62,25,910/- and investment in properties Rs. 64,78,48,837/- and remaining represented the investments in share and securities of Rs. 64,78,48,837/-. We further note that inventories as per note No.12 is Rs. 75,74,88,040/-. We find merit in the contentions of the Ld. A.R. that investments in growth funds are not includible while computing the average investments for calculating the disallowance under section 14A as no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue raised in this appeal by the Revenue is against the deletion of disallowance of Rs. 3,89,99,890/- under rule 8D2(iii) of the Act by ld CIT(A). 14. The facts of the instant appeal by the Revenue are similar to one as decided by us in ITA No.5682/M/2018 A.Y. 2014-15. We find that the Ld. CIT(A) allowed the appeal of the assessee in this year by directing the AO to exclude from the average value of the investments in subsidiary and associate companies and other strategic investments as well as investing yielding taxable income for calculating the disallowance under section 14A of the Act. The Ld. D.R. submitted before the Bench that at the time of passing the order the decision of the Apex Court in the case of Maxopp Investments Ltd. vs. CIT New Delhi 91 taxmann.com 154 was not available and therefore the relief was allowed to the assessee by Ld. CIT(A). However, in the subsequent year the decision of the Hon'ble Supreme Court as referred to above was available and therefore Ld. CIT(A) dismissed the appeal of the assesse, while fairly conceded that facts in both the years being same. The Ld. A.R. reiterated his submissions before the Bench as made in ITA No.5682/M/2018 A.Y. 2014-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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