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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 ..... TMI 119 - BOMBAY HIGH COURT] and it has been held that where the interest free funds as well as own funds employed in the business are more than the investments in the shares and securities yielding exempt income, in that case no disallowance is to be made. Similar ratio has been laid in another decision in the subsequent decision in the case of HDFC Bank [ 2016 (3) TMI 755 - BOMBAY HIGH COURT] that where assessee s own funds are more than the investments made in shares and securities no disallowance is to be made under section 14A. In view of the facts of the instant case and the ratio laid down by the Jurisdictional High Court we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance as made under rule 8D2(ii). - Decided in favour of assessee. - ITA No.55/M/2018, ITA No.5682/M/2018 - - - Dated:- 23-9-2021 - Shri Rajesh Kumar, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member For the Assessee : Shri Sanjay Parikh, A.R. For the Revenue : Shri T.S. Khalsa, D.R. ORDER PER RAJESH KUMAR, ACCOUNTANT MEMBER: The above titled cross appeals have been preferred against the order dated 11.10.2017 01.08. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng total income at nil. The case of the assessee has been selected for scrutiny under CASS and statutory notices were duly issued and served upon the assessee. During the course of assessment proceedings the AO noted that assessee has earned dividend income of ₹ 2,82,25,712/- whereas disallowance under section 14A of the Act was made to the extent of ₹ 2,90,746/- and accordingly assessee was called upon vide order sheet noting dated 18.12.2017 to explain the disallowance under section 14A read with rule 8D2(ii). The assessee replied the said show cause notice vide letter dated 07.12.2016. The assessee submitted before the AO the working of the disallowance under section 14A read with rule 8D which worked out to ₹ 15,454,633/- and submitted that the same was wrongly and inadvertently taken as ₹ 2,90,746/-. Thus the assessee requested the AO to disallow the remaining difference of ₹ 12,54,887/-. The assessee submitted before the AO that during the instant assessment year, the assessee has incurred a sum of ₹ 6,34,34,328/- as interest wholly and exclusively for the purpose of business of trading in shares and securities and no part of it can be attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 07.12.2016 to the AO. The disallowances under rule 8D(2)(i), 8D(2)(ii) and 8D(2)(iii) are ₹ 31,379/-, Rs.Nil and ₹ 15,45,633/- respectively. On the other hand, AO has disallowed ₹ 31,379/-, ₹ 1,24,67,062/- and ₹ 15,45,633/- respectively. There is no dispute regarding disallowance under rule 8D(2)(i). As regards the disallowances under rule 8D(2)(ii) and 8D(2)(iii), the appellant has taken investment in quoted shares only whereas, the AO has taken the total investments. In this connection, the appellant has stated that strategic investment and investment which give rise to taxable income should be excluded from the average value of investment. As per provisions of rule 8D(2)(ii), the average value of investment is the investment, the income from which does not or shall not from part of total income. Therefore, the investments which result into taxable income such as Venture Capital Funds are to be excluded while determining average value of investments. While deciding the case of the assessee for A.Y.2012-13 and 2013- 14, placing reliance on the decisions of Garware Wall Ropes Ltd. (supra), J. M. Financial Ltd. (supra), Piem Hotels Ltd. (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D(2)(iii) of the Rules. The contention of the assessee has been 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. In respect of the same, it is stated that in view of the decision of Hon'ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT (supra), such contentions and submissions of the assessee are not found to be acceptable. Further, the contention of the assessee regarding section 14A being deeming provision and therefore, nothing further could be deemed is found to be irrelevant as what is the issue under dispute is only the methodology adopted by the AO for computation of disallowance by invoking Rule 8D(2) vis-a-vis what assessee deems fit. In view of the facts and circumstances of the case and discussion hereinabove, the AO is directed to re-work the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) by considering all investments other than the investments which yield taxable income, while working out the average investments for the application of the said rules. Subject to such direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue that such exempt income which constitute part of the income can not be brought to tax under the Act as the same is exempt from tax. The Ld. A.R. took us through para Nos.19, 20, 31, 37, 38, 39 40 and submitted that the Ld. CIT(A) has wrongly interpreted and applied the decision of Hon ble Apex Court. The Ld. A.R. also relied on the decision of Delhi Tribunal in the case of Nice Bombay Transport Pvt. Ltd. vs. ACIT (OSD) ITA No.1331/Del/2001 order dated 19.11.2018 wherein the Ld. Counsel submitted that it has been held that where the assessee is engaged in trading in shares and thus shares are held as stock in trade and not an investment, no disallowance under section 14A of the Act read with rule 8D can be made. The Ld. A.R. submitted that the Tribunal has considered and followed the decision of Hon ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT (supra) and decided the issue in favour of the assessee. Therefore, Ld. A.R. submitted that on the second proposition also the disallowance under rule 8D2(ii) deserved to be deleted. On the third proposition, the Ld. A.R. submitted that while computing the disallowance under rule 8D2(ii) only those investments need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in properties but appreciation realized upon sale is offered to tax. Therefore, all these three investments in growth funds, in foreign companies and in properties have to be excluded while calculating the average investments. Similar adjustment are required to be made in the figures of investments in the corresponding previous year ended on 31.03.02013 as stated hereinabove. We note that the average investments come to ₹ 135,63,19,992.50. Similarly, the average own funds the calculation whereof is extracted above are ₹ 136,10,03,859/-. It is apparent from the above calculation that assessee s average own funds are more than the average value of investments and in our considered opinion , no disallowance is called for under rule 8D2(ii) of the Act. The case of the assessee is squarely covered by the decisions as referred to above by the Ld. A.R. in support of his arguments. In the case of CIT vs. HDFC Bank Ltd. (supra) and it has been held that where the interest free funds as well as own funds employed in the business are more than the investments in the shares and securities yielding exempt income, in that case no disallowance is to be made. Similar ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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