TMI Blog2017 (8) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... the said return was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had shown dividend income of ₹ 142.50 Crores which had been claimed as exempt in the return of income. He asked the assessee to show cause as to why disallowance u/s 14A of the Act read with Rule 8D Income Tax Rules, 1962 may not be made. The reply of the assessee has been incorporated by the AO in para 4.2 of the assessment order dated 22.03.2013, for the cost of repetition, the same is not reproduced herein. The AO was not satisfied from the reply of the assessee and made the disallowance of ₹ 490.88 Lacs which was added to the income of the assessee by observing as under: (4.3) I have gone through the reply submitted by the assessee and the contentions raised by him on the issue of disallowance u/s I4A of the Act. I am not satisfied with the reply of the assessee; the assessee has incurred indirect expenses to earn the dividend income which are not allowable as per the provisions of the Act. In view of the reasons mentioned below, the reply of the assessee is not acceptable: i) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les is worked out as under:- Calculation of disallowance under Rule 8D i. The amount of expenditure incurred during the year directly relating to exempt income- NIL ii. The interest on borrowings made for investment in equity funds - 46.98 Lac iii. 0.5% of average value of investment income from which does not form part of total income on the first last day of the previous year- Applicable Accordingly, the disallowance upto 0.5% of the average of the value of investments u/s 14A read with Rule 8D is calculated as under: Average Investment 92152.40+85409.47 = 88,780.94 Average Total Assets 1628377.81+1367041.68 = 1,497,709.75 Amount of Interest 792.52 Disallowance Direct Expenses Out of Interest NIL 792.52 X 88780.93 /1497712.24 46.98 0.5% of Average Investment Disallowance u/s Rule 8D 443.90 490.88 Lac Accordingly, an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd. 490.00 Sub total 91,801,59 B. Non Trade Investment - other (Unquoted)(investment deposit scheme )(As per the Income Tax Act, 1961) 350.81 Total 92,152.40 5.2.1 The appellant has submitted before me in its written and oral submissions that the provisions of section 14A are not applicable in the present case and that the addition made by the Assessing Officer under section 14A is not sustainable. It has submitted before me that out of the total trade investments of ₹ 918.02 crores a sum of ₹ 897.04 crores was the amount of equity contribution / share application of the appellant company in joint venture companies (which were special purpose vehicles) for running of various airports at Hyderabad, Bangalore, Delhi, Nagpur and Mumbai. A sum of ₹ 20.97 crores had been invested in National Flying Institute, Gondia which was engaged in training of pilots. 5.2.2 The appellant had submitted before me at the outset that the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en invested during the year. The Ld. AR further submitted that the trade investments were made in joint venture companies in accordance with the scheme formulated by Government of India for running of various airports and the appellant had no occasion to switch in and switch out its funds with respect to investment in shares of joint venture companies as assumed by the Assessing Officer. The Ld. AR pointed out before me that the joint venture companies were special purpose vehicles incorporated with the sole intention of running and maintaining airports at New Delhi, Bombay, Hyderabad, Bangalore, Nagpur. 5.2.7 The Learned AR submitted that the contention of the Assessing Officer is not tenable as the provisions of section 14A are not applicable as the investment in joint venture companies was not made with the intention to earn exempt income nor the appellant had incurred any expenditure for making investment in joint venture companies. The basic intention to make investment was to expand its business. The Appellant also submitted that it had not made investment in shares of joint venture companies (which were special purpose vehicles and were incorporated to take over the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint venture companies as these were floated specifically to run and operate airports at Delhi, Mumbai, Bangalore, Hyderabad, Nagpur etc and the appellant had entered into Operation Management Development Agreement (OMDA) with these joint venture companies from which it was in receipt of substantial business income has merit. Therefore, no disallowance under section 14A is called for and I delete the addition of ₹ 4.90 crores made by the Assessing Officer. 6. Now the department is in appeal. The ld. DR strongly supported the order of the AO and reiterated the observations made in the assessment order dated 22.03.2013. 7. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the figure of ₹ 142.50 Crores mentioned by the AO in the assessment order was not the dividend received by the assessee rather it was the figure of dividend proposed. A reference was made to page nos. 27 of the assessee s paper book. It was stated that there was no exempt income earned by the assessee during the year under consideration. Therefore, the disallowance made by the AO was not justified a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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