TMI Blog2017 (12) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof. 2 The Ld CIT(A) has erred in law and on facts in directing the AO to exclude investments in mutual funds which generate exempt income for the purpose of calculating disallowance u/s 14A holding it as temporary phenomena and allowing consequential relief thereof. 3 The Ld CIT(A) has erred in placing reliance on the decision of the Hon'ble High Delhi Court in CIT Vs. Oriental Structural Engineering Pvt. Ltd. as the facts of which case are different from the facts of instant case. 4 The Ld CIT(A) has failed to appreciate the fact that in the case of Oriental Structural Engineering Pvt. Ltd., investments were made in Special Purpose Vehicles whereas in the present assessee investments were made in the subsidiaries that too not on account of commercial expediency but to circumvent the Land Ceiling Act, 1975 of the State of Haryana.5 3. The Revenue has raised the following grounds of appeal for Assessment Year 2011-12:- 1. The Ld CIT(A) has erred in law and on facts in deleting the addition of Its.97,84,132/ made by the AO on account of disallowance u/s 14A r.w Rule 8D. 2. The Ld CIT(A) has erred in placing reliance on the decision of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the explanation of the assessee no satisfaction has been recorded by the ld AO. He further stated that the ld CIT(A) has deleted the addition on the basis of decision of Hon ble Punjab and Haryana High Court as well as decision of the Hon ble Allahabad High Court. He further stated that amount of investment made by the assessee is also for strategic control and business expediency on such advance no disallowance can be made. 8. We have carefully considered the rival contentions and also perused various orders of the lower authorities. The ld CIT(A) dealt with this issue at para 21 to 24 as under:- Decision: I have considered the submission of the appellant and observation of the Assessing Officer in the assessment order. It is seen that Assessing Officer has disallowed expenses of ₹ 1,63 50,876/- u/s 14A read with Rule 8D of the I.T. Rules, 1962 as expenses attributable to earning of exempt income. The appellant company is engaged in the business of development of integrated townships, Malls, development of management services. The area of operation of the appellant company is mainly in the state of Haryana, Gurjarat and Punjab. In the state of Haryana, if a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,000 9,999 100% 1,14,000 Seven Seas Real Estates Pvt. Ltd. 15.66 Subsidiary 10,000 9,999 100% 17,64,000 Seven Wonders Real Estates Pvt. Ltd. 31.33 Subsidiary 10,000 9,999 100% 2,27,90,000 Town Hall Real Estates Pvt. Ltd. 12.64 Subsidiary 10,000 9,999 100% 35,90,000 Ruchi Malls Pvt. Ltd. 7.04 Subsidiary 99,110 99,109 100% 1,33,50,27,100 Crystal Island Park Pvt. Ltd. 80.00 Subsidiary 1,50,000 1,49,999 100% 1,00,000 Axcelo Development Pvt. Ltd. 19.04 Subsidiary 10,000 10,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50% 1,00,000 1,66,68,29,250 It is submitted by the appellant that the investments made in the above mentioned companies has been made with the intention to obtain the license and to arrange 50 acres of land with the help of subsidiary companies for developing a township. It is further submitted by the appellant that all these subsidiaries have transferred their development rights to the holding companies for the land bought in their name. Therefore, the intention of the appellant to invest in the subsidiary companies was never to earn dividend but the same was made to acquire land to meet the minimum requirement of Haryana Town and Country Planning Act and to overcome the restrictions put by the Haryana Urban Land Ceiling Act, 1995. The investments in the subsidiaries were for development of business and for the commercial expediency. These investments were to get the strategic advantag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment itself. Therefore, it was submitted by the appellant that no financial or administration expenses directly or indirectly have been incurred by the appellant for earning the dividend income. It is also submitted by the appellant that the dividend distributed by the mutual funds is after deduction of tax u/s 115R, therefore, these dividends are not tax-free income to the appellant. The Revenue has already collected the tax on the income earned on the investments in terms of the dividend tax, hence, the same cannot be taxed twice. In the assessment order, the Assessing Officer held that dividend earned from such investment is not includable in the total income of the appellant company, therefore, expenses relating to such exempt income has to be disallowed. However, it is seen that dividend income has been earned by the appellant from the mutual funds and no direct or indirect expenditure seems to be incurred by the appellant. The money was received from the foreign investor and till the same was invested in the projects, the same was invested in the mutual funds. Therefore, no cost expenditure seems to be incurred by the appellant for making these investments. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable as held by various judicial pronouncements cited by the appellant in his submission like Swapna Murarka 58 taxman.com 369 Mumbai ITAT (2015), Fali S. Narivan 56 taxman.com 155 Mumbai Tribunal (2015) and Dy. CIT Circle 10(1), New Delhi Vs. DBH International Pvt. Ltd. 55 taxman.com 424 Delhi Tribunal (2015). The appellant has further relied upon the judgment of Hon ble Punjab Haryana High Court and Allahabad High Court in the case of CIT Vs. Lakhani Marketing Incorporation (2014) 111 DTR (P H) 149 and CIT Vs. Shivam Motors Pvt. Ltd. (2014) 111 DTR (Allahabad) 153 respectively. Therefore, respectfully following the above judgments and in view of the fact that no specific nexus has been established by the Assessing Officer about the receipt of the exempt income and incurring of expenses, hence, no disallowance of expenses is called for. Further, the investment in mutual funds was a temporary phenomena and same arrangement till the money was invested in projects. Accordingly, disallowance of ₹ 16350876/- made by the Assessing Officer as expenses pertaining to earning exempt income is deleted. 9. We do not find any infirmity in the order of the ld CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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