TMI Blog2018 (3) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... A no.3739/Mum./2015, ITA no.3523/Mum./2015, ITA no.3524/Mum./2015, ITA no.3740/Mum./2015, ITA no.3741/Mum./2015 And ITA no.3525/Mum./2015 - - - Dated:- 28-2-2018 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Revenue : Ms. Pooja Swaroop For The Assessee : Shri J.D. Mistry, Sr. Counsel a/w Shri Ryan Saldanha ORDER PER BENCH This bunch consist of three sets of cross appeals arising out of three separate orders all dated 31st March 2015, passed by the learned Commissioner (Appeals) 5, Mumbai, for the assessment years 2008 09, 2009 10 and 2010 11. As the appeals pertain to the same assessee involving common issues arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. ITA no.3739/Mum./2015 Assessee s Appeal for A.Y. 2008 09 2. The only issue arising in the present appeal relates to disallowance made under section 14A r/w rule 8D(2)(iii). 3. Brief facts are, the assessee a company is engaged in the business of executing contract work for industrial coating, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvested in group companies during the year under consideration will form part of average value of investment for computing disallowance under rule 8D(2)(ii). Of course, the learned Commissioner (Appeals) also accepted the assessee s plea that investment in mutual debt fund where no dividend was payable and long term capital gain arising on sale of such mutual found since are taxable, have to be excluded from the average value of investment. Accordingly, he worked out the disallowance under rule 8D(2)(iii) at ₹ 23,96,647 in addition to the disallowance already made by the assessee. 6. Learned Authorised Representative submitted, the incremental investment made during the year in group companies since is also in the nature of strategic investments, the amount of ₹ 47,91,70,021 representing such investment has to be excluded from the average value of investment for computing disallowance under rule 8D(2)(iii). Further, in support of his contention that incremental increase in strategic investment should not form part of average value of investment. Learned Authorised Representative relied upon the following decisions: i) Kotak Mahindra Capital v/s DCIT, ITA no.5748 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance sustained by the learned Commissioner (Appeals) should be upheld. 10. We have heard rival submissions and perused material available on record. We have also applied our mind to the decisions relied upon. Undisputedly, the learned Commissioner (Appeals) has deleted the disallowance of interest expenditure under rule 8D(2)(ii) and the Department is not in appeal against such decision of the learned Commissioner (Appeals). Insofar as the disallowance of expenditure under rule 8D(2)(iii) is concerned, the assessee pleaded before the learned Commissioner (Appeals) that strategic investments made in group companies should be excluded from the average value of investment for computing disallowance under rule 8D(2)(iii). Though, the learned Commissioner (Appeals) in principle has agreed to the aforesaid submissions of the assessee, however, he has segregated the old investments and incremental investments made during the year in the group companies and has held that only old investments made in the group companies are to be excluded from the average value of investment for computing disallowance under section 8D(2)(iii). We do not find any rationale or logic behind such decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Delhi High Court in CIT v/s Holcim India Pvt. Ltd. (supra) and Cheminvest Ltd. (supra) has held that in the absence of any exempt income earned during the year no disallowance under section 14A can be made. The Tribunal, Delhi Special Bench in ACIT v/s Vireet Investment Pvt. Ltd., [2017] 82 taxmann.com 415, following the aforesaid decision of the Hon'ble Delhi High Court has held that investments not giving rise to exempt income during the relevant financial year have to be excluded from the average value of investment. In view of the aforesaid, we direct the Assessing Officer to verify the assessee s claim that it has not received any exempt income on the aforesaid investments and if assessee s claim is found to be correct, the aforesaid investment should be excluded from the average value of investment for computing disallowance under rule 8D(2)(iii). Grounds raised are allowed for statistical purposes. 11. In the result, assessee s appeal is allowed for statistical purposes. ITA no.3523/Mum./2015 Revenue s Appeal for A.Y. 2008 09 12. In ground no.1 Revenue has challenged the decision of the learned Commissioner (Appeals) in execluding old inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the service tax should form part of the trading receipt in terms of section 145A of the Act. The Tribunal, while deciding identical issue in assessee s own case for assessment year 2007 08 followed another decision of the same Bench, wherein, it is held that since the assessee is a service provider, the provisions of section 145A cannot be made applicable as such provisions were specifically introduced for the purpose of manufacture segment of business. Notably, the aforesaid decision of the Tribunal was challenged before the Hon'ble Jurisdictional High Court and the Hon'ble High Court while deciding Revenue s appeal registered as ITA no.1878 of 2014 on 8th June 2017 upheld the decision of the Tribunal. So far as the decision in case of Thirumalai Swamy Naidu and Sons (supra) cited by the learned Departmental Representative on careful perusal of the said decision we find it to be factually distinguishable as the issue therein was whether the Central Sales Tax paid by the assessee and subsequently refunded to it is to be treated as Revenue receipt and treated as income under section 41(1) of the Act. In that context, the Hon'ble Supreme Court held that the CST refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the observations of the learned Commissioner (Appeals). 25. Having considered the rival submissions we are of the view, the assessee s claim that investment made in Sri Citi Power Generation (T.N) Pvt. Ltd. is in the nature of strategic investment is not acceptable in view of the reasoning of the first appellate authority. Therefore, for that reason, it cannot be excluded from the average value of investment for computing disallowance under rule 8D(2)(iii). However, we find force in the alternative contention of the learned Authorised Representative that since the investment in Sri Citi Power Generation (T.N) Pvt. Ltd. has not yielding any income in the relevant previous year no disallowance should be made. We direct the Assessing Officer to examine this aspect and if it is found that in the relevant previous year, assessee has not earned any dividend income on the investment in shares of Sri Citi Power Generation (T.N) Pvt. Ltd. such investments have to be excluded from the average value of investment for computing disallowance under rule 8D(2)(iii). These grounds are allowed for statistical purposes. 26. In ground no.4, the assessee has challenged disallowance of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at nothing has been brought on record to prove that the main object of the assessee is to do business in investment in other companies. She submitted, as per the material on record, the main objects of the assessee is to do business in industrial abrasive blasting and painting, anti corrosion water proofing reclamation off shore contractor, supply of electricity from wind mill, execute construction contracts for corporate, logistics, dredging and margin contracts. She submitted, when expenditure incurred was in relation to raising of funds in respect of another company, such expenditure cannot be considered to be laid out for the business of the assessee. She, therefore, submitted that disallowance of expenditure is proper. 30. We have heard rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. So far as the factual aspect of the issue is concerned, there is no dispute that the payment made of ₹ 1,77,99,929 to Kotak Mahindra Bank Ltd. was for the purpose of raising funds for Met Life India Insurance Co. Ltd., wherein the assessee and other group companies holds substantial stake. The aforesaid fact has been accepted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of dealing in or holding of investment. Therefore, before proceeding to decide the allowability of assessee s claim of expenditure, it has to be seen, what are the primary objects of the assessee company as per the memorandum and article of association. As the allowability of assessee s claim is required to be examined with reference to the objects of the assessee and which has not been examined in the earlier stages, we are inclined to restore the issue to the file of the Assessing Officer for deciding afresh after examining the objects of the assessee company to find out what are the primary objects and accordingly decide the issue keeping in view the decisions referred to above. The Assessing Officer will not only afford reasonable opportunity of being heard to the assessee before deciding the issue but also consider the submissions to be made by the assessee and any other decisions which may be relied upon. Ground is allowed for statistical purposes. 31. In the result, assessee s appeal is allowed for statistical purposes. ITA no.3524/Mum./2015 Revenue s Appeal for A.Y. 2009 10 32. Ground no.1 is identical to ground no.1 raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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