TMI Blog2018 (2) TMI 1934X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of the appellant in the foreign company vis-a-vis its taxability and allowing the same for the purpose of working out the average investment. We direct the appellant to file the details of shares in foreign company before the AO. Needless to say, the AO would give a reasonable opportunity of being heard to the appellant before finalizing the order. Also the AO is directed to allow the benefit of ₹ 28,19,646/- suo motu disallowed by the appellant. Grounds of appeal in respect of disallowance under Rule 8D(2)(i) and Rule 8D(2)(iii) are allowed, whereas, the appeal under Rule 8D(2)(iii) is allowed for statistical purposes. Depreciation of leased assets - HELD THAT:- During the course of hearing, both the Ld. counsel and the Ld. DR agree that the issue may be sent back to the AO for verification. Having perused the relevant materials on record, we restore the matter on claim of depreciation on leased assets to the file of the AO to verify the same and allow as per the provisions of the Act, after giving reasonable opportunity of being heard to the appellant. We direct the appellant to file the relevant documents/evidence before the AO. Thus the above ground of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO, then following the decision in Rajasthan State Warehousing Corporation v. CIT 244 ITR 450 (SC) and Godrej Boyce v. DCIT (2010) 194 Taxman 203, disallowed expenditure of ₹ 1,23,37,149/- u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962 (the Rules). The break-up is ₹ 48,97,979/- under Rule 8D(2)(i), ₹ 1,02,810/- under Rule 8D(2)(ii) and ₹ 73,36,360/- under Rule 8D(2)(iii). Since, the appellant-company had suo motu disallowed ₹ 28,19,646/-, the AO made a further addition of ₹ 95,17,503/- to the total income. 4. Aggrieved by the order of the AO, the appellant filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) agreed with the reasons given by the AO and dismissed the appeal. 5. Before us, the Ld. counsel of the appellant submits that no reason has been recorded by the AO for dissatisfaction of the correctness of the claim of the assessee and therefore, Rule 8D cannot be invoked. In this regard, reliance is placed by him on the decision in (i) Godrej Boyce Manufacturing Company Ltd. v. DCIT [2017] 81 taxmann.com 111 (SC), (ii) PCIT v. Reliance Capital Asset Management Ltd. [2017] 86 taxmann.com 200 (Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT). 5.3 The Ld. counsel finally submits that strategic investments should be excluded while calculating average value of investment. It is stated that investments of ₹ 63,96,30,000/- outstanding as on March 31, 2009 and ₹ 60,00,00,000/- outstanding as on March 31, 2008 should be excluded for the purpose of calculating average investment for working the disallowance u/s 14A r.w. Rule 8D as the same pertains to strategic investments where dividend has been received and shares of foreign company wherein dividend is taxable. Reliance is placed by him on the decision in (i) M/s JM Financial Limited v. Additional CIT, ITA No. 4521/Mum/2012, A.Y. 2009-10, (ii) Garware Wall Ropes Limited v. Additional CIT, ITA No. 5408/Mum/2012, A Y. 20O9-10, (iii) ACIT v. M/s Oriental Structural Engineers (P) Ltd. ITA No.4245/Del/2011, A.Y. 2008-09 and (iv)DCIT v. Binani Industries Ltd., [2017] 82 taxmann.com 320 (Kolkata - Trib.). The Ld. counsel thus submits a calculation as under: Total Long Term Investment considered by the Ld. by the Ld. ACIT As on March 31 2008 (Rs.) As on March 31, 2007(Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable Let us go through the assessment record to see the situation. During the course of assessment proceedings, the AO observed at para 3 (page 2) of the assessment order dated 30.12.2010 that the appellant is engaged in various activities like (i) Broking i.e. buying and selling share on behalf of clients, (ii) Management consultancy financing i.e. undertaking various project studies and purchase and arranging the finance in respect of the same, (iii) Trading in shares viz., regular purchase and sale of shares as stock-in-trade for the purpose of earning profits and (iv) Investing in shares with a longer perspective with a view of earning by way of dividends and capital appreciation. The AO further observed that while the income under (i), (ii) and (iii) categories will be taxable under the head Profits and Gains from Business of Profession , the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yce Manufacturing Co. Ltd. (supra). As it conforms to the above decision by the Hon ble Supreme Court, we are not adverting to the other decisions relied on by the Ld. counsel. In view of the above, we dismiss the ground raised by the appellant in this appeal that no reason was recorded for dissatisfaction by the AO of the correctness of the claim of the appellant. 7.1 We now turn to the disallowances made by the AO. We find that the appellant had sufficient own funds and non-interest bearing funds to make the said investment in tax-free bonds, share of domestic companies and the same have been used for investing purpose. This is evident from the balance sheet of the appellant company as at March 31, 2008. In HDFC Bank Ltd (supra), the Hon'ble Bombay High Court referring to the decision in CIT vs. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) and Reliance Utilities Power Ltd. (supra)held as under : 15. It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v. Indian Bank Ltd. AIR 1965 SC 1473, CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450/109 Taxman 145, in which it was held that in the case of a composite and indivisible business, which results in earning of taxable and non-taxable income, it is impermissible to apportion the expenditure between what was laid out for the earning of taxable income as opposed to non-taxable income. The effect of section 14A is to widen the theory of the apportionment of expenditure. Prior to the enactment of section 14A, where the business of an assessee was not a composite and indivisible business and the assessee earned both taxable and non-taxable income, the expenditure incurred on earning non-taxable income could not be allowed as a deduction as against the taxable income. As a result of the enactment of section 14A, no expenditure can be allowed as a deduction in relation to income which does not form part of the total income under the Act. Hence, even in the case of a composite and indivisible business, which results in the earning of taxable and non-taxable income, it would be necessary to apportion the expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computed at one-half per cent of the value of the investment. The justification that has been offered in support of the rationale for rule 8D cannot be regarded as being capricious, perverse or arbitrary. 7.3.1 In Godrej Boyce Manufacturing Company Ltd. (supra), the Hon ble Supreme Court has held that the literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent with the scheme of the Act and the object/purpose of levy of tax on income. 7.3.2 The statute does not grant any exemption to the strategic investments which are capable of yielding exempt income to be excluded while computing disallowance u/s 14A. Our decision is fortified by the decision of the Hon ble Karnataka High Court in the case of United Breweries vs. DCIT in ITA No. 419/2009 vide order dated 31.09.2016. As we have relied on the decision of the Hon ble High Court, we are not adverting to the order of the Tribunal on the same issue. In view of the above, we hold that strategic investment made by the appellant are not be excluded while calculating average value of investment. We order accordingly. 7.3.3 Then we turn to the claim of the Ld. counsel that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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