TMI Blog2019 (10) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... 1124 - ITAT DELHI] . Hence, this ground of appeal is allowed for statistical purpose. - ITA No. 6490/Mum/2014, ITA No. 6491/Mum/2014 - - - Dated:- 9-10-2019 - Shri Shamim Yahya, Accountant Member And Shri Pawan Singh Judicial Member For the Appellant : Shri Rajnikant Chaniyari (AR) For the Respondent : Shri R. Manjunatha Swamy (DR) ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeals by assessee are directed against the separate orders of ld. CIT(A)-24, Mumbai dated 23.07.2014 for Assessment Year 2010-11 2011-12. In both the appeals, the assessee has raised identical grounds of appeal except variation of figures. Therefore, both the appeals were clubbed, heard and are decided by a common order. For appreciation of fact, the appeal for Assessment Year 2010-11 is treated as lead case. The assessee has raised the following grounds of appeal: Disallowance under section 14A 1. The learned CIT(A) erred in confirming the additional disallowance of expenses of ₹ 65,99,523 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 77,41,411/-. The Assessing Officer while framing the assessment order under section 143(3) invoked the provision of Rule 8D and disallowed ₹ 1,43,40,934/-, which consist of ₹ 77,41,411/- (suo moto disallowance) under Rule 8D(2)(i) and ₹ 65,99,523/- under Rule 8D(2)(iii). The Assessing Officer also added the disallowance to the book profit under section 115JB. On appeal before the ld. CIT(A), the action of Assessing Officer was upheld. Thus, further aggrieved, the assessee has filed the present appeal before us. 3. We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. 4. Ground No.1 to 5 relates to disallowance under section 14A. The ld. AR of the assessee submits that both the ground raised by assessee are covered in favour of assessee by the decision of Tribunal in assessee s own case for A.Y. 2012-13, wherein the order for A.Ys. 2008-09 2009-10 was followed. The ld. AR of the assessee also placed on record the copy of decision of Tribunal in assessee s own case for A.Y. 2008- 09 2009-10 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, he has invoked Rule 8D. This is evident from the relevant paras of the assessment order we have mentioned hereinbefore. We also find that the same is in conformity with para 37 of the decision in Godrej Boyce 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 cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd etc. shall be included while computing disallowance u/s 14A of the Act. The rationale for enactment of section 14A was explained by the Hon'ble Bombay High Court in Godrej and Boyce Mfg. Co. Ltd (supra) as under: Section 14A was enacted by the Parliament in order to overcome the judgments of the Supreme Court in the cases of CIT 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 nontaxable income could not be allowed as a deduction as against the taxable income. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Under Portfolio Management Schemes (PMS), the fee charged ranges between 2 and 2.5 per cent of the portfolio value which would be inclusive of a profit element for the portfolio manager. While the fixed administrative expenses were excluded on the ground that in the case of a large corporate taxpayer they would be spread over a large number of voluminous activities, the variable expenses were 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 Unite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Supreme Court, the matter stand remitted back to the file of Ld. AO on similar lines with similar conclusion. Needless to add that adequate opportunity of being heard shall be provided to the assessee, who, in turn, is directed to substantiate his claim, in this regard, with documentary evidences / suitable explanations etc. 7. Considering the aforesaid decision of the Tribunal these grounds of appeal are restored to the file of assessing officer with similar direction as made in AY 2008-09, 2009-10 and followed in AY 2012-13. In the result these grounds of appeals are allowed for statistical purpose. 8. Ground No.6 relates to addition of disallowance to the book profit under section 115JB. The ld. AR of the assessee submits that this ground of appeal is also covered in favour of assessee by the decision of special bench of Delhi Tribunal in ACIT vs. Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (Delhi Trib), wherein it was held that computation under section 115JB is to be made without resorting to the computation contemplated under section 14A r.w. Rule 8D of the Act. 9. On the other hand, the ld. DR for the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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