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TMI Blog2020 (4) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... d, heard together and are being disposed of by this common order for the sake of convenience. We therefore, take the facts of the appeal pertaining to the Assessment Year (AY) 2011-12 as a lead case. ITA No. 3445/MUM/2018 (Assessment Year: 2011-2012) CO No. 136/MUM/2019 (Assessment Year: 2011-2012 The assessee company engaged in the business of providing detective, security and other related services, filed its return of income of for the assessment year under consideration declaring the total income of Rs. 2,25,96,240/-. The return was processed and the case was selected for scrutiny. In response to the notices, u/s 143 (2) and 142 (1) of the Act, the authorized representative (AR) of the assessee presented the assessee's case before the AO and submitted the details as asked by the AO. It was noticed from the details that the assessee had made investment of Rs. 1,59,94,51,200/- as on 31.03.2011 and earned dividend amounting to Rs. 7,00,000/-. Further, the assessee had made suo moto disallowance of Rs. 5,00,000/- u/s 14A. The AO asked the AR to furnish detailed working of the disallowance computed by the assessee. The AR submitted that the provision of section 14A r.w.r. 8D are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee as such." 3. The assessee has filed the cross objection against the impugned order on the following effective ground: " 1 (a) The Ld. CIT (A) failed to consider the fact that the ld. Assessing Officer invoked sub-section (2) of section 14A of the Act for applying Rule 8D, merely on general observations; without recording any fact specific dissatisfaction regarding the claim made by the respondent, having regard to the accounts of the assessee. (b) The ld. CIT (A) erred in facts and in law in not considering only investments from which exempt income has been earned during the year under consideration, while computing disallowance u/s 14A on application of Rule 8D (2)(ii) and Rule 8D(2)(iii). 2. Without prejudice to above, the disallowance u/s 14A of the Act ought to have been restricted to the extent of the exempt income of Rs. 7,00,000/- earned during the year under consideration." 4. Vide Ground No. 1 and 2, the revenue has challenged the action of the Ld. CIT (A) in holding that the suo moto disallowance of Rs. 5,00,000/- made by the assessee is reasonable. On the other hand, the assessee has challenged the action of the Ld.CIT (A) on the ground that the Ld CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A r.w.r. 8D (2) cannot exceed the exempt income earned by the assessee in the light of the ratio laid down by the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT, 372 ITR 694 (Delhi). 6. We have heard the rival submissions and perused the material on record including the cases relied upon by the revenue and the Ld. counsel for the assessee. We notice that the Ld. CIT (A) has justified the suo moto disallowance of Rs. 5,00,000/-made by the assessee inter alia on the ground that if strategic investments are excluded disallowance u/s 8D(ii) would come down to Rs. 2,17,950/- and further 0.5% of average investments would worked out to Rs. 59,190/- under rule 8D(2) (iii). As pointed out by the Ld. DR, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (supra) has held that the dominant purpose for which investment into shares made by the assessee is not relevant as section 14A applies irrespective of whether shares are held to gain control or as stock in trade. Where shares are held as stock in trade the main purposes to trade in shares and earned profit and in this process certain dividend is also earned which is exempt u/s 10(34) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,74,234/-. In the first appeal, the Ld.CIT (A) set aside the findings of the AO and deleted the addition made on account of the disallowance aforesaid. The Ld. DR relying on the assessment order submitted that since the AO had made the disallowance in accordance with the provisions of the Act, the Ld. CIT (A) ought to have confirmed the action of the AO. Therefore, the findings of the Ld. CIT (A) are liable to be set aside. 9. On the other hand, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has rightly deleted the addition made on account of the aforesaid disallowance as the action of the Ld. CIT (A) is in accordance with the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Hindustan Organics Chemicals Ltd. (48 taxman. Com 421) and CIT vs. Ghatge Patil Transport Ltd. (368 ITR 749). The Ld. counsel further submitted that since the issue is covered in favour of the assessee by the judgments of the Hon'ble jurisdictional High Court, there is no merit in the appeal of the revenue. 10. We have heard the rival submissions and perused the material on record including the cases relied upon by the Ld. counsel for the assessee. The Ld. CIT (A) has decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of law, the Ld. CIT (A) has wrongly deleted the addition made by the AO. 12. On the other hand, the Ld. counsel for the assessee submitted before us that the borrowed funds were used for business which is evident from Note 10 of Schedule 16 of the balance sheet. Further, all the interest free loans were brought forward from earlier years wherein the own funds were more than the investments and the loan advance. The Ld. counsel further submitted that since the findings of the Ld.CIT (A) are based on the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities, 313 ITR 340, there is no merit in the appeal of the revenue. 13. We have heard the rival submissions and also perused the material on record including the case law relied upon by the assessee. The Ld. CIT (A) has deleted the addition aforesaid holding as under:- "3.4 I find that the contentions of the appellant are acceptable. All the loans have been advanced in the earlier years and there is no fresh out flow of funds during the relevant year. In fact, there is reduction in the loans from the said parties compared to immediately preceding year as is clear from the information tabulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than the investments made and the loans advanced. Hence, the Ld. CIT (A) has rightly deleted the addition by following the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities (supra) wherein the Hon'ble Court has held that if the assessee is having sufficient interest free funds available with it to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were made from the interest free funds available with the assessee. Hence, we do not find any infirmity in the findings of the Ld. CIT (A) to interfere with. Accordingly, we dismiss this ground of appeal of the revenue and uphold the findings of the Ld.CIT (A). ITA No. 3446/MUM/2018 (Assessment Year: 2012-2013) CO No. 137/MUM/2019 (Assessment Year: 2012-2013) The facts of the present case are almost identical to the facts of the case of the assessee pertaining to the AY 2011-12 aforesaid except the amount of exempt income earned by the assessee and the disallowance made by the AO u/s 14 A read with Rule 8D. 2. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- "1. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the Ld. CIT (A) has failed to consider the fact that the AO invoked sub-section 2 of section 14A for applying Rule 8D merely on general observations without recording any dissatisfaction regarding the claim made by the assessee having regard to the accounts of the assessee. 5. We have decided the identical issue in revenue's appeal and assessee's cross objection pertaining to the AY 2011-12 and restricted the addition u/s 14A r.w.r. 8D to the exempt income earned by the assessee during the previous year and since there is no change of material facts in the present case, consistent with our findings in the assessee's own case for the AY 2011-12, we modify the order passed by the Ld. CIT (A) and restrict the disallowance to the exempt income earned by the assessee during the year relevant to the assessment year under consideration. 6. Ground No 3 of the present appeal is identical to ground No. 3 of the revenues appeal pertaining to the assessment year 2011-12 decided above. Since we have dismissed the identical ground in appeal pertaining to the AY 2011-12, consistent with our findings, we dismiss this ground of appeal in the present case for the same reasons. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law in not considering only investments from which exempt income has been earned during the year under consideration, while computing disallowance u/s 14A on application of Rule 8D (2)(ii) and Rule 8D(2)(iii). 2. Without prejudice to above, the disallowance u/s 14A of the Act ought to have been restricted to the extent of the exempt income of Rs. 17,50,000/- earned during the year under consideration." 4. Vide Ground No. 1 and 2 the revenue has challenged the action of the Ld.CIT (A) in restricting the addition made on account of disallowance u/s 14A r.w.r. 8D(2) to the suo moto disallowance of Rs. 8,18,000/- made by the assessee. On the other hand, the assessee has challenged the order passed by the Ld. CIT (A) on the ground that the Ld. CIT (A) has failed to consider the fact that the AO invoked sub-section 2 of section 14A for applying Rule 8D merely on general observations without recording any dissatisfaction regarding the claim made by the assessee having regard to the accounts of the assessee. 5. We have decided the identical issue in revenue's appeal and assessee's cross objection pertaining to the AY 2011-12 and 2012-13 and restricted the addition u/s 14A r.w.r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in giving relief to the assessee on issue of disallowance of Rs. 27,55,294/- as interest attributable to interest free advances without appreciating the fact that the money borrowed were utilized for business of the subsidiary company and not for the business of the assessee as such." 3. The assessee has filed the cross objection against the impugned order on the following effective ground: " 1 (a) The Ld. CIT (A) failed to consider the fact that the ld. Assessing Officer invoked sub-section (2) of section 14A of the Act for applying Rule 8D, merely on general observations; without recording any fact specific dissatisfaction regarding the claim made by the respondent, having regard to the accounts of the assessee. (b) The ld. CIT (A) erred in facts and in law in not considering only investments from which exempt income has been earned during the year under consideration, while computing disallowance u/s 14A on application of Rule 8D (2)(ii) and Rule 8D(2)(iii). 2. Without prejudice to above, the disallowance u/s 14A of the Act ought to have been restricted to the extent of the exempt income of Rs. 38,75,000/- earned during the year under consideration." 4. Vide Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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