TMI Blog2020 (12) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the ld. CIT(Appeals) in his impugned order, we find no infirmity in the impugned order of the ld. CIT(Appeals) restricting the disallowance made on account of the common administrative expenses under section 14A read with Rule 8D(2)(iii) being the exempt dividend income actually earned by the assessee during the year under consideration and upholding the same, we dismiss this appeal of the Revenue. - I.T.A. No. 1467/KOL/2019 - - - Dated:- 14-8-2020 - Justice P.P. Bhatt, President And Shri P.M. Jagtap, Vice-President For the Appellant : Shri Ram Bilash Meena, CIT, Sr. D.R. For the Respondent : Shri Akkal Dudhwewla, C.A. ORDER 1. This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-18, Kolkata dated 18.01.2019, whereby he restricted the disallowance of ₹ 10,72,47,695/- made by the Assessing Officer under section 14A of the Income Tax Act, 1961 by applying Rule 8D of the Income Tax Rules, 1962 to ₹ 4,31,280/- being the dividend income actually earned by the assessee during the year under consideration. 2. The assessee in the present case is a Company, which is engaged in the business of manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investments. The dividend on shares are credited through ECS facility directly to the designated Bank account of the investors. In the circumstances, no collection or bank charges were incurred by the appellant in respect of dividends earned on shares. The appellant therefore submits that no expenditure is actually incurred by the assessee in relation to earning of dividend on shares. No expenses incurred by the assessee in connection with its regular business activities could he disallowed. In the case of DCIT vs. Allied Investments Housing Pvt. Ltd. (ITAT Chennai) held that it had not made any fresh investment during the year and the dividend was received from an unlisted company out of an investment made in on earlier year. Without prejudice, we also hereby submits that the Company has also an investment of ₹ 6356.04 lacs in HNG Global GmbH (100% foreign subsidiary) of the company. You will note that under the Income Tax Act dividend receivable from foreign companies are not exempt u/s. 10(34) of the Income Tax Act since the foreign companies have no liability to pay Dividend Distribution Tax u/s. 10(34) of the Income Tax Act, since the foreign companies have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance (i) Total interest x average investment Average total assets i .e. 2551171000 x 1628104500 divided by 41909912500 99107173 (ii) 0.5% of average investment i .e. of 0.05% of 1628104500 8140522 TOTAL 107247695 Accordingly disallowance to the extent of ₹ 10,72,47,695/- was made by the Assessing Officer under section 14A of the Act read with Rule 8D in the assessment completed under section 143(3) vide an order dated 21.12.2016. 4. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the disallowance made by the Assessing Officer under section 14A read with Rule 8D and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) found merit in the contention raised on behalf of the assessee that the actual investment capable of yielding exempt income as on 31.03.2014 was ₹ 71,38,54,000/- as against ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, the ld. CIT(A) has erred in not considering the dictum of Rule 8D to consider the average total investment and not just the investment yielding exempt income while working out the disallowance u/s. 14A. (2) Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in accepting the contention of the assessee-company when it failed to prove the investment being from its own funds . 7. The ld. CIT(D.R.), while challenging the impugned order of the ld. CIT(Appeals) giving relief to the assessee on the issue of disallowance of interest as made by the Assessing Officer under section 14A read with Rule 8D(2)(ii), invited our attention mainly to the observations recorded by the ld. CIT(Appeals) in paragraph no. 5.3 of his impugned order to the effect that the relevant investment held by the assessee was brought forward from the earlier years and there was no fresh investment made in the year under consideration. He contended that the ld. CIT(Appeals) however did not specifically consider or appreciate the actual position that prevailed in the earlier years when the investment was actually made by the assessee. He contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. He submitted that the Coordinate Bench of this Tribunal in the case of Patrex Vyapar Limited-vs.-ITO (ITA No. 1921/Kol./2017 dated 02.01.2019) has followed the said decision of the Hon'ble Delhi High Court in the case of Joint Investment Pvt. Limited (supra) to restrict the disallowance of ₹ 8,81,839/- made by the Assessing Officer under section 14A read with Rule 8D to ₹ 72,000/- being the exempt dividend income actually earned by the assessee during the relevant year. 10. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the disallowance of ₹ 9.91 crores made by the Assessing Officer on account of interest under section 14A by applying Rule 8D(2)(ii) was deleted by the ld. CIT(Appeals) after having found that the actual investment capable of yielding exempt income as made by the assessee-company on 31.03.2014 was ₹ 71.39 crores as against ₹ 144.72 crores taken wrongly by the Assessing Officer and the assessee-company had sufficient own funds in the form of share capital and free reserves to the tune of ₹ 766.40 crores as on 31.03.2014, which were higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of HDFC Bank Limited (supra). 11. It is also observed that a similar issue relating to disallowance under section 14A read with Rule 8D(2)(ii) on account of interest was involved in assessee's own case for A.Y. 2012-13 and the Coordinate Bench of this Tribunal upheld the appellate order of ld. CIT(Appeals) deleting the said disallowance made by the Assessing Officer for the following reasons given in paragraph no. 6.1 of its order dated December 31, 2019 passed in ITA No. 184/KOL/2018:- The second argument of the assessee that no disallowance can be made under Rule 8D(2)(ii) of the Income Tax Rules, 1962 ('Rules'), where own funds, which are not interest bearing, are more than the investment by applying the proposition of law laid down that the presumption in such cases is that, interest free funds have been invested in non-interest bearing investments [HDFC Bank ltd. v. Deputy Commissioner of Income-tax-2(3), Mumbai/2016/383 ITN 529 (Bombay)], [CIT vs. Rasoi Ltd. (ITA No. 109 of 2016) dt. 15/02/2017. The Id. CIT(A) at page 46 first para of his order, held that the proposition of law in the above referred judgments, are squarely applicable to the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Bombay High Court in the case of Reliance Utilities Power Limited (supra) and HDFC Bank Limited (supra) and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest under section 14A read with Rule 8D(2)(ii). 14. As regards the disallowance of ₹ 81,40,522/- made by the Assessing Officer on account of common administrative expenses under section 14A read with Rule 8D(2)(iii), it is observed that the same was restricted by the ld. CIT(Appeals) to ₹ 4,31,280/- being the exempt dividend income actually earned by the assessee during the year under consideration by following, inter alia, the decision of the Hon'ble Calcutta High Court in the case of CIT-vs.-REI Agro Limited in G.A. No. 3581 of 2013 dated 09.04.2014 (ITAT No. 220 of 2013). At the time of hearing before the Tribunal, the ld. CIT(DR) has not raised any contention to dispute this position and has simply relied on the order of the Assessing Officer in support of the Revenue's case. The ld. Counsel for the assessee, on the other hand, has relied on the decision of the Hon'ble Delhi High Court in the case of Joint Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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