TMI Blog2021 (12) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITAT DELHI ] Accordingly, this issue is decided against the assessee and in favour of the Revenue and to that extent the order of the CIT(A) is set aside. The AO is directed to re-compute the disallowance by including the investment made in the subsidiary company. Disallowance made on account of interest expenditure - Revenue has not disputed the fact that the assessee has taken the loans for specific purpose and the AO has not brought any material or fact on record to say that the assessee has diverted the loan to the investment made in the shares and mutual funds. Further, during the year under consideration, though there is a change in the investment portfolio, however, the total investment as on 31.03.2013 is less than the investment as on 31.03.2012. Accordingly, there is no extra fund utilized by the assessee during the year for making the investment in shares or securities but the sale proceeds of the existing investment is more than the purchases, if any made during the year. AO has not made any disallowance on account of interest expenditure u/s 14A of the I.T. Act in the preceding years. Therefore, when no fresh investment is made other than the proceeds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,15,50,027/-. Thus, the AO has computed the total disallowance u/s 14A of ₹ 3,05,36,092/- as against the suo moto disallowance of ₹ 9,75,000/- consequently a differential disallowance of ₹ 2,95,61,092/- was made by the AO. The assessee challenged the AO before the CIT(A) and submitted that the disallowance made by the AO u/s 14A on account of indirect interest expenditure is unjustified and unwarranted as assessee has not utilized any borrowed funds for the purpose of investments made in the shares and securities/mutual funds. The assessee further contended before the CIT(A) that the assessee has not incurred any expenditure for earning the exempt income. However, the assessee has estimated the disallowance of expenditure of ₹ 9,75,000/- against which the AO has made a huge disallowance without even recording the satisfaction as to how a disallowance made by the assessee is not reasonable and proper. The assessee also relied upon the order of the CIT(A) for the AY 2011-12 2012-13. The CIT(A) while allowing the part relief to the assessee has accepted the contention of the assessee regarding the disallowance made by the AO on account of interest expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and changing the computation of disallowance of interest u/s 14A r.w.r. 8(D(2)(iii) of Income Tax Rules, 1962. 3. Whether for application of section 14A(1) of the Income Tax Act, 1961 the purpose for making investment and earning tax exempt income thereon is an essential legal requirement. 4. Whether the term in relation to as used in section 14A of the Act contemplates a direct and proximate nexus between expenditure incurred and earning of exempt income . 5. Whether the CIT(A) is legally justified in not upholding disallowance u/s 14A of the Income Tax Act, 1961 without considering legislative intent of introducing section 14A by the Finance Act, 2001 as clarified by CBDT Circular No. 5/2014 dated 10.02.2014. 6. Whether the CIT(A) is legally justified in not upholding disallowance u/s 14A of the Income Tax Act, 1961 without considering a legal principle that allowability/disallowability of expenditure under the Act is not conditional upon the earning of income as upheld by Hon ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody (1978) 115 ITR 519? 7. Whether the CIT(A) is justified in excluding the investment in subsidiary compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and, therefore, it cannot be said that the AO has made a disallowance u/s 14A without recording his satisfaction. 6. We have considered the rival submissions as well as relevant material on record. The AO has recorded the primary facts regarding the investment made by the assessee in the shares/mutual funds as on 31.03.2013 to the tune of ₹ 162.89 crores. The AO further noted that the working of suo moto disallowance by the assessee u/s 14A was considered but no basis was explained by the assessee to arrive at the said figure of ₹ 9,75,000/-. Thus, in computation of the suo moto disallowance of ₹ 9,75,000/- the assessee has not explained as what is the basis of the suo moto disallowance. Once the AO has specifically asked the assessee to explain the basis of the suo moto disallowance and there was no satisfactory reply by the assessee to explain a reasonable and proper basis of such disallowance then proceeding further by the AO to take up the issue under the provisions of section 14A read with Rule 8D cannot be said to be without his satisfaction on the claim of suo moto disallowance. The Assessing Officer has discussed this issue in para 3.2 as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dividend income with reference to average investments of ₹ 103.78 crores and excluding investment in subsidiary company, namely, Hindustan Media Ventures Ltd., of ₹ 56.86 croes, balance average investment come to ₹ 46.92 crores. On above amount of average investment disallowance at 0.5% works out to ₹ 23.46 lacs. On the basis of above it has been submitted that the disallowance is to be restricted to ₹ 23.46 lacs in view of the orders of CIT(A) in appeals for A.Yrs. 2011-12 and 2012-13. Since appellant company had already made disallowance of ₹ 9.75 lacs further disallowance is to be restricted to ₹ 13.71 lacs as against disallowance of ₹ 2,95,61,0092/- made by the Assessing Officer. 8. The CIT(A) after considering the submissions of the assessee has decided the issue in para 5.3 and 5.4 as under: 5.3 I have considered the submissions of the appellant company and has also perused the orders of CIT(A) in appeals of the appellant company for A.Yrs. 2011-12 and 2012-13. I am incllined to accept the contention of the company to the effect that no disallowance on account of interest is called for in view of the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary company while computing the average investment. She has relied upon the order of the Assessing Officer as regards the disallowance made on account of interest income. 12. On the other hand, the Ld. AR of the assessee has accepted that so far as the exclusion of the investment in the subsidiary company the issue is covered by the decision of Hon ble Supreme Court as well as decision of Hon ble High Court in assessee s own case. However, as regards the disallowance made on account of interest expenditure the same is unjustified and unsustainable as the assessee has not utilized any borrowed fund for the purpose of making investment. 13. We have considered the rival submissions as well as relevant material on record. So far as the issue of excluding the investment made in the subsidiary company while computing the average investment for the purpose of disallowing the indirect administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules the issue is now covered by the decision of Hon ble Supreme Court in the case of Maxopp Investment Vs. CIT (supra) as well as the decision dated 29.03.2019 of Hon ble Jurisdictional High Court in assessee s own case in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars Investment as on 31.03.2011 (crores) Investment as on 31.03.2012 (crores) Average Investment (crores) Investments on which dividend income was received during the year. 117.75 102.75 110.25 Less: Invesment in subsidiary company. 56.85 56.85 56.85 Remaining investment 60.90 45.90 53.40 Disallowance at 0.5% ₹ 26,70,000 In view of judgment of Hon ble Supreme Court in the case of Maxopp Investment Ltd. (2018) 402 ITR 640 (SC), investment in subsidiary company is also to be considered for the purpose of disallowance. Accordingly, the order of CIT(A) is to be reversed to the extent he had excluded average investment of ₹ 56.85 crores in the subsidiary company. Accordingly, disallowance following the judgment of Hon ble Delhi High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange in the investment portfolio, however, the total investment as on 31.03.2013 is less than the investment as on 31.03.2012. Accordingly, there is no extra fund utilized by the assessee during the year for making the investment in shares or securities but the sale proceeds of the existing investment is more than the purchases, if any made during the year. The AO has not made any disallowance on account of interest expenditure u/s 14A of the I.T. Act in the preceding years. Therefore, when no fresh investment is made other than the proceeds of the sale of existing investment then the disallowance of interest expenditure is not warranted. Hence, we do not find any error or illegality in the impugned order of the CIT(A) qua this issue of deleting the disallowance made by the AO u/s 14A of the Act on account of interest. 15. The assessee has also raised an additional ground vide application dated 07.08.2021 under Rule 11 of the Income Tax Appellate Tribunal Rules, 1963. The additional ground raised by the assessee reads as under: 2. That the Applicant/Appellant seeks the permission of Hon ble Tribunal to raise, urge and argue the below mentioned additional ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 6. In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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