TMI Blog2017 (6) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 14A, expenditure relating to exempt income is not allowable. In our considered view, the above judgment does not support the case of Department. - ITA No. 66/PUN/2015 - - - Dated:- 28-6-2017 - SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM Assessee by : Shri Nikhil Pathak Revenue by : Shri Mukesh Jha ORDER PER VIKAS AWASTHY, JM : This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Pune dated 28-03-2014 for the assessment year 2008-09. 2. The assessee in appeal has raised eight grounds and has also filed additional grounds of appeal. 3. Shri Nikhil Pathak appearing on behalf of the assessee submitted that he is not pressing ground Nos. 2 to 8 raised in the main grounds of appeal. Thus, the only ground for adjudication in the appeal is ground No. 1. Ground Nos. 1.1 to 1.3 are in support of the main issue raise in ground No. 1. In the additional grounds of appeal main issue is in ground No. 1. The additional ground Nos. 2 and 3 are argumentative and are in support of ground No. 1 of additional ground. Thus, the ground for adjudication before the Tribunal are as under : On facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 42 of the paper book to show the list of group concerns in which investments have been made by the assessee. The ld. AR submitted that during the course of scrutiny assessment proceedings, the Assessing Officer made additional disallowance of Rs.2,66,79,558/- u/s. 14A in respect of share application money pending allotment. The amount lying in the share application money is not part of the investments till the time shares are allotted to the assessee. The ld. AR further submitted that the Assessing Officer erred in making disallowance in respect of investments made by the Assessing Officer in group concerns from where the assessee has not earned any dividend income. The ld. AR contended that similar disallowances u/s. 14A were made in the assessment year 2009-10. The assessee carried the issue in appeal to the Tribunal in ITA No. 1628/PUN/2013. The Co-ordinate Bench of the Tribunal vide order dated 02-02-2017 deleted the addition made u/s. 14A r.w.r. 8D on both these counts. The ld. AR placed on record a copy of the order of Tribunal in assessee s own case in ITA No. 1628/PUN/2013 (supra). 4. On the other hand Shri Mukesh Jha representing the Department vehemently supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an asset yielding tax free income and neither is it capable of yielding any tax free income. The relevant observation of the Tribunal from Para 4 reads as under : 4. We have heard the parties, and perused the material on record. Section 14A r/w r. 8D is mandatory in its application where the assessee earns income which is claimed tax- exempt, as dividend income in the instant case. In fact, there is no doubt with regard to this; the assessee itself conceding to the same before us and, besides, being engaged in the business of making investments and earning dividend income as an integral part thereof. The only option, therefore, if it considers the application of the provision as operating to its detriment, is to forfeit its right to exemption from tax in its respect. Qua merits, we find much force in the assessee's argument that 'share application money', to the extent it is actually so, so that it only represents amount/s paid by way of application for allotment of shares, the same cannot be regarded as an investment in shares, or an asset (or asset class) yielding tax-free income, and neither is it capable of yielding any tax-free income. The same would, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication money gets converted into shares only on allotment by the company. Till such time the share application money is converted into shares, the applicant does not have any rights of a shareholder/member. The share applicant see was not entitled to any dividend. Therefore share application money cannot be considered as investment which is likely to earn tax free dividend income. Hence, there can be no disallowance u/s 14A of the Act. 7. We have given a careful consideration to the rival submissions. We are of the view that order of CIT(A) on this issue has to be upheld. As rightly contended by the ld. counsel for the assessee, share application money is only in the nature of an offer to buy shares made by the assessee. It is only after the offer is accepted by the company resulting in a concluded contract, the Assessee becomes the shareholder in a company. Till this time the Assessee becomes a shareholder, the assessee cannot have any rights to claim any dividend that may be declared by the company. In such circumstances we are of the view that while working out the average value of the investments u/r 8D(2)(iii) of the Rules the share application money should not be inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of investment of Rs.117,85,71,206/- in shares in subsidiary/associate companies. 27. We find before the Hon‟ble Delhi High Court in the case of cheminvest Ltd. the following substantial question of law was raised : Whether disallowance u/s.14A of the Act can be made in a year in which no exempt income has been earned or received by the assessee. 28. The Hon ble High Court in ITA No.749/2014 order dated 02-09-2015 reversed the decision of Special Bench of the Tribunal in the case of ACIT Vs. Cheminvest Limited Vs. CIT reported in (2009) 317 ITR (AT) 86 (Delhi) (SB) and observed as under : 19. In light of the clear exposition of the law in Holcim India (P) Ltd. (supra) and in view of the admitted factual position in this case that the assessee has made strategic investment in shares of Max India Ltd., that no exempted income was earned by the assessee in the relevant AY and since the genuineness of the expenditure incurred by the assessee is not in doubt, the question framed is required to be answered in favour of the assessee and against the revenue. 23. In the context of the facts enumerated hereinbefore the court answers the question framed by holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
