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TMI Blog2017 (6) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in law, 1] The learned CIT(A) erred in confirming the disallowance of 14A amounting to Rs.2,66,79,558/- made by the learned A.O. without appreciating that the disallowance made by the learned A.O. was not justified at all. 1.1] The learned CIT(A) erred in holding that the share application money amounting to Rs.24,73,97,031/- paid by the appellant company was to be considered as part of tax free investments for determining the disallowance u/s. 14A r.w.r. 8D. 1.2] Without prejudice, the appellant company submits that if at all, the share application money paid by the appellant company is to be considered as part of the tax free investments, in that case, only the amount in respect of which shares are finally allotted to the appellant company should be considered and those amounts which are ultimately refunded back to the appellant company should not be considered as part of tax free investments. 1.3] Without prejudice, the appellant company further submits that the share application money which is paid out of interest bearing funds should only be considered for the purposes of making the disallowance u/s. 14A and not the entire share application money paid by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of Commissioner of Income Tax (Appeals) in confirming the additions u/s. 14A r.w.r. 8D of the Act. The ld. DR to strengthen his submissions placed reliance on the decision of Hon'ble Karnataka High Court in the case of Pradeep Kar Vs. Assistant Commissioner of Income Tax reported as 319 ITR 416. The ld. DR to further fortify his submissions also draws support from CBDT Circular No. 5 dated 11-02-2014. The ld. DR submitted that the Circular clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The solitary issue raised in the appeal is with regard to additional disallowance made by the Assessing Officer u/s. 14A r.w.r. 8D. Undisputedly, the assessee has suo moto made disallowance of Rs.4,33,75,431/- under the provisions of section 14A r.w.r. 8D. The Assessing Officer made further disallowance under Rule 8D r.w.s. 14A in respect of investments made by assessee in share application money pending allotment and the investments ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clear view, have to be excluded in working out the disallowance u/r. 8D. Further, though the Revenue has not disputed the sums reflected as 'share application money' in the assessee's balance-sheet, the AO, to whom the matter is to be in any case restored for working out the disallowance by excluding the same, shall, in the set aside proceedings, also examine the veracity of the assessee's claim with regard to the same being 'share application money'. This is in view of the pertinent questions raised by the Bench in its respect, to which no satisfactory answer was forthcoming during hearing, nor - to be fair to the ld. AR, could possibly be in the absence of any details on record. We state so as the 'share application money' would ordinarily only be 'public money' and, thus, except perhaps where toward shares of private limited companies, subject to stringent procedure, as is generally in place for such funds. We may further clarify that the exclusion of 'share application money', as opined by us, is not in the least for the reason that it did not yield any tax-free income for the relevant year, but for the reason that it is incapab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly and dismiss ground no.(i) raised by the revenue." 32. Respectfully following the decisions of Coordinate Benches of the Tribunal cited (supra) we hold that share application money pending allotment should be excluded from the investments for the purpose of computing disallowance u/s.14A." 7. In additional ground of appeal the assessee has assailed disallowance made by the Assessing Officer u/s. 14A r.w.r. 8D in respect of investments made in group concerns on which no dividend income is received by the assessee. This issue has also been dealt with by the Co-ordinate Bench of the Tribunal in assessee's own case in assessment year 2009-10. The Tribunal decided the issue in favour of the assessee by holding as under : "26. We find merit in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that no dividend has been received by the assessee from the shares invested in the group companies which has been considered by the Assessing Officer for the purpose of computing disallowance u/s.14A. From page 46 of the paper book we find whatever dividend the assessee has received is on account of dividend from mutual funds. We find the Pune Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not form part of the total income‟ in section 14 A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year." 29. Since in the instant case the assessee has not received any dividend on the investment made in shares of group companies, therefore, the investment made in the group companies should be excluded from the investments for the purpose of computing disallowance u/s.14A r.w. Rule 8D." 8. The ld. DR has not been able to show any material difference in the facts and circumstances in the assessment year under appeal vis-à-vis assessment year 2009-10, wherein these issues have been considered and adjudicated by the Co-ordinate Bench of the Tribunal in favour of the assessee. Following the decision of Co-ordinate Bench of the Tribunal, we allow ground No. 1 of the main grounds of appeal and the additional ground Nos. 1 to 3 raised by the assessee. 9. We have also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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