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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
.. , .. ,
./I.T.A. No.6137/ Mum/2012
( / Assessment Year : 200910)
The Asstt. Commissioner of Income / M/s D B Realty Pvt.Ltd.,
Tax, Central Circle 6, D B House, Yashodham,
Vs.
Old CGO Building Annex, 9th floor, Gen. V K Vaidya Marg,
M K Road, Goregaon (E),
Mumbai400020 Mumbai400063
( /Appellant) .. ( / Respondent)
. / . / P AN/GIRNo.: AACCD5174F
/ Appellant by : Shri Neil Philip
/Respondent by Shrimati Arati Vissanji
/ Date of Hearing
: 29.10.2014
/Date of Pronouncement : 19.11.2014.
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal filed by the revenue is directed against the order dated 20-07-
2012 passed by ld CIT(A)-36, Mumbai and it relates to the assessment year
2009-10. The disallowance of Rs.1,51,35,812/- made by the assessing officer
u/s 14A of the Act, having been reduced by Ld CIT(A) to Rs.20,70,770/-, the
revenue has filed this appeal before us.
2. The facts relating to the issue cited above are discussed in brief. The
assessing officer, having noted that the assessee has held investments and had
also borrowed funds, asked the assessee to work out the disallowance to be
made u/s 14A of the Act read with Rule 8D of the I.T Rules. It is pertinent to note
that the assessee did not make any disallowance u/s 14A of the Act in its return
of income. The assessee furnished the workings as per which a sum of
Rs.1,51,35,812/- was disallowable and the same pertained to Administrative
expenses only. The assessing officer accordingly made disallowance of the
ITA No.6137/M/2012
2
above said amount. In the appellate proceedings before Ld CIT(A), the assessee
submitted that the investments are held in equity/preference shares of subsidiary
companies /associate companies and also by way of capital investments in
Partnership firm. Further it was submitted that the general and administrative
expenses have to be incurred even if there are no investments. It was further
pointed out that the assessee had agreed for disallowance of Rs.20,70,770/-
pertaining to 5% of the Fixed/semi-variable expenses, in its letter dated 07-12-
2011 filed before the AO.
3. The Ld CIT(A) referred to the decision rendered by the co-ordinate bench
of Tribunal in the case of Auchtel Products Ltd vs. ACIT (ITA No.3183. 2649 &
3185/Mum/2011) and ACIT Vs. SIL Investment Ltd (ITA No.2431 (Del) 2010
dated 04-05-2012), wherein it was held that the onus to disprove the claim put
forth by the assessee with regard to the disallowance u/s 14A lies upon the
assessing officer. Accordingly, the Ld CIT(A) has accepted the claim of the
assessee that there was no requirement of making any disallowance of interest
expenditure. With regard to the administrative expenses, the Ld CIT(A) directed
the AO to restrict the disallowance to Rs.20,70,770/-, referred supra. Aggrieved,
the revenue has filed this appeal before us.
4. The Ld D.R strongly supported the order of the assessing officer. The Ld
D.R submitted that the assessing officer has followed the decision of Delhi
Special Bench dated 5-08-2009 rendered in the case of M/s Chem invest Ltd,
where in it is held that the disallowance u/s 14A is required to be made even if
the assessee did not receive any dividend. Accordingly, the Ld D.R submitted
that the Ld CIT(A) was not justified in reducing the disallowance made as per
Rule 8D of IT Rules.
5. On the contrary, the Ld A.R submitted that the provisions of sec. 14A shall
not apply, since the assessee did not receive any dividend at all during this year.
For this proposition, the Ld A.R placed reliance on the following case law:-
(a) Jt. CIT Vs. Shivam Motors Pvt Ltd (ITA No.17/Lkw/2012 dt. 12.11.13)
(b) CIT Vs. Cortech Energy Pvt Ltd (2014)(223 Taxmann 130)(Guj)
(c) CIT Vs. M/s Lakhani Marketing Inc. (ITA No.970/2008 dt.2.4.14)
(d) CIT Vs. Holcim India P Ltd (ITA No.486/2014 & 299/2014)
The Ld A.R took an alternative contention that all the investments made by the
assessee, being strategic investments made in subsidiaries, joint ventures etc,
ITA No.6137/M/2012
3
the question of incurring administrative expenses does not apply. For this
proposition, the Ld A.R placed reliance on the following case law:-
(a) Garware Wall Ropes Ltd Vs. Addl. CIT (ITA No.5048/Mum/2012)
(b) J.M.Financial Ltd Vs. Addl CIT (ITA No.4521/M/12)
(c) ACIT Vs. Oriental Structural Engineering P Ltd (ITA 4245/Del/2011)
(d) DCIT Vs. Interglobe Enterprises Ltd (ITA 1362 and 1032/Del/2013)
(e) EIH Associated Hotels Ltd Vs. DCIT (ITA 1503/Mds/2012)
The ld A.R further submitted that, even though no disallowance is required to be
made in the assessee's hand by following the principles laid down in the above
cited case laws, yet the assessee has agreed for a disallowance of Rs.20.70
lakhs. Accordingly, the Ld A.R prayed that the appeal of the revenue be
dismissed.
6. We have heard the rival contentions and perused the record. On
examination of the profit and loss account relating to the year under
consideration, we notice that the assessee has shown gross receipts of
Rs.29062 lakhs, which consisted of "Share income from partnership firms" to the
tune of Rs.28968 lakhs, Interest income of Rs.91 lakhs and other income of Rs.2
lakhs. Thus, it is seen that 99.5% of the gross receipts consisted of "Share
income from partnership firms" and the same is exempt u/s 10(2A) of the Act.
The Ahmedabad bench of Special bench in the case of Vishnu Anant Mahajan
Vs. CIT (137 ITD 189) has held that the provisions of sec. 14A shall be
applicable to the share income received from partnership firms also.
7. However, in the instant case, we notice that the assessing officer does not
appear to have examined the application of the provisions of sec,. 14A by having
regard to the accounts of the assessee. We notice that the assessing officer has
asked the assessee to work out the disallowance and accordingly, the assessee
has furnished following workings:-
Average Investments:-
Opening Investments 213,77,04,517
Add:- Share of loss in Partnership firm
Included as balance of Capital a/c
(added since does not represent an
Investment) 13,04,47,866
-----------------------
226,81,52,383
============
ITA No.6137/M/2012
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Closing Investments 655,67,45,571
Less:- Share of Profit in Partnership firm
included as capital account (reduced
since does not represent investment) 277,05,73,226
-------------------
378,61,72,345
===========
Average of Opening ++ Closing investment - 302,71,62,364
0.5% of average investments - 1,51,35,812
We notice that the assessing officer did not examine about the applicability of
Rule 8D(2)(i) and Rule 8D(2)(ii) at all. From the details of investments given in
Schedule 6 of the Annual report, we notice that the assessee has made
investment in three partnership firms, viz., M/s Dynamix Realty, M/s DBS Realty
and M/s Mira Salt works. However, while computing the value of average
investments, the assessee has excluded the capital balance of M/s Dynamix
Realty and did not exclude the investment made in two other partnership firms. It
is pertinent to note that the assessee has taken a stand that the investment
made in partnership firm does not represent "Investment". We notice that the
assessing officer did not examine the above said claim of the assessee and also
failed to note the inconsistencies in working out the average value of
investments. All these discussions would show the half hearted approach
adopted by the assessing officer and his carelessness in examining the workings
furnished by the assessee vis-à-vis the accounts of the assessee company. We
also find that the assessee has also failed to explain as to how the provisions of
sec. 14A shall not apply to the share income from partnership firms, which
consisted of 99.5% of its income.
8. Before the AO as well as before the Ld CIT(A), the assessee canvassed
for segregation of all expenses into "Variable expenses" and "Fixed/semi variable
expenses". The assessee has further canvassed the view that the provisions of
sec. 14A r.w. Rule 8D should not be applied to Variable expenses, which
consisted of expenses incurred directly on the projects undertaken by it. With
regard to the Fixed/semi-variable expenses, the assessee submitted that the
disallowance may be restricted to 5% of the said expenses. Though the
assessee did not give any basis for adopting the above said rate of 5%, yet the
Ld CIT(A) has accepted the same.
ITA No.6137/M/2012
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9. It appears that both the tax authorities have addressed the issue of
disallowance to be made u/s 14A of the Act from the point of view of "dividend
income" only. Further the disallowance has been made with reference to
Administrative expenses only. As noticed earlier, both the tax authorities have
failed to make reference to the accounts of the assessee.
10. Though the revenue is objecting to the decision of Ld CIT(A) in reducing
the disallowance, they could not point out any deficiency in the method adopted
by the assessee in determining the amount of administrative expenses
attributable to the investments. Under these set of facts, we have no other option,
but to confirm the order of Ld CIT(A).
11. In the result, the appeal filed by the revenue is dismissed.
The above order was pronounced in the open court on 19th Nov, 2014.
19th Nov , 2014
Sd sd
(.. / H.L. KARWA) (.. ,/ B.R. BASKARAN)
/ PRESIDENT /Accountant Member
Mumbai: 19th Nov,2014.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6.
/ Guard file.
ITA No.6137/M/2012
6
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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