IN INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM Aayakr ApIla saM ITA No. 3443/Mum/2018 (Assessment Year 2014-15) Dy. Commissioner of Income- Videocon Realty & tax, circle -3(3)(2), Infrastructures Ltd. Room No. 609, 6th Floor, Aayakar Vs. 171-C, 17 th Floor, C W ing, Bhavan, M.K. road, Mittal court, Nariman Pont, Mumbai-400 020 Mumbai-400 021 (ApIlaaqaI- / Appellant) .. (Respondent) . / PAN No. AAACV2303E M . / CO No. 165/Mum/2019 (Arising in ITA No. 3443/Mum/2018 for AY 2014-15) Videocon Realty & Infrastructure Dy. Commissioner of Income- Limited, 171-C, 17 t h Floor,, C tax, circle -3(3)(2), W ing, Mittal court, Nariman Pont, Vs. Room No. 609, 6th Floor, Aayakar Mumbai-400 021 Bhavan, M.K. road, Mumbai-400 020 (Appellant) .. (Respondent) / Appellant by Shri Rajeev Gubgotra, DR / Respondent by : Shri Mayank Chauhan, AR / Date of hearing: 03.09.2019 / Date of pronouncement 03.09.2019 O R D E R , / PER MAHAVIR SINGH, JM: In these appeals, one by Revenue and Cross Objection by assessee are arising out of order of Commissioner of Income Tax 2|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 (Appeals)-8, Mumbai in Appeal No. CIT(A)-8/It-595/16-17/15 dated 15.03.2018. Assessment was framed by Dy. Commissioner of Income Tax- Circle 3(3)(2), Mumbai (in short DCIT/ AO) for AY 2013-14 vide dated 28.10.2016, under section 143(3) of Income-tax Act, 1961 (hereinafter Act ). 2. only common issue in these cross appeals is as regards to order of CIT(A) deleting disallowance of expenses relatable to exempt income made by AO under section 14A of Act read with Rule 8D of Rules, 1962 (hereinafter Rules ). For this Revenue has raised following 7 grounds: - 1. Whether on facts and circumstances of case and in law, Ld. CIT(A) has erred in allowing netting off of interest income against expenditure incurred for earning exempt income while working of disallowance u/s. 14Aof I. T Act. 1961, when there is no such provision in Rule 8D of I T. Rules, 1962 which prescribes method of computing quantum of disallowance for purpose of Section 14A? 2. Whether on facts and circumstances of case and in law, Ld. CIT(A) has erred in directing AO to recompute disallowance u/s. 14A r.w.r. 8D taking net interest and reducing value of strategic investment fit subsidiaries / group companies amounting to Rs. 2,49,00,150/- without appreciating fact that Hon'ble High Court of Karnataka in case of United Breweries 3|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 Ltd. v/s. DCIT Central Circle-2(3), Bangalore [2016]72 taxmann.com 102 (Karnataka) has held that section 14A is applicable even where motive in acquiring shares is to obtain controlling interest in companies? 3. Whether art facts and in circumstances of case and in law, ld. CIT(A) has erred in not considering fact that amount of disallowance u/s 24A r.w.r. 8D(2)(iii) to amount of Rs. 1,76,56,955/- made by AO was on basis of CBDT Circular No. 5 of 2014 dated 11.02.2014? 4. Whether on facts and in circumstances of case and in law, ld. CIT(A) has erred in directing to compute disallowance u/s. 14A r.w.r. 8D after reducing value of investments from where income is taxable or investments which are for business or strategic reasons while working out average value of investments whereas in recent judgement of Apex Court in case of M/s. Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104-109 of 2015 dated 12/02/2018, it is held that Section 14A applies irrespective of whether shares are held to gain control or as stock in-trade? 5. Whether on facts and in circumstances of case and in law, ld. 4|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 CIT(A) is correct in holding that Assessee's own funds were more than investment made of Rs.353.16 crores relying incorrectly on Assessee's statement of own funds being Rs.854.48 crores when in fact Rs. 787.39 crores is amount payable by assessee to other parties in normal course of business and own fund Field as Share Capital and Reserves was only Rs. 67.09 crores which is much less than investments made? 6. Whether on facts and in circumstances of case and in law, ld. CIT(A) is correct in deleting disallowance u/s. 14A read with Rule 8D stating that Assessee's own funds were more than investment made and relying on Hon'ble Bombay High Court's decision in Reliance Utilities & Power Limited whereas Hon ble Supreme Court in para 42 of their decision in case of MIs. Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104-109 of 2015 dated 12/02/2018, have upheld principle of apportionment in cases where assessee has mixed funds and interest has been paid? 7. Whether on facts and in circumstances of case and in law, Ld. CIT(A) is correct in deleting addition made when it was fact that Assessee 5|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 Company has incurred expenditure only for investment activity and not for other limbs of' construction work and therefore expenditure for such investment should have been disallowed u/s. 14A r.w.r.8D? assessee in its Cross Objection has raised following ground: - 1. (a) On facts and in circumstances of case and in law, learned Lower Authority ought to have accepted sum of Rs. 27,56,805/- as disallowance calculated by appellant company u/s 14A being fair and reasonable and correct claim having regards to accounts of appellant company and not doing so is wrong and contrary to provisions of Act, and Rules made there under. (b) Without prejudice to above Grounds of Appeal Lower authority ought to have considered only those investments which have generated exempt income during captioned assessment year for purpose of calculating average value of investments in terms of section 14A r.w.r. 8D(2) and not doing so is wrong and contrary to provisions of Act, and Rules made there under. (c) Without prejudice to above Grounds of Appeal. Ld. CIT(A) ought to have 6|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 restricted disallowance made u/s. 14A r w.r. 8D to extent of exempt income earned by appellant company and not doing so is wrong and contrary to provisions of Act, and Rules made there under. 3. We have heard rival contentions and gone through facts and circumstances of case. We noted that assessee has earned exempt income being dividend income of 696/- and claimed same as exempt under section 10(34) of Act. assessee computed suo moto disallowance under section 14A of Act at 27,56,805/-. AO not considering working of assessee for making suo moto disallowance and stated that same is not as per provisions of section 14A of Act read with Rule 8D of Rules and thereby, he worked out disallowance under Rule 8D(2)(ii) of Rules being interest expenses at 1,51,31,640/- and under Rule 8D(2)(iii) of Rules being 0.5% of average value of investment on opening and closing day of previous year amounting to 1,76,56,955/- and thereby total disallowance made by AO at 3,27,88,595/-. AO after allowing rebate of suo moto disallowance made by assessee of 27,57,805/- made balance disallowance of 3,00,31,790/-. Aggrieved, assessee preferred appeal before CIT(A), who restricted disallowance in regard to interest under Rule 8D(2)(ii) at net interest and reducing value of strategic investment for calculating average value of investment and directed AO to follow his predecessors order for AY 2012-13. Hence, he restricted disallowance. Aggrieved, Revenue came in appeal and assessee supported order of CIT(A) in its cross objection. Now, before us, assessee s Counsel stated that only exempt income earned by assessee is 696/- and same was claimed in its computation. However, he made submission that disallowance if 7|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 restricted to suo moto disallowance of 27,57,805/-, will meet end of justice. 4. On other hand, learned Sr. Departmental Representative supported order of Assessing Officer. 5. We noted that assessee has earned exempt income to extent of 696/- and claimed same in computation of income. Since, assessee agreed for restriction of disallowance to extent of suo moto disallowance made at 27,57,805/-, we direct AO to restrict disallowance to that extent only. This issue Revenue s appeal is dismissed and CO is also being supportive, hence dismissed. 6. Another issue raised by assessee in its CO is as regards to computation of income under section 115JB of Act while computing disallowance under provisions of section 14A of Act read with Rule 8D of Rules being expenses relatable to exempt income. For this assessee has raised following ground No. 2: - 2. On facts and in circumstances of case and in law, Ld. CIT(A) erred in confirming action of Ld. AO in adding disallowances made by invoking provisions of Section 14A read with rule 3D. to book profit for purpose of Section 115JB of Income Tax Act, 1961 over and above Rs. 27,56.805/- added suo-moto by appellant company, which is wrong and contrary to provisions of Income Tax Act, 1961. and Rules made there under. 8|Page I T N o . 3 4 4 3 / MU M/ 2 0 1 8 C O N o . 1 6 5 / Mu m / 2 0 1 9 7. We have heard rival contentions and gone through facts and circumstances of case. We noted that this issue is now settled by decision of Special Bench of this Tribunal in case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB), wherein it is held that no disallowance of expenses relatable to exempt income can be made while computing book profit under section 115JB of Act. Hence, we delete disallowance. 8. In Result, appeal of Revenue is dismissed and CO of assessee is partly allowed. Order pronounced in open court on 03.09.2019. Sd/- Sd/- (RAJESH KUMAR) ( /MAHAVIR SINGH) ( / ACCOUNTANT MEMBER) ( / JUDICIAL MEMBER) , / Mumbai, Dated 03.09.2019 , . Sudip Sarkar, Sr.PS /Copy of Order forwarded to 1. / Appellant 2. / Respondent. 3. ( ) / CIT(A) 4. / CIT 5. DR, ITAT, Mumbai 6. / Guard file. / BY ORDER, //True Copy// / (Asstt. Registrar) , / ITAT, Mumbai Dy. Commissioner of Income-tax, circle -3(3)(2), Mumbai v. Videocon Realty & Infrastructures Ltd