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28-08-2019, K. Girdharlal International, Section 14A, 8D, Tribunal Mumbai

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1 week 4 days ago #10672 by amit
Section - 14A, 8D, 115JB
Order Date - 28-08-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - DCIT
Respondent - K. Girdharlal International Pvt. Ltd.
Justice - AMARJIT SINGH, JM & G. MANJUNATHA, AM
Citation - 919Taxpundit2
Appeal No. - I.T.A. Nos. 4036 to 4038 /Mum/2018
Asstt. Year - 2011-12, 2012-13 & 2013-14

Order

PER : AMARJIT SINGH, JM:

The above mentioned appeals have been filed by the Revenue against the order dated 21.03.2018 passed by the Commissioner of Income Tax (Appeals)-10, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Ys.2011-12, 2012-13 & 2013-14.

ITA. NO.4036/M/2018:-

2. The revenue has filed the present appeal against the order dated 21.03.2018 passed by the Commissioner of Income Tax (Appeals)-10, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12.

3. The Revenue has raised the following grounds: -

“1 "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) was justified in deleting the addition made u/s 14A r. w. Rule 8D of the Income Tax Rules. 1962. holding that disallowance cannot exceed exempt income, without appreciating the fact that CBDT after analyzing section 14A vis-à-vis Rule 8D has clarified in Circular no.5/2014 dated /11.02.2014 that Rule 8D read with sec ion 14A of the Income tax Act, 1961 provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income.

1 The appellant prays that the order of the Ld CIT(A) be set aside and the order of the AO be restored.

2. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary.”

4. The brief facts of the case are that the assessee filed its return of income on 29.11.2011 declaring total income to the tune of Rs.27,51,95,960/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was engaged in the business of Manufacturing of cut and polished diamonds and diamonds studded jewellery. On verification, it was found that the assessee received the dividend income of Rs.8,20,050/- and claimed exempt u/s 10(34) of the I.T. Act, 1961. The AO applied the provisions u/s 14A of the Act r.w. Rule 8D of the I.T. Rules and assessed the expenditure to earn the exempt income in sum of Rs.2,85,72,585/-. The total income of the assessee was assessed to the tune of Rs.30,60,85,625/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who restricted the disallowance u/s 14A of the Act r.w. Rule 8D of the I.T. Rules to the extent of exempt income, the revenue was not satisfied, therefore, the revenue has filed the present appeal before us.

5. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The CIT(A) has given the consolidated finding on the issues which is hereby reproduced as under: -

“6.3.2 As discussed above, during the year A.Y.2011 12, the assessee has earned dividend income of Rs. 8,20.050/- and has claimed it exempt u/s. 10(34) of the IT Act 1961. However, the appellant has not allocated any expenses towards the activity of investment in assets yielding income exempt under the Act. During the year A.Y.2012-13, the assessee has earned dividend income of Rs. 29,99 387/- and has claimed it exempt u/s. 10(34) of the IT Act 1961 and the appellant has suo-moto disallowed an amount of Rs. 29,99,387/- as expenses incurred towards the activity of investment in assets yielding income exempt under the Act. During the year A.Y.2013-14. the assessee has earned dividend income of Rs. 1460,078/- and has claimed it exempt u/s. 10(34) of the IT Act 1961 and the appellant has suo moto disallowed an amount of Rs. 14.60,078/- as expenses incurred towards the activity of investment in assets yielding income exempt under the Act. During the year A.Y.2014-15, the assessee has earned dividend income of Rs. 76,77,552/- and has claimed it exempt u/s. 10(34) of the IT Act 1961 and the appellant has suo-moto disallowed an amount of Rs. 76.77.552/- as expenses incurred towards the activity of investment in assets yielding income exempt under the Act. However, the appellant has not provided any justification as regards expenses incurred towards the activity of investment in assets yielding income exempt under the Act. The Hon'ble Tribunal in the case of Assistant Commissioner of Income Tax, Range 10(1). Mumbai v. Citicorp Finance (India) Ltd. [2007] 12 SOT 248 (Mum.) has held that 'It is difficult to accept the hypothesis that one can earn substantial dividend income without incurring any expenses whatsoever including management or administrative expenses.' Further, it has been held by the Hon’ble] ITAT, Chennai’s Bench in the case of Southern Petro Chemical Industries Vs. Deputy Commissioner Of Income Tax (2005) 93 TTJ 0161 :(2005) 3 SOT 0157.

'Whether to invest or not to invest and whether to retain the investments or to liquidate the same are very strategic decisions which the management is called upon to take. These are mind-boggling decisions

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