TaxTMI 
TaxTMI 
2017 (1) TMI 1057
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.... the assessee on 18-08-2010. The assessee is a holding company of M/s. Hari Infrastructure Pvt. Ltd. and the assessee has floated two companies i.e. M/s. Nagar Kopergaon Infrastructure Pvt. Ltd. and M/s. Pranjal Infrastructure Pvt. Ltd. as Special Purpose Vehicle to carry out the project allotted by state Government. During the course of scrutiny assessment, the Assessing Officer observed that the assessee has made investment to the tune of Rs. 65,65,64,310/- in shares as on 31-03-2008. The Assessing Officer further observed that the assessee has utilized borrowed funds for making investment in shares and repayment of loan of one of its subsidiary company. The Assessing Officer invoked the provisions of section 14A r.w. Rule 8D and made disallowance of Rs. 5,63,75,093/- in respect of interest paid. Apart from the above, the Assessing Officer made addition/disallowance of Rs. 5,72,150/- on account of unproved expenditure and Rs. 4,600/- on account of difference in the books of assessee and Raisoni Brothers. Aggrieved by the assessment order dated 09-12-2011, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) ....
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....ve to add, alter, amend or substitute to above grounds of appeal at the time of hearing." 4. Shri Rakesh Joshi appearing on behalf of the assessee submitted at the outset that he is not pressing ground Nos. 1 and 3 raised in the grounds of appeal. 4.1 In respect of ground Nos. 2 and 4 relating to disallowance u/s. 14A r.w. Rule 8D, the ld. AR submitted that the assessee has not received any dividend income from investment in shares. The investments are made by the assessee in group concerns and are strategic investments, therefore, no disallowances u/s. 14A could be made on such investments. To support his submissions the ld. AR placed reliance on the following decisions : i. Cheminvest Limited Vs. Commissioner of Income Tax, 378 ITR 33 (Delhi); ii. Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. in ITA 605/2012 decided on 15-01-2013 (Delhi-HC); 4.2 The ld. AR further submitted that the assessee is eligible to claim deduction u/s. 80(IA) even if addition is made u/s. 14A of the Act in view of CBDT Circular No. 37/2016 dated 02-11-2016. 4.3 In respect of ground Nos. 5 and 6 raised in the grounds of appeal, the ld. AR submitted tha....
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....eliance on the following decisions : i. Commissioner of Income Tax Vs. Sunil Chopra in ITA 106/2011 decided on 27-04-2011 (Delhi-HC); ii. ITO Vs. Direct Information P. Ltd., 18 ITR 562 (Mum-Trib.); iii. DCIT Vs. Vikas Oberoi in ITA 4362/M/2011 for assessment year 2002-03 decided on 20-03-2013. 5. Shri Suhas Kulkarni representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals) in confirming the addition u/s. 14A r.w.r. 8D as well as making addition u/s. 2(22)(e) of the Act. The ld. DR submitted that the assessee agreed for the addition u/s. 14A. The ld. DR referred to the concession granted by the assessee and recorded by the Assessing Officer in assessment order. The ld. DR submitted that although the assessee has agreed for the addition the matter can be restored back to the Assessing Officer for verification and to ascertain, whether disallowance can be made u/s. 14 or u/s. 36(1)(iii) of the Act. The ld. DR in support of his contentions placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Tamil Nadu Silk Producers Federation Ltd. reported as 10....
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....anies. The ld. AR has made an alternate submission in ground No. 4 of the appeal that even if disallowance u/s. 14A is sustained. The assessee is eligible to claim deduction u/s. 80(IA) on the said disallowance. To support his submissions the ld. AR has placed reliance on the CBDT Circular dated 02-11-2016. 9. We find that the Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) has upheld the order of Tribunal where disallowance made u/s. 14A r.w. Rule 8D was deleted under similar circumstances. In the said case the assessee had made investment in the subsidiary company out of borrowed funds. The said subsidiary company was formed as SPV to obtain contracts from NHAI. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT in ITA No. 848/PN/2013 for the assessment year 2009-10 decided on 18-01-2016, under similar circumstances by following the decision rendered in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) deleted the disallowance made u/s. 14A r.w. Rule 8D in respect of investments made in the subsidiary companies which wer....
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....pecial purpose vehicles (SPV) in order to obtain contracts from NHAI. The disallowance u/s.14A r.w. Rule 8D was restricted by the CIT(A) which was upheld by the ITAT. On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue by observing as under : "This appeal has been preferred by the revenue against the order dated 02.12.2011 passed by the Income Tax Appellate Tribunal, New Delhi in ITA No.4245/Del/20 11 in respect of the assessment year 2008-09. The issue before the Tribunal, which is also an issue before us, was whether in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) had erred in restricting the disallowance under section 14A of the Income Tax Act, 1961 to 2% of dividend income of Rs. 20,27,812/-. It was the contention of the revenue that Rule 8D of the Income Tax Rules, 1962 had not been applied properly in respect of the assessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under: - 6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has ....
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....he interest expenditure is disallowed then the corresponding business income will go up. Therefore, the request of the Ld. Counsel for the assessee that the AO may be directed to increase the deduction u/s.80IA(4) to the extent of disallowance u/s.14A which increases the business profit to that extent is acceptable. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the disallowance made u/sa.14A. Ground of appeal No.1 as well as the first issue in the additional ground raised by the assessee are accordingly allowed." 10.. We further observe that the CBDT vide Circular No. 37/2016 dated 02-11-2016 has clarified that where disallowance has been made u/s. 32, 40(a)(ia), 40A(3), 43B etc., of the Act and other specific disallowance relating to business activity deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. The relevant extract of the circular is as under : "Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disal....
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....he profits of the eligible business, and that deduction under Chapter Vl-A is admissible on the profits so enhanced by the disallowance." 11. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT (supra) has already decided the issue with respect to disallowance u/s. 14A has accepted the contentions of the assessee in respect of disallowance u/s. 14A on both the grounds. Thus, in view of the facts of the case, the order of Coordinate Bench and the CBDT Circular, we direct the Assessing Officer to delete the disallowance made u/s. 14A of the Act. Accordingly, ground Nos. 2 and 4 raised in the grounds of appeal by the assessee are allowed. 12. In ground Nos. 5 and 6 the assessee has assailed the addition of Rs. 7,37,68,681/- made u/s. 2(22)(e) of the Act by the Commissioner of Income Tax (Appeals). The Assessing Officer in his order has not touched upon the issue of deemed dividend. The Commissioner of Income Tax (Appeals) has observed that the assessee has violated the provisions of section 42 of the Companies Act. The subsidiary of the company has made investment in the share capital of the assessee (a holding company). The ld. AR of t....
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....has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 and specified the other intention in express words. The Income tax Act was amended several times in the last 37 years, but no amendment of section 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible." 13. The Hon'ble Apex Court thereafter in the case of Commissioner of Income Tax Vs. Rai Bahadur Hardutroy Motilal Chamaria (supra) has reaffirmed its view taken in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (supra). The Hon'ble justice V. Ramaswami speaking for the court stated: "As we have already stated, it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) ....