TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1404
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....s common order. 2. The brief facts of the case are that the assessee company engaged in the business of real estate development, filed its return of income for the AY 2009-10 on 30-09-2009 declaring total income at Nil under normal provisions of the Income-tax Act, 1961 and book profit at Rs. 4,60,72,125 under the provisions of section 115JB of the Act. The assessment was completed u/s 143(3) on 29-12-2011 by accepting income declared by the assessee under normal provisions of the Act and book profit u/s 115JB of the Act. Thereafter, the case was reopened u/s 147 of the Act, on the ground that income chargeable to tax had been escaped assessment and hence, notice u/s 148 of the Act was issued on 24-12-2013. In response to the notice, asses....
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....re incurred in relation to exempt income. The assessee further submitted that its investments are in group companies for the purpose of controlling interest but not for the purpose of earning any exempt income. Therefore, the AO was incorrect in disallowing expenditure by invoking Rule 8D(2)(iii) insofar as investment in group companies is concerned. In this regard he relied upon plethora of judgments. The CIT(A), after considering relevant submissions of the assesse and also relying upon certain judicial precedents including the decision of Hon'ble Supreme Court in the case of CIT vs Kelvinator of India (2010) 320 ITR 561 (SC) dismissed ground raised by the assessee challenging reopening of assessment by holding that the AO has rightly reo....
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....ong term capital gain derived from Wadhwan Food Retail Pvt Ltd during the relevant period. The relevant portion of the CIT(A)'s order is extracted below:- "6.3.4 Coming to the computation of disallowance u/s.!4A, I am inclined to accept the alternative plea of the appellant for considering only those investments from which exempt income was received by the appellant as per the ratio of judgment of Hon'ble Delhi High Court In the case of Chetninvest Ltd, v. CIT (ITA 749/2014). Accordingly, it is held that while calculating the disallowance as per Rule 8D(2)(iii), the average value of investment is to be worked out by taking into account not the entire opening and closing investments in quoted and unquoted shares of group and other comp....
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....sh nexus between expenditure incurred by the assessee and investment activity. Therefore, the disallowance determined by the AO and confirmed by the CIT(A) should be deleted. The Ld.AR made an alternative plea inasmuch as determination of average value of investment by the CIT(A) at Rs. 102,94,23,490 for the purpose of computing the disallowance u/r 8D(2)(iii) of the Income-tax Rules, 1962 is incorrect as the CIT(A) has erroneously included investments in Wadhwa Food Retail Pvt Ltd, as investments in Wadhwa Food Retail Pvt Ltd is not yielding any exempt income in the form of dividends and also long term capital gain derived from investment in the company is taxable @ 20% which is evident from the fact that the assesse has computed long term....
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....lue of invstments. According to the AO, as per the provisions of section 14A, disallowance of expenditure incurred in relation to exempt income is mandatory even though the assessee has not earned any exempt income during the relevant period. The AO further was of the opinion that such disallowances needs to be quantified as per the prescribed formula provided u/r 8D(2) of Income-tax Rules, 1962. It is the contention of the assesse that its investments are for the purpose of holding controlling interest but not for the purpose of earning any exempt income. Therefore, the question of disallowances of expenditure incurred in relation to exempt income by invoking rule 8D(2) does not arise. The assessee further contended that the AO has blindly....
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....of expenditure attributable to its investment activity cannot be ruled out. Therefore, we are of the considered view that the AO as well as the CIT(A) were right in computing disallowance of expenditure by invoking Rule 8D2)(iii) of Income-tax Rules, 1962. 8. Having said so, let us examine determination of disallowances by the CIT(A). The CIT(A) has allowed partial relief to the assessee by following the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd vs CIT (supra) and recomputed disallowances by considering those investments which yield exempt income. The Ld.CIT(A) has considered investments in HDIL & DHFL and laso investments in shares of Wadhwa Food Retail Pvt Ltd. It is the contention of the assessee that investment....