Hindustan Platinum P.Ltd, Navi Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER

आयकर अपील सं./I.T.A. No.7414 /Mum/2012 ( नधा रण वष / Assessment Year : 2009-2010

Hindustan Platinum Pvt. बनाम/ The Asstt. Commissioner Ltd., of Income Tax- Vs. C-122 TTC Industrial Area, (OSD)2(1), Oawane Village, Aayakar Bhavan, Navi Mumbai - 400 703. Mumbai 20. थायी ले खा सं . /PAN : AAACH1111J (अपीलाथ /Appellant) .. ( यथ / Respondent)

Appellant by Ms. Heena Joshi Respondent by : Shri Jeetendra Kumar

ु वाई क तार ख / Date of Hearing सन : 10-02-2015 घोषणा क तार ख /Date of Pronouncement : 15-05-2015 [

आदे श / O R D E R PER R.C. SHARMA, A.M. :

This is an appeal filed by the assessee is directed against the order of ld. CIT(A) -4, Mumbai dated 21-09-2012 for the A.Y. 2009-10 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961.

2. The only grievance of the assessee relates to confirming of disallowance of Rs. 27,71,693/- made by the A.O u/s 14A read with Rule 8D.

3. Rival contentions have been heard and perused the records. The facts in brief are that the assessee is engaged in the business of refining and manufacturing of platinum group metals etc. and generation of Wind Power. While making addition of Rs. 27,71,693/- the A.O. has taken into 2 ITA 7414/M/12

consideration indirect expenses debited to P & L account of Rs. 8,63,16,407/- & average investments of Rs. 2,32,08,500/- which are investments in Wholly Owned-Subsidiary Overseas- Epsilon Limited-Mauritius. The A.O. has made disallowance of Rs. 27,71,693/- under Sec. 14A by applying Rule 8D. It was contended by the ld. A.R. that for applying Rule 8D, proximate cause for disallowance should be established which is the relationship of the expenditure with income which does not form part of the total income, as in the assessee's case the A.O. has applied Rule 8D arbitrarily without considering the facts. As per section 14A(2), the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, having regard to the accounts of the assesse, if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. As per the ld. A.R. assessee had sufficient internal accruals for making such investment, therefore, no disallowance on account of interest expenditure was warranted. It was further submitted that while making the said disallowance the A.O. had considered average investments of Rs. 3,58,43,500/- by taking average of opening and closing investments, however the A.O. cannot apply Rule 8D arbitrarily to the said average investments which are reflecting in the assessee's balance sheet as on 31st March 2009.

4. On the other hand, the ld. D.R. relied on the orders of lower authorities and contended that the A.O. has rightly applied Rule 8D as per decision of Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81.

5. We have considered the rival contention and found that as per schedule '6' of balance sheet assessee was having Long Term (Unquoted) Investments in Wholly Owned Subsidiary Overseas- Epsilon Limited-Mauritius. As per 3 ITA 7414/M/12

Rule 8D only those investments should have been considered for the purpose of calculation of Average Investments the income from which does not forming part of total income. As Epsilon Limited-Mauritius is a foreign company, income of which is taxable in India, accordingly the said investment cannot be considered in formula while computing disallowance under Rule 8D. Since the assessee has made investment in a Wholly Owned Subsidiary Overseas - Epsilon Limited, Mauritius, the dividend income of which was liable to be taxed in India, the A.O. was not justified in taking such investment for computing disallowance to be made under Rule 8D. Considering the judicial pronouncement cited by the ld. A.R., the same should not be taken into account while computing the disallowance under Rule 8D(2)(iii) of the I.T. Rules. Accordingly we direct the A.O. to exclude such strategic investment while computing disallowances under Rule 8D.

6. From the record we also found that the assessee had made fresh investments of Rs. 3,20,00,000/- Birla Sun Life Cash Plus on 10-04-2008, Rs. 5,00,000/- & Rs. 3,60,00,000/- on 01-10-2008 and 10-10-2008 respectively in LIC Mutual Fund Income Plus Fund and Rs. 1,60,00,000/- LIC MF Liquid Fund on 09-01-2009 totaling to Rs. 8,40,00,000/-. The initial investment is made from cash generated from operating activities which was Rs. 24,74,14,673/- as per cash flow statement forming part of annual report. After making above initial investments the assessee have made various redemptions in respective plans during the years from such redemption proceed only new purchases of investments have been made. It appears that no borrowings had been used for investing in Mutual funds from which income not forming part of total income have been earned. Therefore the interest cost which had been used by ACIT - (OSD) should be excluded while applying Rule 8D. In view of the above discussion, we restore the matter back to the file of A.O. for re-working the amount of disallowance to be made u/s 14A of the Act.

4 ITA 7414/M/12

7. In the result, appeal of the assessee is allowed in part for statistical purpose.

Order pronounced in the open court on 15th May, 2015

आदे श क घोषणा खल ु े #यायालय म% &दनांकः 15-05-2015 को क गई ।

Sd/- sd/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; &दनांक Dated 15-05-2015 [

व.6न.स./ RK , Sr. PS

आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु7त(अपील) / The CIT(A) -4,, Mumbai

4. आयकर आय7 ु त / CIT -2, Mumbai

5. :वभागीय 6त6न<ध, आयकर अपील य अ<धकरण, मुंबई / DR, ITAT, Mumbai H Bench

6. गाड@ फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

स या:पत 6त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई / ITAT, Mumbai