Kotak Mahindra Capital Company Ltd, ... vs Assessee

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

आयकर अपील सं./I.T.A. No. 5748 /Mum/2012 ( नधारण वष / Assessment Year : 2008-2009 आयकर अपील सं./I.T.A. No. 248 /Mum/2013 ( नधारण वष / Assessment Year : 2009-2010

Kotak Mahindra Capital बनाम/ The Deputy Company Limited, Commissioner of Income Vs. Bakhtawar Ist Floor, Tax - Range 3(2), 229 Nariman Point, 6 t h floor, Mumbai - 400 021. 674, Aayakar Bhavan, Mumbai - 400 020. थायी ले खा सं . /PAN : AAACK 5577 D (अपीलाथ /Appellant) .. ( यथ / Respondent)

Appellant by Shri F.V. Irani Respondent by : Shri Asghar Zain

ु वाई क तार ख / Date of Hearing सन : 3-12-2014 घोषणा क तार ख /Date of Pronouncement :21-01-2015 [

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

These are the appeals filed by the assessee against two separate orders of ld. CIT(A) - 4 dated 3-7-2012 and 17-10-2012 for the assessment years 2008-09 and 2009-10 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961.

2. The common grievance in both these appeals relate to the disallowance made by the A.O. and confirmed by the ld. CIT(A) u/s 14A read with Rule 8-D of the Income Tax Rules, 1962.

2 ITA 5748/M/12 & ITA 248/M/2013

3. Rival contentions have been heard and perused the records. The A.O. has made the disallowance u/s 14A r.w. Rule 8-D at 0.5% of administrative expenses. There was no disallowance on account of interest while working out the disallowance u/s 14A of the Income Tax Act, 1961. It was argued by the learned A.R. that the assessee has investments in companies which are its group companies where the assessee holds substantial stake. The ld. A.R. submits that strategic investments, per se do not require any day today monitoring as they are inherently long term in nature. No expenditure on day- to-day basis is incurred for managing those investments. Therefore, strategic investment should be excluded for attributing administrative expenses for making disallowance u/s 14A of the Act. The ld. A.R. has placed reliance on the following decisions:-

i) HSBC Securities and Capital Markets (I) P. Ltd. - ITA No. 3186/M/08

ii) Zenstar Technologies Ltd. - ITA No. 4538/M/05

iii) Shri Bhalchandra R. Sule - ITA No. 3684/M/05

iv) EIH Associated Hotels vs. DCIT - ITA No. 1503/Mad/12

v) Interglobe Enterprises Ltd. vs. DCIT - ITA No. 1362 & 1032/Del/13

vi) JM Financial Limited vs. ACIT - ITA No. 4521/M/12

vii) CIT vs. Oriental Structural Engineers P. Ltd. - ITA 605 of 2012(HC)

viii) ACIT vs. Oriental Structural Engineers P. Ltd. ITA No. 4245/Del/2011

ix) Garware Wall Ropes Ltd. vs. ACIT - ITA No. 5408/M/2012 In view of the above judicial pronouncements, the ld. A.R. prayed that the A.O. be directed to exclude the investments made in foreign subsidiaries and investment made in companies which are strategic in nature while computing the disallowance u/s 14A of the Act in respect of administrative expenses.

4. On the other hand, the ld. D.R. relied on the orders of lower authorities.

5. We have considered the rival contentions, carefully gone through the orders of authorities below. We have also deliberated upon the judicial pronouncements cited with reference to the exclusion of investment made in 3 ITA 5748/M/12 & ITA 248/M/2013

the companies which are strategic in nature. As per the judicial pronouncements cited above, such investments should not be taken into account for working out the disallowance u/s 14A of the Act.

6. In the case of Interglobe Enterprises Ltd. vs. DCIT, ITAT Delhi Bench in ITA No. 1362 & 1032/Del/2013 for A.Y. 2008-09 and 2009-10, vide order dated 4-4-2014 concluded as under:-

"However, we find that the calculation of disallowance under Rule 8D(iii) made by the Assessing Officer and upheld by the ld. CIT(A) is not correct in view of the fact that Assessing Officer had included the value of total investments for calculation of disallowance whereas in our opinion the value of those investments should have been included which were made for the purpose of earning exempt income. The assessee had made significant investments in the shares of subsidiary companies which are definitely not for the purpose of earning exempt income."

7. Since this aspect of strategic investment has not examined by lower authorities, we restore the matter for both the assessment years back to the file of the A.O. for recomputing afresh the disallowances made u/s 14 A read with Rule 8-D. Needless to say that the A.O. should afford sufficient opportunity of being heard to the assessee before deciding the issue afresh.

8. In the result, both the appeals of the assessee are allowed for statistical purpose.

Order pronounced in the open court on 21st January, 2015.

आदे श क घोषणा खल ु े यायालय म दनांकः 21-01-2015 को क गई ।

Sd/- sd/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; दनांक Dated 21-01-2015 [ व. न.स./ R.K. , Sr. PS 4 ITA 5748/M/12 & ITA 248/M/2013

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु त(अपील) / The CIT(A) -4,, Mumbai 4. आयकर आयु त / CIT -3, Mumbai 5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai A Bench

6. गाड फाईल / Guard file. ु ार/ BY ORDER, आदे शानस

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