APPLICOMP (I) LTD, MUMBAI V. DCIT RG 3(1), MUMBAI

CO 114/MUM/2013

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 4116 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest; Question of law; Tax effect
• Section: 143(3); 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU , AM AND SHRI AMARJIT SINGH, JM CO. NO. 114/M/2013 (ARISING OUT OF I .T.A. NO. 3653 / MUM/ 20 1 2 ( / AS SESSMENT YEAR: 2009 - 10 ) M/S. APPLICOMP (INDIA) LTD., 171 - C, MITTAL COURT, NARIMAN POINT, MUMBAI - 400021. / VS. DCIT, RANGE - 3(1), ROOM NO. 607, AAYAKAR BHAVAN, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AACCA 9547 R ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 03.08. 2018 / DATE OF PRONOUNCEMENT : 29 .0 8 . 201 8 / O R D E R PER AMARJIT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT CROSS - OBJECTION BEARING NO. 114/M/2013 AGAINST THE APPEAL BEARING NO. 3653/M/2012 DATED 15.06.2013. THE CROSS - OBJECTION HAS BEEN FILED AGAINST THE ORDER DATED 01.03.2012 PASSED BY THE CIT(A) - 5, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] F OR THE A.Y. 2009 - 10. 2 . THE ASSESSEE HAS RAISED THE FOLLOWING CROSS - OBJECTION : - ASSESSEE BY : SHRI MAYANK CHAUHAN (AR) REVENUE BY: SHRI V. JUSTIN (DR) CO. NO.114 /M/201 3 ARISING OUT OF ITA. NO. 3653/M/2012 A.Y. 2009 - 10 2 1. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TA X (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF THE SUM OF RS.67, 84,808/ - MADE UNDER THE PROVISIONS OF SECTION 14A OF THE INCOM E TAX ACT, 1961 READ WITH RULE 8 D OF THE INCOME TAX RULES, 1962 AND TREATING THE SAME AS EXPENSES INCURRED FOR EARNING EXEMPT INCOME BY REJECTING THE EXPLANATION GIVEN BY THE A PPELLANT WHICH IS WRONG AND CONTRARY TO THE PROVISIONS OF INCOME TAX ACT, 1961, AND THE RULES MADE THEREUNDER. 1. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) ERRED IN NOT APPRECIATING T HAT THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS, RESERVES AND INTERNAL ACCRUALS WHICH ARE MUCH MORE THAN THE INVESTMENTS YIELDING EXEMPT INCOME AND HENCE NO DISALLOWANC E OF PROPORTIONATE INTEREST CAN BE MADE U/S. 14A OF THE INCOME TAX ACT, 1961. 1. (C) WITHOUT PREJUDI CE TO THE GROUND OF APPEAL NO. 1 (A) AND L(B) ABOVE, AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LOWER AUTHORITIES OUGHT TO HAVE CONSIDERED INTEREST EXPENDITURE NET OF INTEREST INCOME FOR THE PURPOSE OF COMPUTING TH E DISALLOWANCE OF PROPORTIONATE INTERE ST EXPENDITURE U/R, 8D{2)(II), AND NOT DOING SO IS WRONG AND CONTRARY TO THE PROVISIONS OF INCOME TAX ACT, 1961, AND THE RULES MADE THEREUNDER. 2. ( A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE L EARN ED COMMISSIONER OF INCOME - TAX (APP EALS) ERRED IN CONFIRMING THE LD. AO'S ACTION OF ADDING A SUM OF RS.67, 84,808 / - BEING THE AMOUNT OF EXPENSE DISALLOWED BY HIM U/S,14A R.W.R. 8D, TO THE BOOK PROFIT FOR THE PURPOSE OF S.115JB OF THE INCOME TAX ACT , 196 1 WHICH IS WRONG AND CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, 1961, AND THE RULES MADE THEREUNDER. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 14A(2), 1 4(A)(3) AND RULE 8D ARE DEEMING PROVISIONS AND THE SAME CANNOT BE EXTEN DED TO PROVISIONS OF SECTION. 1 1 5JB OF THE ACT. CO. NO.114 /M/201 3 ARISING OUT OF ITA. NO. 3653/M/2012 A.Y. 2009 - 10 3 (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE PROVISIONS OF SE CTION 14A(2) AND 14A(3) C ANNOT HE IMPORTED INTO CLAUSE (F ) OF THE EXPLANATION TO SECTION 11 5JB OF THE INCOME TAX ACT, 1961 WHICH IS WRONG AND CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, 1961, AND T HE RULES MADE THEREUNDER, (D) ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW FAI LED TO APPRECIATE THAT SECTION 1 4A OF THE INCOME TAX ACT, 1961 REFERS LO COMPUTATION OF TOTAL INCOME UNDER CHAPTER IV OF THE ACT AND HENCE DOES NOT APPLY TO SECTION 115JB OF THE ACT WHICH IS COVERED UNDER CHAPTER XII - B OF THE ACT AND HENCE THE PROVISIONS OF SECTION 14A(2) AND 14A(3) CANNOT APPLY TO PROVISIONS OF SECTION 115JB OF THE ACT. THE RESPONDENT CRAVES LEAVE TO ADD. ALTER, AMEND AND/OR MODIFY THE ABOVE GROUNDS OF CROSS OBJECTION ON OR BEFORE THE DATE OF HEARING. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT ORDER DATED 31 .03.2011 WAS PASSED BY THE DCIT - 3(1), MUMBAI U/S 143(3) OF THE I.T. ACT, 1961. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CONSUMER ELECTRONICS & HOME APPLIANCES. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30.09.2009 DECLARING TOTAL TAXABLE INCOME TO THE TUNE OF RS.NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THE ORDER U/S 143(3) OF THE I.T. ACT, 1961 WAS PASSED AFTE R CERTAIN ADDITION AND DISALLOWANCES. THE ASSESSING OFFICER DISALLOWED THE EXPENSES TO THE TUNE OF RS. 67,84,808/ - IN VIEW OF THE PROVISION U/S 14A OF THE ACT. ACCORDINGLY, THE EXPENSES TO THE TUNE OF RS.67,84,808/ - WAS ALSO DISALLOWED U/S 115JB OF THE ACT. THE ASSESSEE FILED AN APPEAL THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO WHO PARTLY ALLOWED THE CLAIM OF THE ASSESSEE , THEREFORE, THE ASSESSEE FILED THE PRESENT CROSS - OBJECTION BEFORE US. CO. NO.114 /M/201 3 ARISING OUT OF ITA. NO. 3653/M/2012 A.Y. 2009 - 10 4 I SSUE NO. 1 TO 2 : - 4 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE APPEAL OF THE REVENUE HAS BEEN ORDERED TO BE DISMISSED BY VIRTUE OF ORDER DATED 22.01.2016 PASSED IN ITA. NO.3653/M/2012 ON ACCOUNT OF TAX EFFECT. THE PRESENT CROSS - OBJECTION IS PENDING. THE LD. RE PRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE PRESENT CROSS - OBJECTION IS THE CROSS - OBJECTION OF APPEAL BEARING NO.3653/M/2012 W HICH HAS ALREADY BEEN DISMISSED, T HEREFORE, IN THE SAID CIRCUMSTANCES, THE PRESENT CROSS - OBJECTION IS NOT MAINTAINABLE HENCE IS LIABLE TO BE DISMISSED WITHOUT HEARING ON MERITS. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS REFUTED THE SAID CONTENTION. I T IS REQUIRED TO BE SEEN THAT WHEN THE APPEAL OF THE REVENUE BEARING ITA. NO.3653/M/2012 HAS BEEN ORDERE D TO BE DISMISSED THEN IN THE SAID CIRCUMSTANCES, THE CROSS - OBJECTION IS LIABLE TO BE MAINTAINABLE OR NOT. IN THIS REGARD, THE VARIOUS AUTHORITIES UNDER LAW HAS HELD THAT IN THE CIRCUMSTANCES WHEN THE APPEAL HAS BEEN ORDERED TO BE DISMISSED AND CROSS - OBJEC TION IS PENDING THEN IN THE SAID CIRCUMSTANCES THE CROSS - OBJECTION IS LIABLE TO BE SUSTAINABLE AND IS LIABLE TO BE DISPOSED OF IN ACCORDANCE WITH LAW. IN THIS REGARD, WE ALSO FIND IN SUPPORT OF LAW SETTLED IN CROSS - OBJECTION NO. 189/M/2013 M/S. DBS BANK LT D. VS. DIT DATED 15.06.2016 AND ACIT (DELHI TRIB.) VS. AJAY KALIA (2016) 66 TAXMAN.COM 99 DELHI - TRIB. AND HARI SHANKAR RASTOGI VS. SHAM MANOHAR & CO. NO.114 /M/201 3 ARISING OUT OF ITA. NO. 3653/M/2012 A.Y. 2009 - 10 5 ORS. SUPREME COURT (CIVIL APPEAL NO. 1787 OF 2005) DECIDED ON 16.03.2005 . I N VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE OBJECTION RAISED BY THE LD. REPRESENTATIVE OF THE REVENUE IS NOT MAINTAINABLE HENCE THE CROSS - OBJECTION IS LIABLE TO BE DECIDED IN ACCORDANCE WITH LAW. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE DID NOT EARN THE ANY EXEMPT INCOME , THEREFORE, NO DISALLOWANCE IS REQUIRED IN VIEW OF THE DECISION IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 IN ITA. NO.3516/M/2012 DATED 09.02.2018. HOWEVER, IT IS ALSO ARGUED THAT THE ASSESSEE MADE INVESTMENT FROM OUT OF HIS OWN FUND, RESERVE AND INTERNAL ACCRUALS WHICH ARE MUCH MORE THAN INVESTMENT YIELDING EXEMPT INCOME, THEREFORE, NO DISALLOWANCE OF PROPORTIONATE INTEREST IS LIABLE TO BE MADE U/S 14A R.W. RULE 8D OF THE ACT. IT IS NOT IN DISPUTE THAT THE ASSESSEE DID NOT Y IELD THE EXEMPT INCOME IN THE PRESENT ASSESSMENT YEAR. THE MATTER OF CONTROVERSY IN THIS REGARD HAS ALREADY BEEN ADJUDICATED BY THE MUMBAI TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA. NO.3516/M/2012 DATED 09.02.2018. THE RELEVANT FINDING IS HEREBY GIVEN AS UNDER: - 5 . BOTH THESE ISSUES ARE INTER - CONNECTED THEREFORE ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. UNDER THESE ISSUES, THE ASSESSEE HAS CHALLENGED TH E CONFIRMATION OF DISALLOWANCE OF A SUM OF RS.55,90,110/ - MADE IN VIEW OF THE PROVISION OF SECTION 14A OF THE I.T. ACT, 1961 R.W. RULE 8D OF THE ACT. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE D ID NOT EARNED THE EXEMPT INCOME THEREFORE PROVISION OF SECTION 14A R.W. RULE 8D OF THE ACT WAS NOT APPLICABLE UPON THE INVESTMENT IN VIE W OF THE LAW SETTLED IN CASE OF CHEMINVEST LIMITED VS. CIT (TAX APPEAL 749 CO. NO.114 /M/201 3 ARISING OUT OF ITA. NO. 3653/M/2012 A.Y. 2009 - 10 6 OF 2014) (DELHI HIGH COURT) DATED 02.09.2015. THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE LAW SETTLED IN THE CASE OF CIT VS. DELITE ENTERPRISES (TAX APPEAL 110 OF 2009) (MUMBAI H IGH COURT), SHREE SHYAMKAMAL FINANCE & LEASING CO.(P) LTD. VS. ITO (21 SOT 42) (MUMBAI ITAT), JCIT VS. HOLLAND EQUIPMENT CO. B.V. (3 SOT 810) (MUMBAI ITAT), CIT VS. M/S. LAKHANI MARKETING INC. (49 TAXMANN.COM 257) (PUNJAB HIGH COURT), CIT VS. CORRETECH ENE RGY (P.) LTD. (2014) 223 TAXMANN 130 GUJ. HIGH COURT & CIT VS. WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 PUNJAB HIGH COURT. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE REVENUE HAS PLACED RELIANCE UPON THE ORDER PASSED IN CIT(A) IN QUESTION. AFTER HEARING THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSING THE RECORD. WE NOTICED THAT THE ASSESSEE DID NOT EARN EXEMPT INCOME IN THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE HAS SHOWED THE INVESTMENT TO THE TUNE OF RS. 36,24, 73,620/ - . MERELY UTILIZATION OF FUND NOWHERE ATTRACT THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT. THIS ISSUE HAS DULY BEEN COVERED BY DECISION OF THE HONBLE DELHI HIGH COURT IN ITA. NO. 749/2014 TITLE AS CHEMNIVEST LIMITED VS. CIT - 6 DATED 02.09.2015. IN THE SAID CASE THE SUBSTANTIAL QUESTION OF LAW WAS THAT WHETHER DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT HAS BEEN EARNED OR RECEIVABLE BY THE ASSESSEE. THE MATERIAL FINDING HAS BEEN GIVEN PARA 23 OF THE JUDGMENT IN WHICH THE HONBLE HIGH COURT OF THE DELHI WAS OF THE VIEW THAT THE SECTION 14A OF THE ACT WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. HOWEVER, IN THIS REGARD SOME OTHER JUDGMENT HAS ALSO BEEN PASSED WHICH HAS BEEN MENTIONED ABOVE. NO DOUBT, THE FACTUAL POSITION IS THE SAME AND THE CASE OF THE ASSESSEE HAS DULY BEEN COVERED BY DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMNIVEST LIMITED VS. CIT (SUPRA). THEREFORE, THE PROVISION U/S 14A R.W. RULE 8D IS NOT APPLICABLE AND THE ADDITION OF RS.55,90,110/ - IS HEREBY ORDERED TO BE DELETED, AND ACCORDINGLY NO DEMAND COULD BE RAISED AS PER THE PROVISION U/S 115JB OF THE ACT ALSO. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF ASSESSEE. 5 . SINCE THE FACTS AN D CIRCUMSTANCES OF THE PRESENT CASE IS QUITE SIMILAR TO THE FACTS OF THE EARLIER YEAR OF ASSESSEES OWN CASE , T HEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CASE IS CO. NO.114 /M/201 3 ARISING OUT OF ITA. NO. 3653/M/2012 A.Y. 2009 - 10 7 OF THE ASSESSEE HAS DULY BEEN COVERED BY THE ASSESSEE OWN CASE IN THE A. Y. 2008 - 09 (SUPRA). THEREFORE, NO DISALLOWANCE IS REQUIRED TO BE MADE ON ACCOUNT OF PROVISION U/S 14A R.W. RULE 8D OF THE ACT . HOWEVER THE ASSESSEE RAISED OTHER GROUND IN CONNECTION WITH THESE ISSUES SUCH AS HAVING MORE FUND THAN THE INVESTMENT ETC., BUT T HE ABOVE MENTIONED FACTS ARE SUFFICIENT TO ADJUDICATE THE MATTER OF CONTROVERSY. ACCORDINGLY NO DEMAND CAN BE RAISED IN THE PROVISION U/S 115JB OF THE ACT ALSO. ACCORDINGLY, ISSUE NOS. 1 & 2 ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6. IN THE RESULT, THE CROSS - OBJECTION OF THE A SSESSEE IS HEREBY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 29 . 08 . 201 8 . SD/ - SD/ - ( G.S. PANNU ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 29 . 08 . 201 8 . VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI