K.RAHEJA CORP P.LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 1004/MUM/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4056 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 13-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH , JM & SHRI M.BALAGANESH, AM ITA NO. 1004 /MUM/201 5 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. K. RAHEJA CORPORATION PVT. LTD., PLOT NO.C - 30, G - BLOCK OPP: SIDBI, BANDRA KURLA C OMPLEX, BANDRA EAST MUMBAI 400 051 VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 29 MUMBAI PAN/GIR NO. AAACP0522B (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY MS. AARTI SATHE REVENUE BY SHRI B. SRINIVAS DATE OF HEARING 17 / 07 /2019 DAT E OF PRONOUNCEMENT 16 / 08 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 1004/MUM/2015 FOR A.Y. 2010 - 11 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 52, MUMBAI IN APPEAL NO. CI(A) - 52/IT/DC/AC - C C - 4(2)/109/2010 - 11 DATED 16/12/2014 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 26/03/2013 BY THE LD. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 29, MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO.1004/MUM/2015 M/S. K. RAHEJA CORPORATION PVT. LTD 2 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE MADE U/S.14A OF THE ACT READ WITH RULE 8D OF THE RULES IN THE SUM OF RS.11,82,55,983/ - UNDER NORMAL PROVISIONS OF THE ACT AS WELL AS IN COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE HAS RECEIVED DIVIDEND OF RS.5,75,03,434/ - AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF THE ACT IN THE RETURN OF INCOME. THE ASSESSEE DID N OT MAKE ANY DISALLOWANCE OF EXPENSES INCURRED FOR THE PURPOSES OF EARNING SUCH EXEMPT INCOME IN THE RETURN OF INCOME. THE LD. AO APPLIED THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES AND ARRIVED AT THE DISALLOWANCE UNDER SECOND LIMB OF RS.1 1,17,58,894/ - AND UNDER THIRD LIMB TO THE TUNE OF RS.64,97,089/ - . THE TOTAL DISALLOWANCE MADE U/S.14A READ WITH RULE 8D OF THE RULES WORKED OUT TO RS.11,82,55,983/ - . THE LD. CIT(A) UPHELD THE ACTION OF THE LD. AO. 4 . THE ASSESSEE HAD FILED ALTERED GROUNDS OF APPEAL AND HAD ALSO FILED THE ADDITIONAL GROUND AND APPEAL CHALLENGING THE DISALLOWANCE U/S.14A OF THE ACT UNDER THE NORMAL PROVISIONS OF THE ACT AS UNDER: - 1. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF FINANCE EXPENSES AND OTHER EXPENSES OF RS.L1,82,55,983/ - MADE BY AO ON INVESTMENT IN SHARES OUT OF BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD SURPLUS INTEREST FREE FUNDS AVAILABLE FOR INVESTMENT IN SHARES AND HENCE NO FINANCE EXPENSES AND OTHER EXPENSES IS ATTRIBUTAB LE TOWARDS INVESTMENT IN SHARES . 4 .1. THE ASSESSEE HAS ALSO FILED AN ADDITIONAL G ROUND CHALLENGING THE DISALLOWANCE MADE U/S. 14A OF THE ACT WHILE COMPUTING BO OK PROFITS U/S.115JB OF THE ACT AS UNDER: - ITA NO.1004/MUM/2015 M/S. K. RAHEJA CORPORATION PVT. LTD 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW , THE LEARNED AO & LEARNED CIT(A) ERRED IN MAKING DISALLOWANCE UNDER SECTION 14A OF RS. 11,82,55,983 / - WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 5 . AT THE OUTSET, WE FIND THE ADDITIONAL GROUND RAISED B Y THE ASSESSEE IS PURELY A LEGAL ISSUE AND DOES NOT REQUIRE ANY VERIFICATION OF FACTS AND IT GOES TO THE ROOT OF THE MATTER. HENCE, WE ARE INCLINED TO ADMIT THE ADDITIONAL GROUND AND TAKE UP FOR ADJUDICATION. THE LD. AR PLACED ON RECORD , THE COPY OF THE OR DER OF THIS TRIBUNAL IN ITS OWN CASE PASSED FOR A.Y.2008 - 09 IN ITA NO.6900/MUM/2011 DATED 04/04/2016 WHEREIN IT HAD BEEN CATEGORICALLY HELD THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS IN ITS KITTY AND HENCE, THE PRESUMPTION THAT OWN FUNDS HAVE BEEN US ED FOR MAKING INVESTMENTS IN VARIOUS COMPANIES GOES IN FAVOUR OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., REPORTED IN 313 ITR 340. THIS TRIBUNAL IN A.Y.2008 - 09 IN A SSESSEES OWN CASE HAD DELETED THE DISALLOWANCE OF INTEREST MADE UNDER SECOND LIMB OF RULE 8D(2) OF THE RULES . WE FIND FROM PERUSAL OF THE BALANCE SHEET AS ON 31/03/2010, TOTAL OWN FUNDS AVAILABLE WITH THE ASSESSEE IS RS.295,23,58,270/ - , WHEREAS THE INVEST MENTS MADE WERE ONLY RS.131,21,08,283/ - . HENCE, THE PRESUMPTION THAT OWN FUNDS IS AVAILABLE WITH THE ASSESSEE FOR MAKING INVESTMENTS WOULD APPLY EVEN FOR THE YEAR UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT SUPRA AND THE DECISION OF THIS TRIBUNAL IN A.Y.2008 - 09 IN ASSESSEES OWN CASE, WE DIRECT THE LD. AO TO DELETE THE DISALLOWANCE OF INTEREST MADE UNDER SECOND LIMB AND RULE 8D(2) OF THE RULES. 5. 1 . WITH REGARD TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES MA DE IN THE SUM OF RS.64,97,089 / - UNDER THIRD LIMB OF RULE 8D(2) OF TH E RULE S IS CONCERNED, WE DIRECT THE LD. AO TO MAKE DISALLOWANCE BY CONSIDERING ONLY ITA NO.1004/MUM/2015 M/S. K. RAHEJA CORPORATION PVT. LTD 4 THOSE INVESTMENTS THAT HAD YIELDED EXEMPT INCOME TO THE ASSESSEE. THIS DIRECTION IS GIVEN IN THE LIGHT O F DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF VIREET INVESTMENT (P) LTD. 165 ITD 27. ACCORDINGLY, THE ALTERED GROUND RAISED BY THE ASSESSEE WITH REGARD TO DISALLOWANCE U/S.14A OF THE ACT R.W.R. 8D(2) OF THE RULES UNDER NORMAL PROVISIONS OF T HE ACT IS PARTLY ALLOWED. 5. 2 . WITH REGARD TO DISALLOWANCE MADE U/S. 14A OF THE ACT, WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT, WE FIND THAT THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES CANNOT BE IMPUTED I NTO CLAUSE (F) TO EXPLANA TION 1 TO SECTION 115JB (2) OF THE ACT AS HELD BY THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF VIREET INVESTMENT (P) LTD. REPORTED IN 165 ITD 27. HOWEVER, THE LD. AO IS DIRECTED TO CONSIDER THE DISALLOWANCE OF EXPENSES INCURRED FOR THE PURPOSE OF EAR NING EXEMPT INCOME BASED ON A CTUAL AMOUNT S DEBITED TO PROFIT AND LOSS ACCOUNT. THIS DIRECTION IS ALSO GIVEN IN THE LIGHT OF THE DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL SUPRA. ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 / 08 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 16 / 08 / 2019 KARUNA , SR.PS ITA NO.1004/MUM/2015 M/S. K. RAHEJA CORPORATION PVT. LTD 5 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//