DCIT 3(3)(1), MUMBAI V. RADHA MADHAV INVESTMENT LTD, MUMBAI

ITA 1028/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5803 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 14-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI LD DR
• Assessee Lawyers: VIJAY MEHTALD
• Keywords: Earning of tax free income; Corroborative evidences
• Section: 143(3); 14A; 115JB

Judgement Text

ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.1028/MUM/2017 ( ASSESSMENT YEAR: 2013-14) DEPUTY COMMISSIONER OF INCOME TAX -3(3)(1) ROOM NO.609, 6 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 VS. RA DHA MADHAV INVESTMENTS LIMITED 11-A, MITTAL CHAMBERS DR. RAJNI PATEL MARG, NARIMAN POINT MUMBAI-400 021 ! ' PAN/GIR NO. AAACR-4063-M ( !# APPELLANT ) : ( $%!# RESPONDENT ) A SSESSEE BY : VIJAY MEHTA, LD. AR RE VENUE BY : RAM TIWARI, LD. DR & DATE OF HEARING : 18/07/2018 '() / DATE OF PRONOUNCEMENT : 27/07/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2013-14 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-8 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-8/IT-573/15-16 DATED 24/11/2016 BY RAISING THE FOLLOWING EFFECTIVE GROUNDS OF APPEA L:- ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 2 1. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,47,0 0,000/- U/S.14A R.W.R. 8D WITHOUT APPRECIATING THE FACT THAT THE AMOUNT OF DI SALLOWANCE U/S.14A OF THE I.T.ACT, 1961 HAS TO BE COMPUTED AS PER RULE 8D OF I.T.RULES, 1962 AS HELD IN THE ORDER OF THE HONBLE HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE MANUFACTURING CO. LTD. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S.1 4A TO THE BOOK PROFIT U/S.115JB OF THE I.T.ACT, 1961 IGNORING THE DECISIO NS OF THE HONBLE ITAT, MUMBAI IN THE CASE OF ITO V/S. RBK SHARE BROKING PV T.LTD. 37 TAXMANN 128 (2013), M/S. VIRAJ PROFILES LTD. IN ITAT NO.443 9/MUM/2013 DATED 21/10/2015 46 ITR(T) 626 (MUMBAI TRIB.)/[2016] AND IN FERANI HOTELS PVT.LTD.IN ITA NO.857/MUM/2013 DATED 17/11/2014. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX-CIRCLE 3(3)(1), MUMBAI [ AO] U/S 143(3) OF THE INCOME TAX ACT,1961 ON 29/01/2016 WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.379.95 LACS UNDER NORMAL PROVISIONS & RS.363.19 LACS FOR THE PURPOSE OF MINIMUM ALTERNATIVE TAX [MAT] U/S 115JB AFTER CERTAIN ADDITIONS / DISALLOWANCES. AS EVIDENT FROM THE GROUNDS OF APPEAL, THE ONLY DISPUTE BEFORE US I S DISALLOWANCE U/S 14A. DURING THE IMPUGNED AY, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT & FINANCING. 2. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT TH E ASSESSEE EARNED EXEMPT INCOME BY WAY OF DIVIDEND, LONG TERM CAPITAL GAINS & SHARE OF PROFITS FROM PARTNERSHIP FIRMS AGGREGATING TO RS.37.55 CRORES AGAINST WHICH IT HAD MADE SUO-MOTO EXPENSE DISALLOWANCE U/S 14A FOR RS.12.44 LACS, THE COMPUTATION OF WHICH HAS BEEN EX TRACTED AT PARA-5.1 OF THE QUANTUM ASSESSMENT ORDER. IT WAS NOTED THAT THE ASSESSEE DID NOT INCLUDE THE INVESTMENTS IN PARTNERSHIP FIRMS AGGREGATING TO RS.294 CRORES WHILE ARRIVING AT THE AFORESAID DISALLOWANCE . THE ASSESSEE ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 3 DEFENDED THE SAME, INTER-ALIA, ON THE PREMISES THAT NO EXPENDITURE WAS INCURRED AND NO EFFORTS WERE MADE BY THE ASSESSEE T O EARN ANY INCOME FROM THE PARTNERSHIP FIRM. HOWEVER, IT WAS NOTED TH AT PURSUANT TO TERMS OF RESPECTIVE PARTNERSHIP DEEDS, THE DIRECTOR OF TH E ASSESSEE COMPANY, BEING PARTNER IN THOSE FIRMS, WAS REQUIRED TO DEVOT E THEIR FULL TIME AND ATTENTION TO THE PARTNERSHIP BUSINESS AND ALL THE F IRMS WERE OPERATING FROM THE ADDRESS OF THE ASSESSEE. THEREFORE, NOT CO NVINCED, LD. AO APPLYING RULE 8D, WORKED OUT EXPENSES DISALLOWANCE OF RS.159.44 LACS AS AGAINST RS.12.44 LACS COMPUTED BY THE ASSESSEE A ND ADDED THE DIFFERENCE OF RS.147 LACS IN THE HANDS OF THE ASSES SEE. THE AFORESAID ADJUSTMENT WAS MADE WHILE ARRIVING AT INCOME UNDER NORMAL PROVISIONS AS WELL AS U/S 115JB. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 24/11/2016 WHE REIN VARIOUS SUBMISSIONS WERE MADE BY THE ASSESSEE WHICH HAVE BE EN EXTRACTED IN THE IMPUGNED ORDER. THE LD. CIT(A) RELYING UPON ITS OWN DECISION IN ASSESSEES OWN CASE FOR AY 2012-13 DELETED THE IMP UGNED ADDITIONS OF RS.147 LACS. AS NOTED BY LD. CIT(A), THE DECISION F OR AY 2012-13 RELIED UPON THE DECISION OF THIS TRIBUNAL FOR AY 2008-09. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI RAM TIWARI CONTENDED THAT THE COMPUTATIONS WERE TO BE MADE ONL Y AS PER STATUTORY MANDATE AS CONTAINED IN RULE 8D AND THEREFORE, THE ACTION OF THE LD. AO WAS JUSTIFIED. THE LD. AUTHORIZED REPRESENTATIVE FO R ASSESSEE [AR], SHRI VIJAY MEHTA PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL F OR AYS 2009-10 TO 2011-12 AND SUBMITTED THAT IMPUGNED ADDI TIONS MAY BE ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 4 RESTRICTED TO 0.22% OF AVERAGE INVESTMENTS AS DONE IN EARLIER AYS. THE RATE OF 0.22% IS NOTHING BUT AVERAGE OF SUO-MOTO DISALLOWANCE MADE BY ASSESSEE FOR AYS 2009-10 TO 2011-12, WHICH HAS ALSO BEEN ACCEPTED BY THE TRIBUNAL. 5.1 FROM THE LETTER OF AUTHORITY AS PLACED ON RECOR D BY LD. AR, IT APPEARS THAT THE NAME OF THE ASSESSEE HAS BEEN CHAN GED TO RADHA MADHAV INVESTMENTS PRIVATE LIMITED, WHICH HAS NOT BEEN BROUGHT TO THE NOTICE OF THE BENCH BY THE RESPECTIVE REPRESENTATIV ES. NEVERTHELESS, WE PROCEED TO ADJUDICATE THE ISSUE ON MERITS. 5.2 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING THE DECISION OF TRIBUN AL IN ASSESSEES OWN CASE FOR EARLIER YEARS. THE LD. AR HAS PRIMARILY PL ACED RELIANCE ON THE STAND OF THIS TRIBUNAL FOR AYS 2009-10 TO 2011-12, THE COPIES OF WHICH HAVE BEEN PLACED ON RECORD. WE HAVE GONE THROUGH TH E SAME AS WELL AS FINANCIAL STATEMENTS FOR IMPUGNED AY AS PLACED ON R ECORD. 5.3 THE PERUSAL OF TRIBUNALS ORDER FOR AY 2009-10, ITA NO. 6972/MUM/2012 DATED 17/04/2015 REVEAL THAT THE DECISION FOR THAT AY HAS BEEN RENDERED AFTER DUE CONSIDERATION OF FACTUA L MATRIX AND PERUSAL OF EXPENDITURE AS CLAIMED BY THE ASSESSEE IN THE PR OFIT & LOSS ACCOUNT. FROM THE ORDER, IT IS EVIDENT THAT IN THAT YEAR, TH E ASSESSEE HAD MADE SUO-MOTO DISALLOWANCE OF RS.165.43 LACS AGAINST COMMON EXPENDITURE OF RS.471 LACS WHICH TRANSLATED INTO DISALLOWANCE R ATE OF 35%, WHICH LED THE TRIBUNAL TO DELETE THE ADDITIONAL DISALLOWANCE MADE BY LD. AO. 5.4 SIMILARLY, THE TRIBUNALS ORDER FOR AY 2010-11, ITA NO. 309/MUM/2014 DATED 12/04/2017 RECORDS A FINDING THAT THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE FOR RS.151.54 LAC S TRANSLATED INTO ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 5 APPROX. 44% OF COMMON EXPENDITURE. THIS RATE WAS 35 .45% IN AY 2011- 12. HOWEVER, NO SUCH TABULATION HAS BEEN PLACED BEF ORE US FOR THE IMPUGNED AY. IN VIEW OF THE STATED FACTS, THE DISAL LOWANCE AS OFFERED BY LD. AR @0.22% OF AVERAGE INVESTMENT COULD NOT BE AC CEPTED. 5.5 SO FAR AS THE DECISION OF TRIBUNAL FOR AY 2008- 09 AS EXTRACTED IN THE IMPUGNED ORDER AND AS RELIED UPON BY LD. CIT(A) IS CONCERNED, THE SAME IS CLEARLY DISTINGUISHABLE SINCE IT HAS BEEN O BSERVED THEREIN THAT THE LD. AO FAILED TO FULFILL THE REQUIREMENTS OF SE CTION 14(2) QUA SATISFACTION, WHICH IS NOT THE CASE HERE SINCE LD. AO, WITH DUE APPLICATION OF MIND HAS REJECTED THE COMPUTATIONS O FFERED BY THE ASSESSEE. 5.6 ANOTHER ASPECT OF THE ISSUE IS QUANTUM OF INVESTMENTS . THE PERUSAL OF BALANCE SHEET, PRIMA-FACIE, REVEAL THAT THE ASSESSEES YEAR END CURRENT INVESTMENTS AND NON-CURRENT INVESTMENTS AGG REGATE TO RS.787.43 CRORES WHICH IS APPROX. 76% OF TOTAL ASSE TS I.E. RS.1037.69 CRORES AS REFLECTED IN THE BALANCE SHEET. THE SAME REVEAL THAT THE ASSESSEE IS PRE-DOMINANTLY AN INVESTMENT COMPANY. AT THIS JUNCTURE, WE FIND THAT WE STOOD BENEFITTED BY THE RECENT JUDGMEN T OF HONBLE APEX COURT RENDERED IN MAXOPP INVESTMENT LTD. VS. CIT [12/02/2018 91 TAXMANN.COM 154] WHEREIN IT HAS CATEGORICALLY BEEN HELD THAT THE OBJECTIVE OF HOLDING THE INVESTMENTS WAS IMMATERIAL AND THE DISALLOWANCE WAS TO BE APPLIED IN ALL CASES IRRESPE CTIVE OF THE FACT WHETHER THE SAME ARE HELD AS STOCK-IN-TRADE OR AS A N INVESTMENTS. 5.7 THEREFORE, KEEPING IN VIEW THE TOTALITY OF FACT S AND KEEPING IN VIEW THE RECENT JUDGMENT OF HONBLE APEX COURT AS CITED ABOVE, WE DEEM IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF LD. AO FO R RE-ADJUDICATION IN THE ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 6 LIGHT OF STATUTORY PROVISIONS AS WELL AS IN THE LIG HT OF RATIO OF CITED JUDGMENT OF HONBLE SUPREME COURT. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS CLAIM WITH SUPPORTING EVIDENCES IN THIS REGARD FAILING WHICH LD. AO SHALL BE AT LIBERTY TO DECIDE THE ISSU E ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 5.8 SO FAR AS ADJUSTMENT OF DISALLOWANCE U/S 14A IN COMPUTATION OF BOOK PROFIT U/S 115JB IS CONCERNED, WE FIND THAT TH E MATTER STOOD SQUARELY IN ASSESSEES FAVOUR BY THE CITED JUDGMENT OF DELHI TRIBUNAL (SPECIAL BENCH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415]. UPON PERUSAL OF THE SAME, WE FIND THAT SPECIAL BENCH, AFTER CONSIDERING TWO CONTRARY DECISION OF H ONBLE DELHI HIGH COURT TITLED AS CIT VS. GOETZE (INDIA) LTD. [2014 361 ITR 505] & PCIT VS. BHUSHAN STEEL LTD. [ITA 593/2015 DATED 29/09/20 15], TOOK THE VIEW FAVORABLE TO THE ASSESSEE IN TERMS OF RATIO OF DECI SION OF HONBLE SUPREME COURT RENDERED IN CIT VS. VEGETABLE PRODUCTS LIMITED [1973 88 ITR 192]. THE DECISION IN PCIT VS. BHUSHAN STEEL LTD. , IN TURN, PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN APOLLO TYRES LTD. VS. CIT [255 ITR 273] WHICH HELD THAT THE ASSESSING OFFICER DID NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROV IDED IN EXPLANATION TO SECTION 115J. SIMILAR VIEW HAS BEEN EXPRESSED BY OU R JURISDICTIONAL BOMBAY HIGH COURT RENDERED IN CIT VS. JSW ENERGY LIMITED [2015 60 TAXMANN.COM 303], CIT V. ESSAR TELEHOLDINGS LTD. [ITA NO. 438 OF 2012, DATED 07/08/2014] & CIT VS. BENGAL FINANCE & INVESTMENTS PVT. LIMITED [ITA NO. 337 OF 2013 DATED 10/02/2015]. THEREFORE, RESPECTFULLY FOLLOWING THE CATENA OF JUDGMENT IN ASSESSEES FAVOUR, WE HOL D THAT ADJUSTMENT OF ITA NO.1028/MUM/2017 RADHA MADHAV INVESTMENTS LIMITED ASSESSMENT YEAR-2013-14 7 DISALLOWANCE U/S 14A WAS NOT REQUIRED TO BE MADE IN BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB. THE GROUND OF ASSESSEES APPEAL STANDS ALLOWED TO THAT EXTENT. 6. IN NUTSHELL, THE APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY, 2018 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER *& MUMBAI; DATED : 27.07.2018 SR.PS:-THIRUMALESH ! COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. / THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - -) *& / DR, ITAT, MUMBAI 6. , ./0 & GUARD FILE ' / BY ORDER, # '$% (DY./ASSTT.REGISTRAR) *& / ITAT, MUMBAI