REVASHANKAR GEMS LTD, MUMBAI V. DCIT RG 5(3), MUMBAI

ITA 1046/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0336 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: APURVA R SHAH
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN , HON'BLE ACCOUNTANT MEMBER ITA NO . 1046 /MUM/2016 (A.Y : 2011 - 12 ) M/S. REVASHANKAR GEMS LIMITED 322, PANCHRATNA, 14, MAMA PA RMANAND MARG, OPERA HOUSE, MUMBAI 400 004 PAN NO : AAACR 4649 D V . DEPUTY COMMISSIONER OF INCOME TAX RANGE 5(3), R.NO. 573, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI APURVA R. SHAH DEPARTMENT BY : SHRI RAM TIWARI DATE OF HEARING : 05.02.2018 DATE OF PRONOUNCEMENT : 05 .02.2018 O R D E R PER C.N. PRASAD 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAIN ST THE ORDER OF THE LD.CIT(A) 10, MUMBAI DATED 17.12.2015 FOR THE ASSESSMENT YEAR 2011 - 12. 2. ASSESSEE IN ITS APPEAL RAISED THREE GROUNDS OF APPEAL AND MAINLY THE FIRST GROUND OF APPEAL IS IN RESPECT OF CONFIRMING THE DISALLOWANCE U/ S. 14A R.W. RULE 8D OF THE ACT. 2 ITA NO.1046/MUM/2016 (A.Y: 2011 - 12) M/S. REVASHANKAR GEMS LIMITED 3. BRIEFLY STATED THE FACTS ARE THAT, T HE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT WORKED OUT THE DISALLOWANCE U /S. 14A R.W. RULE 8D2(II) AT . 9,92,591/ - AND UNDER RULE 8D2(III) AT .2,12,627/ - . THE WORKING OF THE ASSESSING OFFICER TOWARDS DISALLOWANCE U/S.14A R.W. RULE 8D WAS SUSTAINED BY THE LD.CIT(A) BY FOLLOWING HIS PREDECESSOR S ORDER FOR THE ASSE SSMENT YEAR 2008 - 09. 4. LD. COUNSEL FOR THE ASSESSEE BEFORE US CONTENDS THAT T HE TOTAL INVESTMENTS MADE BY THE ASSESSEE DURING THE CURRENT ASSESSMENT YEAR ARE ONLY TO THE EXTENT OF . 1039.86 LAK H S AND WHEREAS CAP ITAL AND RESERVES OF THE ASSESSEE STOOD AT .2818.77 LAKHS. HE FURTHER SUBMITTED THAT THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09 TO 2010 - 11 HAD ACCEPTED THE CONTENTION OF THE ASSESSEE THAT , IF ADEQUATE INTEREST FREE FUNDS ARE AVAILABLE THEN NO DISALLOWANCE NEEDED IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE S OF CIT V. HDFC BANK LTD. [ 366 ITR 505 ] AND CIT V. RELIANCE UTILITIES POWER LIMITED [ 313 ITR 340 ] AND THE MATTER WAS SET - ASIDE. HE ALSO FURTHER SUBMITTED THAT THE ASSESSING OFFICER PASSED ORDER GIVING EFFECT TO THE TRIBUNAL ORDER FOR THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 ACCEPTING THAT THE INTEREST FREE FUNDS ARE MUCH MORE THAN THE INVESTMENTS AND NO DISALLOWANCE WAS MADE TOWARDS INTERE ST UNDER RULE 8D2(II). LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT IN RESPECT 3 ITA NO.1046/MUM/2016 (A.Y: 2011 - 12) M/S. REVASHANKAR GEMS LIMITED OF DISALLOWANCE UNDER RULE 8D(2)(III) ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME SHOULD BE CONSIDERED FOR THE DISALLOWANCE IN VIEW OF THE SPECIAL BENCH DECIS ION IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED [165 ITD 27] . 5. LD.DR VEHEMENTLY SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE CONTENTION OF THE ASSESSEE THAT , THE CAPITAL RESERVES AND INTEREST FREE FUNDS ARE MUCH MORE THAN THE INVESTMENTS , HAVE TO BE EXAMINED BY THE ASSESSING OFFICER. IT IS TRUE THAT THE HON'BLE JURI SDICTIONAL HIGH COURT IN THE CASE S OF CIT V. HDFC BANK LTD (SUPRA) AND CIT V. RELIANCE UTILITIES POWER LIMITED (SUPRA) HELD THAT , IF ASSESSEE HAD ADEQUATE INTE REST FREE FUNDS AVAILABLE WITH IT , NO DISALLOWANCE NEEDS TO BE MADE UNDER RULE 8D2(II). IN THE CIRCUMSTANCES , WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL EXAMIN E THE CONTENTIONS OF THE ASSESSEE THAT T HE INTEREST FREE FUNDS ARE MUCH MORE THAN T HE INVESTMENTS. IF THE SUBMISSIONS OF THE ASSESSEE AR E FOUND TO BE CORRECT , NO DISALLOWANCE UNDER RULE 8D2(II) IS REQUIRED IN VIEW OF THE D ECISIONS OF THE HON'BLE JURISDICT IONAL HIGH COURT IN THE CASE S OF CIT V . HDFC BANK LTD AND CIT V. RELIANCE UTILITIES POWER LIMITED (SUPRA). SIMILARLY, THE SPECIAL BENCH IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED HELD THAT ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME SHOULD BE 4 ITA NO.1046/MUM/2016 (A.Y: 2011 - 12) M/S. REVASHANKAR GEMS LIMITED CONSIDERED FOR DISALLOWANCE UNDER RULE 8D2(III). THUS, RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION , WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D2(III) FOLLOWING THE SPECIAL BENC H. ACCORDINGLY, WE SET - ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE ABOVE OBSERVATIONS. THIS GROUND OF APPEAL IS A LLOWED FOR STATISTICAL PURPOSE. 7. COMING TO GROUND NO.2 I.E. DISALLOWANCE OF INTEREST OF .9,70,632/ - U/S. 36(1)(III) OF TH E ACT, ASSESSEE HAS BEEN ALLOTTED THE OFFICE PREMISE S AT BHARAT DIAMOND BOURSE, ETC SEVERAL YEARS AGO AND WAS MAKING PAYMENTS OF VARIOUS INSTALLMENTS TOWARDS THE SAME . IN ADDITION, ASSESSEE HAD GIVEN ADVANCE FOR BOOKING VARIOUS OTHER PREMISES FOR THE PURPOSE OF ITS BUSINESS. IT WAS THE CONTENTION OF THE ASSESSEE THAT , THERE WAS NO AMOUNT WHICH WAS SPECIFICALLY BORROWED TO ACQUIRE THESE ASSETS AND THE ASSESSEE HAD ADEQUATE INTEREST FREE FUNDS AT ITS DISPOSAL AND IT WAS CONTENDE D THAT CAPITAL AND ACCUMULATED RESERVES OF THE ASSESSEE AT THE BEGINNING OF THE YEAR WERE . 2682 LAKH S AND THE AMOUNT ADVANCED IN QUESTION WAS . 405.55 LAKHS ONLY. HOWEVER, THE ASSESSING OFFICER ASSUMING THAT THE INTEREST BORROWING FUNDS MUST HAVE USED FOR TH IS PURPOSE ACCORDINGLY DISALLOWED .9,70,632/ - OUT OF INTEREST EXPENSES AS INTEREST ATTRIBUTABLE TO THE SAID ADVANCE. LD. COUNS EL FOR THE ASSESSEE AT THIS STAG E SUBMITTED THAT THIS ISSUE AROSE IN THE ASSES SMENT YEARS 5 ITA NO.1046/MUM/2016 (A.Y: 2011 - 12) M/S. REVASHANKAR GEMS LIMITED 2008 - 09, 2009 - 10 AND 2010 - 11 AND THE TRIBUNAL HAD SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMI NING THE CONTENTIONS OF THE ASSESSEE AND THE CONSEQUENTIAL ORDERS WERE PASSED ACCEPTING THAT THE ASSESSEE H AS ITS OWN FUN DS MUCH MORE THAN THE INVESTMENTS AND NO INTEREST WAS DISALLOWED U/S. 36(1)(III) AND ALSO NO PROPORTIONATE INTEREST EXPENSES WERE DISALLOWED TOW ARDS AND THE ADVANCES TO PARTNERSHIP FIRM. 8. LD.DR HAS NO OBJECTION IN FOLLOWING THE ORDER OF THE COORDINATE BENC H IN ASSESSEES OWN CASE FOR THE EARLIER YEAR ASSESSMENT YEARS. 9. ON HEARING BOTH THE PARTIES , WE FIND THA T THE ISSUE IN APPEAL HAS BEEN SET - ASIDE BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11 AND CONSEQUENTIAL ORDERS WERE ALSO PASSED ACCEPTING THE CONTENTIONS OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH IN ITA.NO. 1679 AND 6423 / MUM /2013 DATED 16 .06.2016, WE RESTORE GROUND NO .2 TO THE FILE OF THE ASSESSING OFFIC ER AND DIRECT THE ASSESSING OFFICER TO EXAMINE THE CASE OF THE ASSESSEE AND DECIDE AFRESH IN THE LIGHT OF THE DIRECTIONS CONTAINED IN THE ORDERS PASSED FOR THE ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11 AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE ALONG WITH FURTHER LIBERTY TO FURNISH EVIDENCE IF ANY BY THE ASSE SSEE IN SUPPORT OF ITS CLAIMS. SINCE GROUND NO.3 IS ALSO CONNECTED T O GROUND NO.2, THIS GROUND IS ALSO RESTORED TO ASSESSING 6 ITA NO.1046/MUM/2016 (A.Y: 2011 - 12) M/S. REVASHANKAR GEMS LIMITED OFFICER TO EXAMINE THE CONTENTIONS OF THE ASSES SEE. THUS, G ROUND NOS 2 AND 3 ARE ALLOWED FOR STAT ISTICAL PURPOSE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 05 TH FEBRUARY , 2018 . SD/ - SD/ - ( N. K. PRADHAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 05 / 02 / 201 8 GIRIDHAR , SPS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER, (ASSTT. REGISTRAR) ITAT, MUM