FEDEX FINANCE P.LTD, MUMBAI V. DCIT (OSD) CIR 3(3), MUMBAI

ITA 1073/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4394 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 04-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1073/M/2013 ASSESSMENT YEAR: 2009-10 M/S. FEDEX FINANCE PVT. LTD., JAY CHAMBERS, 3 RD FLOOR, SERVICE ROAD, VILE PARLE, MUMBAI 400 057 PAN: AAACF 2216J VS. DCIT (OSD), CIRCLE 3(1), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI (APPELLANT) (RESPONDENT) ITA NO.1067/M/2013 ASSESSMENT YEAR: 2009-10 M/S. FEDEX SECURITIES LTD., JAY CHAMBERS, 3 RD FLOOR, SERVICE ROAD, VILE PARLE, MUMBAI 400 057 PAN: AAACF 0959N VS. DCIT (OSD), CIRCLE 3(1), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI KIRIT SHETH, A.R. REVENUE BY : SHRI JEETENDRA KUMAR, D.R. DATE OF HEARING : 07.01.2016 DATE OF PRONOUNCEMENT : 08.01.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED TWO APPEALS BY DIFFERENT BUT R ELATED ASSESSEES HAVE BEEN PREFERRED AGAINST THE SEPARATE ORDERS OF THE C OMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] B OTH DATED 07.01.2013. SINCE THE ISSUE RAISED IN BOTH THE APPEALS IS COMMON, HEN CE THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF WITH THIS COMMON ORDER. FIRST WE TAKE UP ITA NO.1067/M/2013. ITA NOS.1073 & 1067/M/2013 M/S. FEDEX FINANCE PVT. LTD. & M/S. FEDEX SECURITIES LTD. 2 ITA NO.1067/M/2013 2. THE SOLE ISSUE RAISED BY THE ASSESSEE IN THIS AP PEAL IS IN RELATION TO DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A READ WITH RULE 8D INCURRED IN RELATION TO EARN THE TAX EXEMPT INCOME. THE ASSESS ING OFFICER (HEREINAFTER REFERRED TO AS THE AO), APPLYING THE RULE 8D OF THE IT RULES, HAS COMPUTED THE DISALLOWANCE UNDER SECTION 14A. HE HAS DISALLOWED THE INTEREST EXPENDITURE OF RS.5,01,612/- AND ADMINISTRATIVE EXPENSES AT RS.3,4 5,432/-. THE SAID DISALLOWANCE HAS BEEN CONFIRMED BY THE LD. CIT(A). 3. AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS INVITED OUR ATTENTION TO PAGE 14 OF THE PAPER BOOK WHICH IS THE COPY OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION TO SHOW THAT THE ASSESSEE HAD EARNED INCOME OF RS.65,03,721/- DURING THE YEAR. WHEREAS THE TOTAL INTEREST OF FINANCE CHARGES INCURRED BY THE ASSESSEE ARE AT RS.5,01,612/-. THE LD. A.R. OF THE ASSESSEE HAS THUS SUBMITTED THAT IF THE NETTING OF THE INTEREST INCOME AND INTEREST EXPENDITURE IS DONE, THEN THE ASSESSEE HAS EARNED A POSITIVE IN TEREST INCOME DURING THE YEAR. HE HAS, THEREFORE, SUBMITTED THAT IN VIEW OF THE AB OVE, IT CANNOT BE ASSUMED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE FOR MAKING INVESTMENTS FOR EARNING OF EXEMPT INCOME. HE HAS RELIED UPON THE D ECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THIS RESPECT IN THE CASE O F ITS SISTER CONCERN M/S. WHITE WATER MASS MEDIA PVT. LTD. VS. ACIT VIDE ITA NO.2963/M/2013 ORDER DATED 17.09.14 AND FURTHER IN THE CASE OF M/ S. WESTEX INFOTECH PVT. LTD. VS. ACIT IN ITA NO.2964/M/2013 VIDE ORDER DATED 17 .09.14. THE LD. D.R., ON THE OTHER HAND, HAS RELIED UPON TH E FINDINGS OF THE LOWER AUTHORITIES. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HAV E ALSO GONE THROUGH THE DECISIONS RELIED UPON BY THE LD. A.R. OF THE ASSESS EE. WE FIND THAT IN IDENTICAL CIRCUMSTANCES, THE CO-ORDINATE BENCH OF THE TRIBUNA L IN THE CITED DECISIONS HAS HELD THAT WHERE THE ASSESSEE HAD A NET POSITIVE INC OME, UNDER SUCH ITA NOS.1073 & 1067/M/2013 M/S. FEDEX FINANCE PVT. LTD. & M/S. FEDEX SECURITIES LTD. 3 CIRCUMSTANCES THE DISALLOWANCE OF INTEREST EXPENDIT URE UNDER SECTION 14A WAS NOT WARRANTED. 5. SO FAR AS THE DISALLOWANCE OF ADMINISTRATIVE EXP ENSES IS CONCERNED, THE LD. A.R. HAS SUBMITTED THAT THE INVESTMENTS MADE BY THE ASSESSEE IN UNQUOTED SHARES OF THE SUBSIDIARIES/SISTER CONCERNS TO GAIN CONTROL OVER THE MANAGEMENT WAS NOT LIABLE TO BE INCLUDED IN THE AVERAGE VALUE OF INVESTMENTS WHILE COMPUTING THE DISALLOWANCE OF EXPENDITURE UNDER RUL E 8D(2)(III) BECAUSE OF THE REASON THAT SUCH INVESTMENTS ARE NOT MADE FOR EARNI NG OF ANY EXEMPT INCOME BUT BECAUSE OF THE BUSINESS EXIGENCIES OF THE ASSES SEE AND THAT EVEN THE CAPITAL GAINS DERIVED THERE FROM ARE TAXABLE. HE HAS FURTH ER SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME FROM IN VESTMENTS IN UNQUOTED SHARES OF THE SUBSIDIARIES DURING THE YEAR. HE HAS FURTHER SUBMITTED THAT IN MAKING SUCH INVESTMENTS NO EXTRA EFFORT REQUIRING I NCURRING OF EXPENDITURE FOR PLANNING OF SUCH ADJUSTMENTS IS REQUIRED TO BE INCU RRED. 6. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE LD. A.R. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE IN THE OWN CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR. THE STRA TEGIC INVESTMENTS IN GROUP COMPANIES AND SISTER CONCERNS FOR HAVING CONTROL OV ER THE MANAGEMENT OF THE SAID COMPANIES ARE NOT INTENDED FOR THE PURPOSE OF EARNING OF EXEMPT INCOME. UNDER SUCH CIRCUMSTANCES FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(III), THE INVESTMENTS MADE IN UNQUOTED SHARES OF THE SUBSIDIARIES SISTER CONCERNS /GROUP COMPANIES FOR STRATEGIC PURPOSES ARE REQUIRED TO BE EXCLUDED. WE , THEREFORE, DIRECT THE AO TO VERIFY AS IF THE ASSESSEE HAS NET POSITIVE INTEREST INCOME DURING THE YEAR, THEN NO DISALLOWANCE OF INTEREST IS TO BE MADE UNDER SEC TION 8D(2)(II) AND FURTHER DIRECT THE AO TO EXCLUDE THE STRATEGIC INVESTMENTS MADE IN SUBSIDIARIES WHILE COMPUTING DISALLOWANCE OF ADMINISTRATIVE EXPENSES U NDER RULE 8D(2)(III) OF THE IT RULES. ITA NOS.1073 & 1067/M/2013 M/S. FEDEX FINANCE PVT. LTD. & M/S. FEDEX SECURITIES LTD. 4 ITA NO.1073/M/2013 7. THE FACTS AND ISSUES INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE APPEAL NO.1067/M/2013 OF THE ASSESSEES PRESENT APPEAL. I N VIEW OF OUR FINDINGS GIVEN ABOVE, WE DIRECT THE AO TO COMPUTE THE DISALL OWANCE IN THE TERMS AS INDICATED WHILE DECIDING THE ITA NO.1067/M/2013. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08.01.2016. SD/- SD/- (ASHWANI TANEJA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 08.01.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.