INDIA INFRASTRUCTURE DEVELOPERS LTD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 1167/MUM/2011

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6685 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Keywords: Opportunity of being heard; Earning of tax free income; Wholly owned subsidiary
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI DR. A.L. SAINI , ACCOUNTANT MEMBER ITA NO. 1167 / MUM . /2011 ( ASSESSMENT YEAR : 20 06 07 ) INDIA INFRASTRUCTURE DEVELOPERS LTD. TAXATION DEPARTMENT, L&T HOUSE N.M. MARG, BALLARD ESTATE MUMBAI 400 001 PAN AAACI4598Q . APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANG E 2 ( 2 ), MUMBAI . RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI H.N. SINGH , CIT(DR) DATE OF HEARING 2 8 .0 6 .2018 DATE OF ORDER 29.06.2018 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL BY THE ASSESSEE IS AGAINST ORDER DATED 3 RD NOVEMBER 2010 , PASSED BY THE L EARNED COMMISSIONER (APPEALS) 5 , MUMBAI , FOR THE ASSESSMENT YEAR 2006 07 . 2 . WHEN THE APPEAL WAS CALLED FOR HEARING NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE. EVEN , THE ASSESSEE HAS NOT SOUGHT ADJOURNMENT BY FILING ANY APPLICATION. SINCE , THE APPEAL IS VERY OLD PERTAINING TO THE YEAR 2011, WE PROCEED TO DISPOSE OFF THE 2 INDIA INFRASTRUCTURE DEVELOPERS LTD. APPEAL EX PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND ON THE BASIS OF MATERIAL ON RECORD. 3 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED D ISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). 4 . B RIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS SHOWN INVESTMENT IN TAX FREE BOND, MUTUAL FUND AND SHA RES OF COMPANIES AGGREGATING TO ` 56,71,71,636, CALLED UPON THE ASSESSEE TO EXPLAIN WHY EXPENSES SHOULD NOT BE DISALLOWED UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) R/W RULE 8D OF I NCOME TAX RULES, 1962. IN RESPONSE, THOUGH, IT WAS SUBMITTED BY THE ASSESSEE THAT IN THE YEAR UNDER CONSIDERATION IT HAD NO EXEMPT INCOME, HENCE, NO DISALLOWANCE UNDER SEC TION 14A OF THE ACT CAN BE MADE, H OWEVER, THE ASSESSING OFFICER REJECTING THE SUBMISSIONS OF THE ASSESSEE PROCEEDED TO DISALLOW AN AMOU NT OF ` 10,94,267 BY APPLYING RULE 8D(2)(III) OF THE RULES. 5 . THOUGH, THE ASSESSEE CHALLENGED THE DISALLOWANCE IN APPEAL, HOWEVER, THE LEARNED COMMISSIONER (APPEALS) SUSTAINED THE DISALLOWANCE. 6 . WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED MATERIALS ON RECORD. AS COULD BE SEEN FROM THE FACTS ON 3 INDIA INFRASTRUCTURE DEVELOPERS LTD. RECORD, FROM THE STAGE OF ASSESSM ENT PROCEEDINGS ITSELF IT IS THE CONSISTENT CLAIM OF THE ASSESSEE THAT DU RING THE RELEVANT PREVIOUS YEAR IT HAS NOT EARNED ANY EXEMPT INCOME. THE AFORESAI D CLAIMED OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY THE DEPARTMENTAL AUTHORITIES. THAT BEING THE CASE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE AS PER SETTLED LEGAL PRINCIPLE. MOREOVER, THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER S ECTION 14A OF THE ACT BY APPLYING THE METHODOLOGY OF RULE 8D(2) OF THE RULES. NOW, IT IS WELL SETTLED THAT PROVISIONS OF RULE 8D ARE PROSPECTIVE AND APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008 09. IN VIEW OF THE AFORESAID, THE DISALLOWANCE MADE UNDER RUL E 8D R/W SECTION 14A IS NOT SUSTAINABLE. HENCE, DELETED. THIS GROUND IS ALLOWED. 7 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN HOLDING THAT LONG TERM CAPITAL GAIN ARISING ON SALE OF SHARE HAS TO BE TREAT ED AS INCOME AT THE HANDS OF L ARSEN & T OUBRO LTD. 8 . BRIEF FACTS ARE, THE ASSESSEE, EARLIER KNOWN AS L&T POWER INVESTMENT LTD. WAS HOLDING SHARES OF A WHOLLY OWNED SUBSIDIARY RAYKAL ALUMINIUM CO. P. LTD. DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE SOLD THE SHARES HELD BY IT AND DECLARED LONG TERM CAPITAL GAIN OF ` 34,98,92,657 FROM SALE OF SUCH SHARES. HOWEVER, IT CLAIMED DEDUCTION O F THE ENTIRE CAPITAL GAIN UNDER SECTION 54EC OF THE INCOME 4 INDIA INFRASTRUCTURE DEVELOPERS LTD. TAX ACT, 1961 (FOR SHORT THE ACT ) ON ACCOUNT OF INVESTMENT IN SID BI BOND. THE ASSESSING OFFICER NOTICING THAT THE COST OF 10,000 SHARES OF RAYKAL ALUMINIUM CO. PVT. LTD. WAS ` 1,00,000 ONLY , WHEREAS , THE ASSESSEE HAS SHOWN HUGE CAPITAL GAIN , CALLED UPON THE ASSESSEE TO FURNISH NECESSARY DETAILS AND JUSTIFY ITS CLAIM. AF TER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER HELD THAT THE ENTIRE CAPITAL GAIN IS TAXABLE IN THE HANDS OF LARSEN & TOUBRO LTD. AND NOT IN THE HANDS OF THE ASSESSEE, SINCE , THE AMOUNT RECEIVED WAS IN REGARD TO WORK DONE BY THE LARSEN & TOUBRO LTD., WHEREAS, LARSEN & TOUBRO POWER INVESTMENT LTD. WHICH ORIGINALLY HELD THE SHARE DID NOT RENDER ANY SERVICES. THUS, ULTIMATELY, THE ASSESSING OFFICER EXCLUDED THE LONG TERM CAPITAL GAIN FROM THE INCOME OF THE ASSESSEE AND ASSESSED IT AT THE HANDS OF LARSEN & TOUBRO LTD. CONSEQUENTLY, THE DEDUCTION CLAIMED UNDER SECTION 54EC OF THE ACT WAS DISALLOWED. 9 . THOUGH , THE ASSESSEE CHALLENGED THE AFORESAID DECISION OF THE ASSESSING OFFICER BEFORE THE LEARNED COMMISSIONER (APPEALS), HOWEVER, IT FAILED IN ITS ATTEMPT TO GET ANY RELIEF FROM THE FIRST APPELLATE AUTHORITY ON THE ISSUE. 10 . WHILE CONFIRMING THE DECISION OF THE A SSESSING OFFICER, THE LEARNED COMMISSIONER (APPEALS) ALSO TOOK NOTE OF THE FACT THAT THE DISPUTE RESOLUTION PANEL (DRP) HAS ALSO UPHELD THE ADDITION OF CAPITAL GAIN AT THE HANDS OF LARSEN & TOUBRO LTD. 5 INDIA INFRASTRUCTURE DEVELOPERS LTD. 11 . WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THE LONG TERM CAPITAL GAIN OFFERED BY THE ASSESSEE FROM SALE OF SHARES OF RAYKAL ALUMINUM CO. PVT. LTD., W AS ULTIMATELY ASSESSED AT THE HANDS OF LARSEN & TOUBRO LTD. BY EXCLUDING IT FROM THE INCOME OF THE ASS ESSEE. AS COULD BE SEEN FROM THE FACTS ON RECORD, THE DRP II, MUMBAI, WHILE DECIDING THE OBJECTIONS RAISED BY LARSEN & TOUBRO LTD. ON THE ISSUE OF ADDITION OF LONG TERM CAPITAL GAIN ON SALE OF SHARES AT ITS HANDS , HAS UPHELD THE ADDITION. FURTHER, IT IS SE EN FROM RECORD, AGAINST THE AFORESAID DECISION OF THE DRP, LARSEN & TOUBRO LTD. APPEARS TO HAVE FILED AN APPEAL BEFORE THE TRIBUNAL WHICH IS STATED TO BE PENDING. BE THAT AS IT MAY, CONSIDERING THE FACT THAT ASSESSABILITY OF LONG TERM CAPITAL GAIN FROM SAL E OF SHARES AT THE HANDS OF THE ASSESSEE, ULTIMATELY, HINGES ON THE DECISION TO BE TAKEN BY THE TRIBUNAL IN THE APPEAL FILED BY THE LARSEN & TOUBRO LTD. CHALLENGING THE ADDITION OF CAPITAL GAIN ARISING FROM SALE OF VERY SAME SHARES, WE ARE INCLINED TO REST ORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE APPEAL PREFERRED BY LARSEN & TOUBRO LTD. AGAINST THE DIRECTIONS OF THE DRP ON THE ISSUE. OF COURSE, THE ASSESSING OFFICER MUST A LLOW REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 6 INDIA INFRASTRUCTURE DEVELOPERS LTD. 12 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.06.2018 SD/ - DR. A.L. SAINI ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 29.06.2018 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI