ACIRA CONSULTANCY PVT. LTD., Mumbai V. ITO 5 (1)(4), Mumbai

ITA 1273/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7286 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 06-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH MUMBAI BEFORE : SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI M.BALAGANESH, A CCOUNTANT MEMBER ITA NO. 1273 /MUM/ 20 19 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. ACIRA CONSULTANCY PVT.LTD., 511/C, 6 TH F LOOR SUNSHINE CHSLTD., OFF. CHANDIVLI FARM RAHEJA VIHAR, ANDHERI(E) MUMBAI 400 072 VS. INCOME TAX OFFICER - 5(1)(4) ROOM NO.569, 5 TH FLOOR AAYKAR BHAVAN M.K.ROAD, MUMBAI MAHARASHTRA - 400 020 PAN/GIR NO. AAICA9489N (APPELLANT ) .. (RESPONDENT ) ASSESSEE B Y SHRI KUMAR KALE REVENUE BY SHRI BRAJENDRA KUMAR DATE OF HEARING 24 /0 8 /2021 DATE OF PRONOUNCEMENT 07 / 09 /202 1 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 1273/MUM/2019 FOR A.Y. 2012 - 13 ARISES OUT OF THE ORD ER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 10, MUMBAI IN APPEAL NO. CIT(A) - 10/IT - 5(1)(4)/99/2015 - 16 DATED 28/12/2018 (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 21/03/2015 BY THE LD. INCOME TAX OFFICER - 5(1)(4), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO . 1273/MUM/2019 M/S. ACIRA CONSULTANCY P. LTD., 2 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS 44,16,081/ - U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE INCOME TAX RULES (HEREINAFTER REFERRED TO AS THE RULES) IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. IN RESPECT OF SHARES HELD AS STOCK IN TRADE, THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE AS HELD BY THE HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENTS REPORTED IN 402 ITR 640(SC). WE FIND THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS IN RECEIPT OF DIVIDEND OF RS 45,83,400/ - WHICH WAS CLAIMED AS EXEMPT U/S 10(34) OF THE ACT IN THE RETURN OF INCOME. BEFORE THE LD AO, THE ASSESSEE HAD CLAIMED THAT IT HAS NOT INCURRED ANY EXPENDITURE TO EARN THE SAID DIVIDEND INCOME AND THEREFORE NO EXPENDITURE COULD BE ATTRIBUTED TO THE SAID DIVIDEND INCOME. THE LD AO DID NOT HEED TO THIS CONTENTION OF THE ASSESSEE AND PROCEEDED TO DETERMINE THE DISALLOWANCE U/S 14A OF THE ACT BY APPLYING THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES AS UNDER: - UNDER RULE 8D(2)(I) - RS NIL UNDER RULE 8D(2)(II) - RS2,18,30,647 RESTRICTED TO RS 44,16,081 BEING 20% OF TOTAL INTER EST PAID DURING THE YEAR AS ATTRIBUTABLE TO EXEMPT INCOME UNDER RULE 8D(2)(III) - RS 14,27,204 RESTRICTED TO RS 32,740/ - BEING THE INDIRECT EXPENSES CLAIMED BY THE ASSESSEE 3.1. WE FIND THAT THE LD CITA ON PERUSAL OF THE FINANCIALS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD NEGATIVE RESERVES AND SURPLUS AS ON 31.3.2011 AND 31.3.2012 AND HAD ALSO INCURRED INTEREST EXPENSES OF RS ITA NO . 1273/MUM/2019 M/S. ACIRA CONSULTANCY P. LTD., 3 2,20,80,408/ - DURING THE YEAR. THE LD CITA ALSO CATEGORICALLY OBSER VED THAT THE ASSESSEE DID NOT HAVE SUFFICIENT INTEREST FREE FUNDS TO INVEST IN SHARES. HENCE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE RULES IS TO BE MADE AS ADMITTEDLY THE BORROWED FUNDS WERE INDEED UTILISED FOR MAKING INVESTMENT IN SHARES HEL D AS STOCK IN TRADE. THE LD CITA UPHELD THE ACTION OF THE LD AO. WE FIND THAT THE ASSESSEE IS IN APPEAL BEFORE US ONLY AGAINST THE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE RULES. WE HAVE GONE THROUGH THE FINANCIALS OF THE ASSESSEE AND FIND TH AT THE ASSESSEE DOES NOT HAVE SUFFICIENT INTEREST FREE FUNDS IN ITS KITTY TO MAKE INVESTMENTS. HENCE THE FINDING GIVEN BY THE LD CITA THAT THE BORROWED FUNDS WERE UTILISED FOR MAKING INVESTMENTS DOES NOT REQUIRE ANY INTERFERENCE. HOWEVER, FOR THE PURPOSE O F DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE RULES, WE DIRECT THE LD AO TO CONSIDER ONLY THOSE INVESTMENTS WHICH HAD ACTUALLY YIELDED DIVIDEND INCOME DURING THE YEAR IN THE LIGHT OF DECISION OF HONBLE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF VIREET INVESTMENTS VS ACIT REPORTED IN 165 ITD 27 (DEL)(SB). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED AND LD AO IS DIRECTED TO RECOMPUTE ACCORDINGLY. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRON OUNCED ON 07 / 09 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( MAHAVIR SINGH ) SD/ - (M.BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED 07 / 09 / 2021 KARUNA , SR.PS ITA NO . 1273/MUM/2019 M/S. ACIRA CONSULTANCY P. LTD., 4 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//