BNP PARIBAS SA, MUMBAI V. DCIT SP RG 36, MUMBAI

ITA 1308/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93154 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-05-2015
• Assessment Year: 1989-1990
• Appeal Filed On: 15-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 6

Judgement Text

PNB PARIBAS SA ITA NO. 13 08 /M/201 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B , MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIA L MEMBERITA ITA NO. : 1 3 0 8 /MUM/20 1 3 ( ASSESSMENT YEAR: 1989 - 9 0 ) PNB PARIBAS SA , NORTH AVENUE MAKEMAXITY, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI - 400 051 .: PAN: AA A C B 4868 Q VS DCIT SPL. RG. 3 6 , 1 ST FLOOR, SCINDIA HOUSE, BALARD ESTATE, MU MBAI - 400 038 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE RESPONDENT BY : SHRI YOGESH KAMAT /DATE OF HEARING : 14 - 05 - 2015 / DATE OF PRONOUN CEMENT : 08 - 07 - 2015 ORDER PER AMIT SHUKLA , J.M. : THE A FORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 30 .1 1 .201 2 , PASSED BY CIT(A) - 10 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED IN PURSUANCE OF ITAT ORDER U/S 254, FOR THE ASSESSMENT YEAR 198 9 - 9 0 . 2. THE ONLY ISSUE RAISED IN THE GROUNDS OF APPEAL IS DISALLOWANCE MADE U/S 14A WITH REGARD TO INTEREST EXPENSES. IN THIS CASE, THE TRIBUNAL HAD EARLIER SET ASIDE THE MATTER TO THE FILE OF THE CIT(A) AFTER OBSERVING AND HO LDING AS UNDER: EXPENSES CAN BE DISALLOWED U/S 14A ONLY IF THE SAID EXPENSES IS INCURRED IN RELATION TO THE INCOME, WHICH DOES NOT FORM THE PART OF THE TOTAL INCOME. THIS ASPECT NEEDS VERIFICATION. WE ARE OF THE VIEW THAT THE MATTER HAS TO BE RESTORED BAC K TO THE FILE OF THE LD. CIT(A) TO RECONSIDER THE MATTER AFRESH AND DISALLOW THE EXPENSES, WHICH ARE PNB PARIBAS SA ITA NO. 13 08 /M/201 3 2 INCURRED IN RELATION TO SUCH EXEMPT INCOME. NEEDLESS TO SAY THAT HE SHALL GIVE OPPORTUNITY TO BOTH THE PARTIES OF BEING HEARD BEFORE DECIDING THE ISSUE. WE ORDER ACCORDINGLY. 3. IN WAKE OF THE AFORESAID DIRECTIONS, THE LD. CIT(A) REQUIRED THE ASSESSEE TO SHOW THE NEXUS BETWEEN INTEREST FREE FUNDS AVAILABLE WITH IT AND UTILIZATION OF SUCH INTEREST FREE FUNDS FOR MAKING THE INVESTMENT, WHICH HAS YIELDED EXEM PT INCOME. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT FROM WHICH THE INVESTMENT HAS BEEN MADE. IN SUPPORT, THE ASSESSEE HAS RELIED UPON ITS BALANCE SHEET FOR THE RELEVANT DATE AND ALSO ORDERS OF THE CIT(A ) IN THE ASSESSEES OWN CASE. HOWEVER, THE LD. CIT(A) HELD THAT SUCH A DISALLOWANCE NOW HAS TO BE MADE IN ACCORDANCE WITH THE RULE 8D IN WAKE OF DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. REPORTED IN 328 ITR 81 (B OM) AND NOTED THAT THE DECISION OF RELIANCE UTILITIES AND POWER PVT LTD HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE LATER DECISION OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA ). THUS, THE ASSESSEE HAD NOT SHOWN BY WAY OF ANY EVIDENCES , THE EXTENT OF SUFFICIENT INTEREST FREE FUNDS AS ON THE DATE OF INVESTMENT. THE LD. CIT(A) NOTED THE POSITION OF THE NON - INTEREST BEARING FUNDS AND ALSO THE ASSET SIDES OF THE BALANCE SHEET AND THEREAFTER MADE THE DISALLOWANCE OF RS. 21,31,170/ - OUT OF INTEREST COST , WHICH H AS BEEN WORKED OUT ON THE BASIS OF RULE 8D ONLY . 4 . BEFORE US, THE LD. COUNSEL SUBMITTED THAT, NOW IN THE CASE OF THE ASSESSEE ITSELF THE HONBLE HIGH COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN INCOME - TAX APPEAL NO. 1776 OF 2012 VID E ORDER DATED 14 TH FEBRUARY, 2013 WHEREIN, FOLLOWING QUESTION OF LAW WERE RAISED BY THE REVENUE: B) WHETHER THE TRIBUNAL IS CORRECT IN UPHOLDING THE DECISION OF CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF EXPENDITURE INCURRED IN EARNING EXEMPT INCOME WITHOUT APPRECIATING THE FACT THAT ASSESSEE DID NOT DEMONSTRATE BEFORE PNB PARIBAS SA ITA NO. 13 08 /M/201 3 3 THE AO THAT THE FUNDS USED FOR ACQUIRING SHARES OF LVL WERE ITS OWN FUNDS AND ALSO THAT SECTION 10 OF THE ACT PROVIDES FOR A DEDUCTION OF NET INCOME AND NOT GROSS INCOME? THIS QUESTION HAS BEEN ANSWERED IN FAVOUR OF THE ASSES S EE. FURTHER, IN ASSESSEES OWN CASE, THE TRIBUNAL FOR THE ASSESSMENT YEAR 2000 - 01, 2001 - 02 AND 2002 - 03 , SIMILAR ISSUE HA S BEEN DECIDED IN FAVOUR OF THE ASSESSEE, WHEREIN IT HAS BEEN HELD THAT ASSESS EES INVESTMENTS HAVE BEEN MADE OUT OF ITS OWN FUNDS. BESIDES THIS, THE LD. COUNSEL SUBMITTED THAT THE TOTAL NON - INTEREST BEARING FUNDS ON THE DATE OF THE BALANCE SHEET WAS RS. 23,85,20,000/ - WHEREAS, THE INVESTMENTS IN TAX FREE BONDS WAS RS. 67,00,000/ - . THUS, A PRESUMPTION CAN BE DRAWN THAT ASSESSEES INVESTMENTS HAVE BEEN MADE OUT OF ITS OWN INTEREST FREE FUNDS. 5 . ON THE OTHER HAND, LD. DR STRONGLY RELIED ON THE ORDER OF THE CIT(A). 6 . AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT FROM THE PE RUSAL OF THE BALANCE SHEET, AS NOTED ABOVE, THE TOTAL INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE WAS FAR IN EXCESS , THEN THE INVESTMENTS MADE BY THE ASSESSEE IN THE TAX FREE BONDS. ONCE THAT IS SO, THEN THE PRESUMPTION IS THAT SUCH AN INVESTMENT HAVE B EEN MADE FROM ASSESSEES OWN SURPLUS FUNDS. THIS PROPOSITION HAS NOT ONLY BE EN UPHELD BY THE HONBLE HIGH COURT IN THE CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR 2002 - 03 BUT ALSO BY THE TRIBUNAL IN THE VARIOUS YEARS, AS REFERRED TO ABOVE. ACCORDINGLY, DIS ALLOWANCE OF INTEREST AS MADE U/S 14 A IS HEREBY DELETED. FURTHER, IT IS ALSO AN ADMITTED POSITION OF LAW THAT RULE 8D AS APPLIED BY THE LD. CIT(A) IS NOT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR , VIZ. 1989 - 90 , AS HELD BY HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. ( SUPRA ). 7 . ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. PNB PARIBAS SA ITA NO. 13 08 /M/201 3 4 8 . IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JU LY , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTA NT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 8 TH JU LY , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 10 , MUMBAI 4) THE CIT /DIT (INT. TXN) - 3, MUMBAI . 5) , , / THE D.R. B BENCH, MUMBAI. 6) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . * CHAVAN, SR.PS