PROZONE ENTERPRISES P.LTD, MUMBAI V. ACIT CEN CIR 13, MUMBAI

ITA 1309/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7819 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRITA RANJAN
• Assessee Lawyers: JIGAR MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE SHRI R C SHARMA , ACCOUNTANT MEMBER & SHRI RAVISH SOOD , J UDICIAL M EMBER IT A NO. 1309 / MUM/ 20 1 5 ASSESSMENT YEAR : 20 1 0 - 11 PROZONE ENTERPRISES P. LTD., 105/106, PROVOGUE HOUSE, OFF NEW LINK ROAD, ANDHERI (W) MUMBAI 400 053 PAN AADCP6816D VS. ACIT CENT. CIR 13, MUMBAI ( APPELLANT ) (RESPONDENT) APPELLANT BY : S HRI JIGAR MEHTA RESPONDENT BY : MS. AMRITA RANJAN DATE OF HEARING : 0 4 . 12 .2017 DATE OF PRONOUNCEMENT : 22 . 1 2 .2017 O R D E R PER R C SHARMA, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 4 8 , MUMBAI , DATED 2 9 . 1 2 . 201 4 , FOR A.Y.20 1 0 - 11 , IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S. 1 53A OF THE IT ACT. 2. THE GROUNDS RAISED BY THE ASSESSEE REVOLVE AROUND DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A READ WITH RULE 8D OF THE INCOME TAX ACT. 3. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CREDITED AN AMOUNT OF . 2,47,98,543/ - WHICH WAS CLAIMED AS EXEMPT U/S. 10 OF THE I.T.ACT. IN THE COMPUTATION OF TOTAL INCOME FOR THE YEAR, THE ASSESSEE HAD SUO - MOTO MADE DISALLOWANCE OF TWO LACS. THE ASSESSING OFFICER CALLED UPON ITA NO . 1 3 09 /MUM/201 5 PROZONE ENTERPRISES PVT LTD. 2 THE ASSESSEE TO FURNISH DETAILS OF THE WORKING F OR DISALLOWANCE AND THE JUSTIFICATION THEREOF. THE ASSESSEE SUBMITTED THAT IT HAD MADE TWO KINDS OF INVESTMENTS. THE FIRST WAS STRATEGIC INVESTMENT IN SPECIFIC OTHER COMPANIES. THE SECOND WAS IN RESPECT OF SURPLUS FUNDS INVESTED IN MUTUAL FUNDS. AS REG ARDS, THE FIRST CATEGORY OF INVESTMENT, IT WAS EXPLAINED THAT THE STRATEGIC INVESTMENT WAS FOR BUSINESS PURPOSE AND THEREFORE NOT WITH THE INTENTION TO EARN EXEMPT INCOME IN THE FORM OF DIVIDEND INCOME. THEREFORE, PROVISIONS OF 14A ARE NOT APPLICABLE. FU RTHER MAJORITY OF INVESTMENTS OF ASSESSEE WAS WITH ITS FOREIGN SUBSIDIARY COMPANY IN SINGAPORE. THE DIVIDEND INCOME FROM THIS INVESTMENT IS NOT EXEMPT FROM TAX. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION. ACCORDING TO HIM THE COMPANY CANNOT EARN DIVIDEND WITHOUT EXISTENCE OF MANAGEMENT. INVESTMENTS DECISIONS ARE COMPLEX IN NATURE AND REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY - TO - DAY ANALYSIS OF MARKET TRENDS, ETC. IT IS, THEREFORE, NOT CORRECT TO SAY THAT DIVIDEND INCOME CAN BE EARNED WITHOUT INCURRING SUBSTANTIAL EXPENDITURE. THE TERM EXPENDITURE TAKES INTO ACCOUNT NOT ONLY DIRECT EXPENDITURE BUT ALSO SEVERAL FORMS OF INDIRECT EXPENDITURE. HE, THEREFORE, APPLIED RULE 8D ALONG WITH SECTION 14A AND COMPUTED THE DISALLOWANCE AT . 15, 33,564/ - . AGGRIEVED THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, WHO ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO . 1 3 09 /MUM/201 5 PROZONE ENTERPRISES PVT LTD. 3 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MA TERIAL AVAILABLE ON RECORD ALONG WITH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE UNDER CONSIDERATION IS NO MORE RES INTEGRA, IN VIEW OF THE FOLLOWING JUDICIAL PRONOUNCEMENT TO THE EFFECT THAT STRATEGIC INVESTMENTS SHOULD NOT BE TAKEN INTO ACCOUNT WHIL E COMPUTING DISALLOWANCE UNDER RULE 8D. SR NO. NAME OF THE CASE CITATION 1 CREATIVE GLOBAL STOCK BROKERS P. LTD V. DCIT ITA NO.3977/M/2016 2 JM FINANCIAL LIMITED VS. DCIT ITA NO. 7020 & 7021 /M/2014 3 JM FINANCIAL LIMITED VS. DCIT ITA NO. 92/M/2012 4 PROVOQUE (INDIA) LTD V. DCIT ITA NO.2155/M/2013 5 ACIT V. TOPS SECURITY LTD ITA NO.6777 & 7151/M/2011 6 HARENDRA D. SHAH V. ACIT ITA NO. 4367/M 2014 7 DCIT V. MAN INFRAPROJECTS P.LTD ITA NO.5654/M/2014 8 AHA HOLDINOS PRIVATE LTD ITA NO. 8395/M/2011 9 DCIT VS. PREMIER FINANCE & TRADING CO. LTD ITA NO. 1655,2862/M/13 ,4416, 4216/M/14 10 ADITVA BIRLA NUVO LTD. ITA/8427 8483/M/2010 11 M/S KJMC FINANCIAL SERVICES LTD ITA NO.1818/M/2013 12 M/S APTECH LIMITED VS. DCIT ITA NO.946 AND 723/M/2013 13 GODREJ & BOYCE MFG. CO. LTD VS. ACIT ITA NO.8488, 8502/M/2011, 658,189 , 6670 , 5659/M/2013 14 ARCHWAY INVESTMENT COMPANY LTD V ITO ITA NO. 8461/M/2010 & 5598/M/2011 15 ADITYA BIRLA NUVO LTD., ITA/660,661&662/M/2009 16 ACIT VS. PROFICIENT REAL ESTAT 2009 - 10 ITA NO.6988/M/2014 18 EIH ASSOCIATED HOTELS VS. DCIT ITA NO. 1503/MAD/2012 ITA NO . 1 3 09 /MUM/201 5 PROZONE ENTERPRISES PVT LTD. 4 19 INTERGLOBE ENTERPRISES LTD VS. DCIT ITA NO. 1362& 1032/DEL/2013 20 JM FINANCIAL LIMITED VS. ACIT ITA NO. 4521/M/2012 21 CIT VS. ORIENTAL STRUCTURAL ENOINEERS PVT LTD ITA NO. 605 OF 2012 (DELHI HIQH COURT) 22 ACIT VS. ORIENTAL STRUCTURAL ENOINE ERS PVT LTD ITA NO. 4245/DEI/2011 23 GARWARE WALL ROPES LTD VS. ACIT ITA NO. 5408/M /2012 24 BINANI INDUSTRIES LTD ITA NO. 144/KOL /2013 25 BHUPLNDER INVERSTMENT CO - PVT, LTD V. DCIIT ITA NO. 6 326/M/ 2011 5. IN SUPPORT OF THE PROPOSITION THAT NO DISALLOWANCE U/S.14A IS WARRANTED IN RESPECT OF INVESTMENT WHICH YIELDED NO EXEMPT INCOME. RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. SR. NO. NAME OF THE CASE CITATION 1 INTEGRATED COAL MINING LTD., 67 TAXMANN.COM 260 (KOL) 2 ACB INDIA LTD., 62 TAXMANN.COM 71 (DELHI HC) 3 REI AGRO LTD., 35 TAXMANN.COM 404 (KOL) 4 SARABHAI HOLDING PVT. LTD., ITA NO.2328/AHD/2012 6. IN THE INSTANT CASE, MAJORITY OF THE INVESTMENTS WAS STRATEGIC AND IN SUBSIDIARY COMPANIES IN SINGAPORE DIVIDEND INCOME FROM WHICH IS NOT EXEMPT . ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE STRATEGIC ITA NO . 1 3 09 /MUM/201 5 PROZONE ENTERPRISES PVT LTD. 5 INVESTMENT S MADE BY THE ASSESSEE IN SUBSID IARY COMPANY AND IN FOREIGN COMPANIES DIVIDEND INCOME FROM WHICH ARE NOT EXEMPT FROM TAX WHILE COMPUTING DISALLOWANCES UNDER RULE 8D. WE DIRECT ACCORDINGLY. 7 . IN THE RESULT, THE APPEAL IS ALLOWED IN PART FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND D AY OF DECEMB ER , 2017 . SD/ - SD/ - ( RAVISH SOOD ) ( R C SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 22 ND DECEMB ER , 2017 SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI 4. THE CIT 5. DR, A BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR I NCOME T AX A PPELLATE T RIBUNAL , MUMBAI