ACIT, Bangalore V. M/s. Jupiter Capital Pvt. Ltd., Bangalore

ITA 1345/BANG/2010

• Counselvise Citation: 134521114 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 01-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Rule 8D; Set aside
• Section: 143(3); 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE RESIDENT AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO.1345 /BANG/2010 (ASST. YEAR -2006-07) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-11(5), BANGALORE. . APPELLANT VS. M/S JUPITER CAPITAL PVT. LTD., NO.54, RICHMOND ROAD, BANGALORE-560 025. . RESPONDENT PAN AABCJ 5666R. ITA NO.1361 /BANG/2010 (BY ASSESSEE) REVENUE BY : NONE ASSESSEE BY : SHRI C RAMESH, C.A DATE OF HEARING : 02-05-2012 DATE OF PRONOUNCEMENT : 04-05-2012 O R D E R PER BENCH : BOTH THESE APPEALS ARE CROSS-APPEALS FILED BY T HE REVENUE AS WELL AS THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2006- 07. THE APPEALS ARE ITA NOS.1345 & 1361/B/10 2 DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- I AT BANGALORE DATED 30.08.2010. THE AP PEALS ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME-T AX ACT, 1961 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WHICH IS ENGAGED IN THE BUSINESS OF INVESTMENTS, FILED IT S RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 20.11.2006, DECL ARING A TOTAL INCOME OF RS.9,22,72,908/-. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), THE AO OBSERVED THAT THE ASSESSEE COMPANY H AD CLAIMED EXPENSES IN THE NATURE OF BAD DEBTS WRITTEN OFF OF RS.25 LAKHS. THE DETAILS OF THE CLAIM WERE CALLED FOR AND THE ASSESS EE VIDE ITS REPLY DATED 20.11.2008 SUBMITTED THAT THIS PERTAINS TO RE CEIVABLE FROM M/S BPL COMMUNICATIONS LTD., WHICH COMPANY REFUTED THE SAME AND IS IN WINDING UP PROCESSS AND THAT AS THIS IS NOT A PROV ISION BUT WRITE OFF AS APPROVED BY THE BOARD, IT SHOULD BE ALLOWED. THE A SSESSING OFFICER OBSERVED THAT FOR ALLOWING THE CLAIM OF WRITE OFF OF BAD DEBTS, THIS AMOUNT SHOULD HAVE BEEN OFFERED AS INCOME IN THE EA RLIER YEARS. THE ASSESSEES EXPLANATION WAS CALLED FOR AND THE ASSE SSEE VIDE LETTER DATED 300.12.2008 SUBMITTED THAT PROVISIONS PROVIDE S NOT ONLY FOR SUCH TRANSACTIONS WHICH CONTRIBUTED TO INCOME DURIN G ANY OF THE EARLIER PREVIOUS YEARS BUT ALSO TRANSACTIONS WHICH ARE IN THE NATURE OF ITA NOS.1345 & 1361/B/10 3 MONIES LENT AND, THEREFORE, THE CLAIM OF BAD DEBTS IS TO BE ALLOWED AS ASSESSEES INCOME IS FROM THE ACTIVITIES OF INVESTM ENTS AND THE AMOUNTS ADVANCED HAVE BEEN CLAIMED AS BAD DEBTS AFT ER MAKING NECESSARY ENTRIES IN ITS BOOKS OF ACCOUNTS. THE AS SESSING OFFICER OBSERVED THAT THE ADVANCES WERE FOR THE PURPOSES OF INVESTMENT AND, THEREFORE, IT CANNOT BE ALLOWED AS EXPENDITURE U/S 37 OF THE ACT. HE ACCORDINGLY ADDED THIS AMOUNT OF RS.25 LAKHS BACK T O THE INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), WHO DELETED THE SAME BY FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT REPOR TED IN 323 ITR 397. 4. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING, THE LEARNED DR WAS NOT P RESENT AND IT WAS SUBMITTED BY THE ACIT, DR THAT THE LEARNED CIT, DR IS ON HIS LEGS BEFORE THE OTHER BENCH ARGUING THE MATTER. TAK ING NOTE OF THE FACT THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S TRF LT D. (CITED ITA NOS.1345 & 1361/B/10 4 SUPRA), WE HAVE TAKEN THIS CASE AS HEARD AND PROCEE D TO ADJUDICATE AS UNDER: 6. THE ASSESSEE HAD STATED BEFORE THE CIT(A) THAT T HE ASSESSEE COMPANY WAS ALSO IN THE BUSINESS OF NON-BANKING FIN ANCIAL INSTITUTION AND THE ADVANCES MADE TO M/S BPL COMMUNICATION LT D., ARE DURING THE COURSE OF THE BUSINESS ACTIVITY OF THE ASSESSEE . THE CIT(A) HAS TAKEN INTO CONSIDERATION ALL THESE FACTS AND ALSO T HAT THEY HAVE BEEN RECORDED AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS AND WERE ALLOWED AS DEDUCTION U/S 36(I)(VII) OF THE ACT AND THUS FO LLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S TRF LT D. (CITE SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. HAVING GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD, WE OBSERVE THAT FOR ALLOWING THE CLAIM OF DEDUCTION U/ S 36(1)(VII) OF THE ACT, THE PRE CONDITIONS U/S 36(2) OF THE INCOME-TAX ACT ARE I) THE AMOUNT SHOULD HAVE BEEN OFFERED AS INCOME IN THE EARLIER YEARS; OR II) THE MONEY LENT SHOULD HAVE BEEN IN THE COURSE O F THE BUSINESS ACTIVITY OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. ITA NOS.1345 & 1361/B/10 5 WE FIND THAT THE MONEY LENT TO M/S BPL COMMUNICATIO N LTD. WAS FROM THE MONEY LENDING BUSINESS OF THE ASSESSEE . WE FIND THAT THE CIT(A) AFTER CONSIDERING THE ABOVE CONTENTIONS OF THE ASSESSEE HAS FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S TRF LTD. (CITED SUPRA) ON THIS ISSUE. THEREFORE , ACCORDING TO US, IT NEEDS NO INTERFERENCE. THIS GROUND IS ACCORDINGLY REJECTED. 8. FURTHER DURING THE ASSESSMENT PROCEEDINGS U/S 14 3(3) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESS EES INCOME CONSISTS OF TAXABLE INCOME IN THE NATURE OF INTERE ST INCOME AND ALSO NON-TAXABLE INCOME IN THE NATURE OF DIVIDEND IN COME. HE ALSO OBSERVED THAT NO EXPENDITURE WAS DISALLOWED U/S 14A OF THE ACT AS INCURRED FOR EARNING OF THE EXEMPT INCOME. THE EXP LANATION OF THE ASSESSEE WAS CALLED FOR THE NON-DISALLOWANCE U/S 14 A OF THE ACT. THE ASSESSEE VIDE LETTER DATED 30.12.2008 FURNISHED ITS REPLY STATING THAT MAJOR PORTION OF THE INCOME WAS FROM PORTFOLIO MANA GEMENT AND THAT THE DIVIDEND INCOME EARNED IS INCIDENTAL TO CARRYI NG ON THE BUSINESS OF PORTFOLIO MANAGEMENT AND, THEREFORE, NO EXPENDIT URE INCURRED IS ATTRIBUTABLE TO THE INCOME EARNED AS DIVIDENDS AND EXEMPT UNDER THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER WAS H OWEVER NOT CONVINCED WITH SAID EXPLANATION OF THE ASSESSEE AND BY FOLLOWING THE ITA NOS.1345 & 1361/B/10 6 DECISION OF THE SPECIAL BENCH OF TRIBUNAL AT MUMB AI IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. REPORTED IN 119 TTJ 189, HAS UPHELD THE ISSUE AGAINST THE ASSESSEE. 9. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHO AFTER CONSIDERING THE PROVISION OF SEC. 14A OF THE ACT READ WITH SEC. 8D OF THE INCOME-TAX RULES HELD THAT THE AMEND MENTS ARE ONLY CLARIFICATORY IN NATURE, ELABORATING AND EXPLAINING THE CIRCUMSTANCES UNDER WHICH THE PROVISIONS OF SEC. 14A(1) CAN BE AP PLIED AND WHAT SHOULD BE THE QUANTUM OF SUCH DISALLOWANCE. HE REL IED UPON THE DECISION IN THE CASE OF ALLIED MOTORS PVT. LTD. VS CIT REPORTED IN 224 ITR 677 FOR HOLDING THAT SUCH AN AMENDMENT HAS VIRT UALLY RETROSPECTIVE EFFECT. TO THIS EXTENT, HE CONFIRMED THE ORDER OF THE AO. HE THEREAFTER PROCEEDED TO CONSIDER AS TO WHETHER T HE INCOME EARNED IS REALLY EXEMPT INCOME SO AS TO ENABLE THE AO TO D ISALLOW QUANTIFIED EXPENDITURE THERETO. HE OBSERVED THAT THE ASSESSEE HAS TAKEN LOAN OF RS.32 CRORES FROM ING VYSYA BANK AND INVESTED IN PU RCHASE OF SHARES OF HIPE, A PVT. LTD. COMPANY STATED TO BE A SUBSIDIARY OF THE ASSESSEE COMPANY BUT HIPE KEPT THIS MONEY WITH THE ASSESSEE AS INTER CORPORATE DEPOSIT WHICH WAS UTILIZED BY THE ASSESSE E TO REPAY THE LOAN TO PAY ING VYSYA BANK AND ALL THIS WAS DONE ON THE SAME DAY I.E ITA NOS.1345 & 1361/B/10 7 3.3.2006. HE OBSERVED THAT THE ASSESSEE PAID RS.16, 49,324/- TO HIPE ON THE INTER CORPORATE DEPOSIT AS INTEREST. HE HEL D THAT THE EXPENDITURE OF INTEREST IS NOT RELATED TO PAYMENT OF INTEREST O F BORROWED FUNDS OF RS.32 CRORES FROM ING VYSYA BANK AND IT IS ACTUALLY SPENT ON PAYMENT OF INTEREST ON INTER CORPORATE DEPOSIT KEPT BY HIPE. HE, THEREFORE, HELD THAT THE ADDITION DESERVES TO BE DE LETED. HOWEVER, AS REGARDS THE ASSESSEES CONTENTION THAT INCOME DERIV ED FROM DIVIDEND IS NOT AN EXEMPT INCOME BECAUSE TAX IS PAID BY THE COM PANY WHICH DECLARES THE DIVIDEND, ACCORDING TO THE CIT(A), TH E ASSESSEE IS THE RECIPIENT OF DIVIDEND IN WHOSE HANDS THE DIVIDEND I S NOT TAXABLE AND, THEREFORE, DISALLOWANCE U/S 14A IS CALLED FOR. HOWE VER HE DELETED THE ADDITION TO THE EXTENT OF RS.16,42,324/- ON THE GRO UND THAT THE EXPENDITURE INCURRED ON PAYMENT IS NOT DIRECTLY REL ATED TO BORROWED FUNDS INVESTED IN PURCHASE OF SHARES. HE ACCORDING LY ALLOWED THE RELIEF OF RS.16,42,324/- AND CONFIRMED THE BALANCE ADDITION. 10. AGAINST THE FINDINGS OF THE CIT(A) THAT THE AO IS NOT REQUIRED TO RECORD ANY SATISFACTION THAT THE CLAIM MADE BY T HE ASSESSEE IS INCORRECT BEFORE INVOKING THE PROVISION OF SEC. 14A OF THE ACT AND AGAINST CONFIRMING THE ADDITION OF RS.51,63,855/- B Y INVOKING SEC. 14A OF THE ACT READ WITH RULE 8D OF THE RULES, THE ASSESSEE IS IN ITA NOS.1345 & 1361/B/10 8 APPEAL BEFORE US AND AGAINST THE RELIEF GIVEN BY T HE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 11. AS THE LEARNED DR WAS ON HIS LEGS ARGUING BEFOR E THE OTHER BENCH, TAKING NOTE OF THE FACT THAT THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. REPORTED IN 328 ITR 81, WE HAVE HEARD THE MATTER AND PROCEED TO DECIDE THE ISSUE AS UNDER : 12. WE FIND THAT THE DECISION OF THE SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF DAGA CAPITAL (CITED SUPRA) HA S BEEN CONSIDERED AND OVERRULED BY THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (CITED SUPRA). IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO SET ASIDE THE IS SUE TO THE FILE OF THE ASSESSING AUTHORITY TO RECONSIDER THE ISSUE IN ACCO RDANCE WITH THE GUIDE LINES LAID DOWN BY THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (CITED SUPRA ). 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE S. ITA NOS.1345 & 1361/B/10 9 ORDER PRONOUNCED IN THE OPEN COURT ON 4TH MAY, 2012. SD/- SD/- (N BARATHVAJA SANKAR) (P MADHAVI DEVI) VICE PRESIDENT JUDICIAL MEMBER VMS. BANGALORE DATED : 04/05/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.