CRYSTALINE EXPORTS PRIVATE LTD, MUMBAI V. INCOME TAX OFFICER 3(1)(3), MUMBAI

ITA 1377/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9889 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 06-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKIYEN
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1377/MUM/2018 ASSESSMENT YEAR: 2012 - 13 M/S CRYSTALINE EXPORTS PVT. LTD. C/O. KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192 DR. D.N. ROAD, MUMBAI - 400001 VS. INCOME TAX OFFICER, 3(1)(3), ROOM NO. 666, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AAACC1527F APPELLANT RESPONDENT ASSESSEE BY : MR. SUNIL HIRAWAT, AR REVENUE BY : MR. ABI RAMA KARTIKIYEN, SR. DR DATE OF HEARING : 27/03/2019 DATE OF PRONOUNCEMENT : 28/03/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 8, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. ON THE FACTS AND IN LAW, THE LD. CIT(A) HAD ERRED IN CONFIRMING THE ADDITION OF RS.1,36,864/ - TO THE INCOME COMPUTED U/S 115JB BEING THE AMOUNT ARRIVED AT BY THE AO AS PER RULE 8D R.W.S 14A OF THE ACT. 2. ON THE FACTS AND IN LAW, THE LD. CIT(A) HAD FAILED TO APPRECIATE THAT INVESTMENT ON WHICH EXEMPT INCOME WAS RECEIVED ARE REQUIRED TO BE M/S CRYSTALINE EXPORTS ITA NO. 1377/MUM/2018 2 EXCLUDED FOR DISALLOWANCE U/S 14A R.W.S. 8D. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE RESTRICTE D THE DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) AT RS.51,638/ - . 3. ON THE FACTS AND IN LAW, HAD ERRED IN CONFIRMING THE DISALLOWANCE OF RS.26,528/ - UNDER RULE 8D(2)(II) R.W.S. 14A WITHOUT APPRECIATING THE FACTS THAT OWN FUNDS ARE MUCH MORE THAN THE INVESTMENT IN ASSETS, THE INCOME OF WHICH IS EXEMPT FROM TAX. 3 . IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2012 - 13 ON 25.09.2012 DECLARING TOTAL INCOME AT RS. NIL. IN THE ASSESSMENT COMPLETED U/S 143 (3) OF THE ACT, THE ASSESSING OFFICER (AO) MADE AN ADDITION OF RS.1,36,864/ - U/S 14A OF THE ACT. 4. IN APPEAL, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE AO SHOULD NOT HAVE MADE A DISALLOWANCE OF RS.1,36,864/ - WHICH IS ABOVE THE SUO MOTU DISALL OWANCE OF RS.95,159/ - MADE BY THE APPELLANT. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE ITSELF HAD FILED THE REVISED WORKING OF DISALLOWANCE OF RS.1,36,864/ - INSTEAD OF RS.95,159/ - . KEEPING THE ABOVE FACT IN MIND, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE O F RS.1,36,864/ - MADE BY THE AO U/S 14A OF THE ACT. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT NO DISALLOWANCE SHOULD BE MADE U/S 14A R.W. RULE 8D TO THE INCOME COMPUTED U/S 115JB IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT V. VIREET INVESTMENT PVT. LTD . IN ITA NO. 502/DEL/2012 FOR AY 2008 - 09. ALSO IT IS ARGUED THAT DISALLOWANCE U/S 14A R.W. RULE 8D SHOULD BE RESTRICTED TO THE INVESTMENTS ON WHICH EXEMPT INCOME IS RECEIVED. IN THIS REGARD RELIANCE IS PLACED BY HIM ON THE DECISION IN VIREET INVESTMENT PVT. LTD. (SUPRA). M/S CRYSTALINE EXPORTS ITA NO. 1377/MUM/2018 3 FURTHER, RELYING ON THE DECISION IN CIT V. RELIANCE UTILITIES LTD . 313 ITR 340 (BOM), CIT V. HDFC BANK LTD . 366 ITR 505 (BOM), THE LD. COUNSEL SUBMITS THAT IN A CASE WHEREIN THE OWN FUND IS MORE THAN THE INVESTMENT, THE DISALLOWANCE OF INTEREST U/S 14A R.W. RULE 8D IS UNWARRANTED. 6. ON THE OTHER HAND, THE LD. DR SUBMITS THAT AS THE ASSESSEE HAS ITSELF REVISED THE WORKING OF DISALLOWANCE U/S 14A TO RS.1,36,864/ - , THE LD. CIT(A) HAS RIGHTLY CONFIRMED T HE ORDER OF THE AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. THE 1 ST & 2 ND GROUNDS OF APPEAL IN VIREET INVESTMENT PVT. LTD . (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT (I) COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D AND (II) O NLY THOSE INVESTM ENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING YEAR . FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL AND ALLOW THE 1 ST & 2 ND GROUND OF APPEAL. THE 3 RD GROUND OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), THE ASSESSEE HAD FILED A WRITTEN SUBMISSION DATED 04.12.2017 WHICH HAS BEEN EXTRACTED AT PAGE 3 - 13 OF THE IMPUGNED ORDER DATED 11.12.2017. AT PAGE 11 OF THE SAID ORDER, WE COME ACROSS THE FACT THAT THE SHARE CAPITAL, RESERVE AND SURPLUS OF THE ASSESSEE STAND AT M/S CRYSTALINE EXPORTS ITA NO. 1377/MUM/2018 4 RS.21,95,84,996/ - AS ON 31.03.2012 WHEREAS THE TOTAL INVESTMENT AS PER THE BALANCE SHEET AS ON 31.03.2012 WERE RS.7,45,89,012/ - . IN THE CASE OF RELIANCE UTILITIES & POWER LTD . (SUPRA), IT HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. FURTHER, IT IS HELD IN HDFC BANK LTD. (SUPRA) THAT THE ABOVE RATIO WOULD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE ACT. IN VIEW OF THE A BOVE DECISIONS OF THE HONBLE BOMBAY HIGH COURT, WE ALLOW THE 3 RD GROUND OF APPEAL. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/03/2019. SD/ - SD/ - ( RAVISH SOOD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28/03/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI