SEA LINKERS PVT. LTD., MUMBAI V. ACIT ,7(2), MUMBAI

ITA 1583/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0974 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 17-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DR A K NAYAK
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGA RWAL, AM ITA NO. 1583/MUM/2015 ASSESSMENT YEAR 2009-10 SEA LINKERS PVT. LTD. B P T PLOT NO.107, QUAY STREET, DARUKHANA, MUMBAI 400 010 PAN AAHCS5084N VS. ACIT 7(2) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : DR. A K NAYAK DATE OF HEARING : 2 4 .0 4 .2017 DATE OF PRONOUNCEMENT : 03 .0 5 .2017 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 27.01.2015 OF LEARNED CIT(A)-14, MUMBAI, FOR A.Y. 2009-10. 2. THE ONLY ISSUE ARISING FOR CONSIDERATION IN THIS APPEAL IS DISALLOWANCE OF ` .8,20,131/- MADE BY THE AO U/S. 14A OF THE ACT AND SUSTAINED BY THE CIT(A). 3. BRIEFLY STATED, THE ASSESSEE, A COMPANY, IS ENGA GED IN MANUFACTURE AND TRADING IN WIRE ROPES, CHAIN PULLEY BLOCK, LIFT ING APPLIANCES, POLYPROPELE ROPES ETC. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT, IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS RECEIVED E XEMPT INCOME BY WAY OF ITA NO 1583/MUM//2015 SEA LINKERS PVT. LTD. 2 DIVIDEND AND LONG TERM CAPITAL GAIN AMOUNTING TO ` .10,48,889/- AND ` .4,95,250/- RESPECTIVELY, WHEREAS, IT HAS NOT DISA LLOWED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME, CALLED UPON THE A SSESSEE TO EXPLAIN WHY DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD NOT BE MADE. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT, SINCE IT WAS HA VING SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE THE INVESTMENT IN SHARES AND MUTUAL FUNDS, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE. IT WAS FURTHER SUBMITTED, SINCE THE ENTIRE INVESTMENT ACTIVITY WAS ROUTED THROUGH CITIBANK, WHO DO NOT CHARGE ANY FEES, THERE IS NO ADMINISTRAT IVE EXPENDITURE INCURRED BY THE ASSESSEE. THEREFORE, NO DISALLOWANCE U/S. 1 4A READ WITH RULE 8D SHOULD BE MADE. THE AO HOWEVER, DID NOT FIND ANY M ERIT IN THE SUBMISSIONS OF THE ASSESSEE. THE AO OBSERVED THAT AS PER THE D ECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING CO. LTD. 328 ITR 81, DISALLOWANCE U/S. 14A HAS TO BE MADE BY APP LYING RULE 8D. HE FURTHER OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABL E TO PROVE THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR MAKING INVESTME NTS. THE AO OBSERVED, SINCE THE ASSESSEE IS MAINTAINING A SUBSTANTIAL POR TFOLIO OF INVESTMENTS IN SHARES AND MUTUAL FUNDS AND IT HAS DEBITED ALL THE EXPENSES IN A COMMON POOL RELATING TO ITS BUSINESS, IT IS NOT POSSIBLE T O FIND OUT THE EXACT EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOM E. WITH THE AFORESAID OBSERVATION, THE AO PROCEEDED TO COMPUTE THE DISALL OWANCE AS PROVIDED ITA NO 1583/MUM//2015 SEA LINKERS PVT. LTD. 3 UNDER RULE 8D. ACCORDINGLY, HE DISALLOWANCE AN AMO UNT OF ` .7,21,303 TOWARDS INTEREST EXPENDITURE UNDER RULE 8D(2)(II) A ND ` .98,828/- TOWARDS ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III). THUS, THE TOTAL DISALLOWANCE MADE BY THE AO U/S. 14A READ WITH RULE 8D AMOUNTED TO ` .8,20,131/-. THOUGH THE ASSESSEE CHALLENGED THE DISALLOWANCE BEF ORE THE FIRST APPELLATE AUTHORITY HE ALSO CONFIRMED THE DISALLOWANCE MADE. 4. THE LEARNED AR REITERATING THE STAND TAKEN BEFOR E THE FIRST APPELLATE AUTHORITY SUBMITTED THAT, DURING THE RELEVANT PREVI OUS YEAR, THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABLE WITH IT TO MAKE INVESTMENT IN EXEMPT INCOME YIELDING ASSETS. IN THIS CONTEXT, THE LEARN ED AR DREW OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE AS AT 31.03.2009. THE LEARNED AR SUBMITTED, OUT OF THE TOTAL INVESTMENTS OF ` .2.49 CRORES IN SHARES AND MUTUAL FUNDS, FRESH INVESTMENTS MADE DURING THE PREVIOUS Y EAR WAS TO THE TUNE OF ` .1.54 CRORES. HE SUBMITTED AS AGAINST THE INVESTME NT MADE BY THE ASSESSEE IT HAD TOTAL INTEREST FREE FUND OF ` .10.32 CRORES. THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE. IN SUPPORT OF SU CH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) HDFC BANK LTD. VS. DCIT (2016) 383 ITR 529 (BOM) AS FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPENDITUR E IS CONCERNED, THE LEARNED AR RELIED UPON THE SUBMISSIONS MADE BEFORE THE FIRS T APPELLATE AUTHORITY TO ITA NO 1583/MUM//2015 SEA LINKERS PVT. LTD. 4 CONTEND THAT SINCE THE ENTIRE INVESTMENT ACTIVITY I S ROUTED THROUGH CITIBANK, WHICH DOES NOT CHARGE ANY FEES FOR SUCH ACTIVITY, T HERE IS NO ADMINISTRATIVE EXPENDITURE ON ACCOUNT OF INVESTMENT ACTIVITY CARRI ED OUT BY THE ASSESSEE. THEREFORE, NO DISALLOWANCE OF ADMINISTRATIVE EXPEND ITURE CAN BE MADE. 5. THE LEARNED DR RELYING UPON THE OBSERVATIONS OF THE CIT(A) AND THE AO SUBMITTED THAT THE ASSESSEE HAVING FAILED TO DEMONS TRATE BEFORE THE DEPARTMENTAL AUTHORITIES THAT THE INVESTMENT IN SHA RES AND MUTUAL FUNDS WERE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, IT CANNOT BE ACCEPTED THAT INTEREST BEARING FUNDS WERE NOT UTILI ZED IN INVESTMENT ACTIVITIES. 6. THE LEARNED DR SUBMITTED AS FAR AS ADMINISTRATIV E EXPENDITURE IS CONCERNED, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE ON ACCOUNT OF INVESTMENT ACTIVITIES. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD, IN THE LIGHT OF THE DECISIONS RELIED UPON. AS FAR AS DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D( 2)(II) IS CONCERNED, IT IS NOTED BY US THAT AS PER THE BALANCE SHEET OF THE AS SESSEE AS AT 31.03.2009 IT HAD INTEREST FREE FUND BY WAY OF SHARE CAPITAL AND RESERVES & SURPLUS AMOUNTING TO ` .10,32,33,947/- AS AGAINST TOTAL INVESTMENTS OF ` .2,49,88,674/. THUS, AS COULD BE SEEN, INTEREST FREE FUND AVAILABL E WITH THE ASSESSEE IS FAR IN EXCESS OF THE INVESTMENTS MADE. IN FACT, THE CIT(A ) HIMSELF IN HIS ORDER HAS NOT DISPUTED THE AVAILABILITY OF SURPLUS INTEREST F REE FUNDS WITH THE ASSESSEE. ITA NO 1583/MUM//2015 SEA LINKERS PVT. LTD. 5 THE ONLY REASON FOR WHICH ASSESSEES CLAIM HAS BEEN REJECTED IS IT HAS FAILED TO ESTABLISH A NEXUS BETWEEN THE INTEREST FREE FUND AND THE INVESTMENT MADE. IN OUR VIEW, AS PER THE PRINCIPLE LAID DOWN IN THE DECISIONS REFERRED TO ABOVE, ONCE THE ASSESSEE IS HAVING SUFFICIENT INTEREST FRE E FUND AVAILABLE WITH HIM, THE PRESUMPTION COULD BE THE EXEMPT INCOME YIELDING INVESTMENTS WERE MADE OUT OF SUCH INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THUS, APPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE DECISIONS REFERRED TO ABOVE, DISALLOWANCE OF IN TEREST EXPENDITURE UNDER RULE 8D(2)(II) IS NOT SUSTAINABLE. ACCORDINGLY, WE DELETE THE SAME. 8. AS FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPENDI TURE UNDER RULE 8D(2)(III) IS CONCERNED, WE HAVE NOTICED THAT THE T OTAL INVESTMENTS MADE IN SHARES AND MUTUAL FUNDS AS APPEARING IN THE BALANCE SHEET AS ON 31.03.2009 STOOD AT ` .2,49,88,674/-. IT IS ALSO NOTICED, THE ASSESSEE H AS MADE INVESTMENT IN A NUMBER OF SHARES AND MUTUAL FUNDS A ND LOOKING AT THE VOLUME OF INVESTMENTS MADE BY THE ASSESSEE IN SHARE S AND MUTUAL FUNDS, IT IS LITTLE HARD TO BELIEVE THAT THE ASSESSEE IS NOT INCURRING ANY EXPENDITURE BY WAY OF SALARY COST, OFFICE RENT AND OTHER MISCELLAN EOUS EXPENDITURE ATTRIBUTABLE TO INVESTMENT ACTIVITIES. AT THE SAM E TIME, THE AO AS PER THE MANDATE OF SECTION 14(2) READ WITH RULE 8D(2)(I) HA S TO RECORD A SATISFACTION THAT THE CLAIM OF THE ASSESSEE IS INCORRECT, HAVING REGARD TO ITS BOOKS OF ACCOUNT. EVEN BEFORE THE CIT(A), THOUGH, THE ASSES SEE HAS MADE A SPECIFIC ITA NO 1583/MUM//2015 SEA LINKERS PVT. LTD. 6 SUBMISSION THAT EMPLOYEE OF THE BANK IS LOOKING AFT ER THE INVESTMENT ACTIVITIES AND THE ASSESSEE IS NOT BEARING ANY COST , HE HAS NOT GIVEN ANY FINDING ON THE ISSUE. THEREFORE, ON OVERALL CONSID ERATION OF FACTS AND MATERIALS ON RECORD, WE ARE INCLINED TO RESTORE THE ISSUE RELATING TO DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RU LE 8D(2)(III) TO THE FILE OF THE AO FOR FRESH ADJUDICATION, AFTER AFFORDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS RAISED ARE PARTLY ALLO WED. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DAY OF MAY 2017. SD/- SD/- (MANOJ KUMAR AGGARWAL) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI; DATED : 3 RD MAY, 2017 SA . ITA NO 1583/MUM//2015 SEA LINKERS PVT. LTD. 7 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, E BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI