Multimode Enterprises Pvt. Ltd., Baroda V. The ACIT, Circle-4, Baroda

ITA 162/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9271 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 17-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RICHA RASTOGI
• Assessee Lawyers: T P HEMANI
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC/I BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.162/AHD/2014 (ASSESSMENT YEAR:2010-11) MULTIMODE ENTERPRISE PVT. LTD. 203, AKASHGANGA, NR. VANIJYA BHAVAN, RACE COURSE CIRCLE, VADODARA 390007 APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA RESP ONDENT PAN: AABCM2496E /BY ASSESSEE : SHRI T. P. HEMANI, A.R. /BY REVENUE : MS. RICHA RASTOGI, SR. D.R. /DATE OF HEARING : 02.02.2017 /DATE OF PRONOUNCEMENT : 08.02.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE CIT(A)-III, BARODAS ORDER DATED 11.11.2013, PASSED IN APPEAL NO. CAB/III- 283/2012-13, AFFIRMING ASSESSING OFFICERS ACTION M AKING SECTION 14A R.W. RULE 8D DISALLOWANCE OF RS.15,61,076/- AS RELATING TO ITS EXEMPT INCOME, IN ITA NO. 162/AHD/2014 (MULTIMODE ENTERPRISE PVT. LTD . VS. ACIT) A.Y. 2010-11 - 2 - PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT.. 2. WE COME TO RELEVANT FACTS NOW. THE ASSESSEE/A C OMPANY PROVIDES CONSULTANCY SERVICES IN FINANCE, LAW AND TAXATION, INFORMATION TECHNOLOGY, PROJECT PLANNING AND IMPLEMENTATION. IT IS FURTHER STATED TO BE PROVIDING EQUIPMENTS AND OFFICE PREMISES ON HIRING BASIS. TH E ASSESSING OFFICER NOTICED IT TO HAVE RECEIVED EXEMPT DIVIDEND INCOME OF RS.58,98,820/- AS CREDITED IN THE PROFIT & LOSS ACCOUNT. THE ASSESSE E HAD ITSELF DISALLOWED A SUM OF RS.5,876/- SUO MOTU. THE ASSESSING OFFICER SOUGHT TO INVOKE RULE 8D OF THE INCOME TAX RULES. THE ASSESSEES REPLY F ILED ON 28.01.2013 STATED THE FOLLOWING INVESTMENTS AS NOT TO HAVE YIELDED AN Y EXEMPT INCOME:- DESCRIPTION OF INVESTMENTS AMT. (RS.) REASON FOR EX CLUSION 12% NON CUMULATIVE REDEEMABLE PREF. SHARES OF BEST VALUE CHEM PVT. LTD. 1,00,00,000/- NO DIVIDEND INCOME RECEIVED SINCE THE DAY OF FIRST INVESTMENTS EQUITY SHARES OF ZEST FLAVOURING SYSTEMS PVT. LTD. 20,000/- NO DIVIDEND INCOME RECEIVED. EQUITY SHARES OF AMITY SOFT TECHNOLOGIES PVT. LTD. 10,42,970/- NO DIVIDEND INCOME RECEIVED. 12% PREF. SHARES OF AMITY SOFT TECHNOLOGIES PVT. LTD. 10,00,000/- NO DIVIDEND INCOME RECEIVED. EQUITY SHARES OF HARA ESTATES AND CAPITAL PVT. LTD. 100/- NO DIVIDEND INCOME RECEIVED EQUITY SHARES OF KALAAMB AROMATIC & NATURAL PRODUCTS PVT. LTD. 90/- NO DIVIDEND INCOME RECEIVED SHARE OF SUMER VILLE CO- OPERATIVE SOCIETY LTD. 250/- CO-OP SOCIETY SHARES, INCOME RECEIVED, IF ANY WILL BE TAXABLE INCOME. 0% FULLY CONVERTIBLE DEBENTURES OF BEST VALUE CHEM PVT. LTD. 2,78,00,000/- INCOME IN THE NATURE OF INTEREST, IF ANY, RECEIVED WILL BE TAXABLE. TOTAL 3,98,63,410/- 3. THE ASSESSEE FURTHER PLEADED THAT THE BALANCE AM OUNT OF INVESTMENTS OF RS.1,20,63,160/- OVER AND ABOVE THE ABOVE STATED FI GURE OF RS.2,78,00,250/- INVESTED IN SHARES/DEBENTURES DID NOT RESULT IN ANY EXEMPT INCOME IN THE ITA NO. 162/AHD/2014 (MULTIMODE ENTERPRISE PVT. LTD . VS. ACIT) A.Y. 2010-11 - 3 - IMPUGNED ASSESSMENT YEAR. ITS FURTHER CASE WAS THA T ITS ABOVE STATED EXEMPT INCOME HAD IN FACT BEING EARNED FROM INVESTMENTS OF RS.1,49,970/- ONLY. THE ASSESSING OFFICER HOWEVER INVOKED RULE 8D (2)(II & III) TO DISALLOW PROPORTIONATE INTEREST EXPENSES OF RS.13,66,885/- A ND RS.2,00,067/- THEREUNDER TO ARRIVE AT THE GROSS DISALLOWANCE FIGU RE OF RS.15,66,952/- WHICH WAS ADJUSTED AGAINST THE SUO MOTU DISALLOWANCE FIGU RE OF RS.5876/- ; NET AMOUNT COMING TO RS.15,61,076/- IN QUESTION. THE C IT(A) AFFIRMS THE SAME AFTER REJECTING ASSESSEES CONTENTION CHALLENGING R ULE 8D APPLICATION SINCE NO EXEMPT INCOME HAD ARISEN FROM THE ABOVE STATED TAX FREE INVESTMENTS. 4. WE HAVE HEARD BOTH THE PARTIES STRONGLY REITERAT ING THEIR RESPECTIVE STANDS. CASE FILE PERUSED. SHRI HEMANI VEHEMENTLY ARGUES THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN COMPUTING THE IMPUG NED RULE 8D DISALLOWANCE AFTER TAKING INTO ACCOUNT THE ABOVE EX TRACTED INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME. THE REVENUE FA ILS TO REBUT THIS FACTUAL POSITION. ITS SOLE ARGUMENT HOWEVER IS THAT THIS T RIBUNALS SPECIAL BENCH DECISION IN CHEMI INVEST 121 ITD 318 (DELHI SB) HAS UPHELD IDENTICAL DISALLOWANCE EVEN IN ABSENCE OF EXEMPT INCOME. WE FIND THAT MUCH WATER HAS FLOWN SINCE THE ABOVE STATED SPECIAL BENCH DECI SION. HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. CORRTECH ENERG Y PVT. LTD. (2015) 372 ITR 97 VERY CATEGORICALLY HOLDS THAT SECTION 14A(1) POSTULATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY AN ASSESSEE UNDER CHAPTER IV OF THE ACT IN RELATION TO EXEMPT I NCOME NOT FORMING PART OF THE TOTAL INCOME. THEIR LORDSHIPS HOLD IN OTHER WO RDS THAT SECTION 14A DISALLOWANCE IS ATTRACTED ONLY IN RELATION TO EXEMP T INCOME. WE KEEP IN MIND THIS LEGAL BACKDROP AND ADVERT TO FACTS OF THE INSTANT CASE. IT HAS ALREADY COME ON RECORD THAT THE ASSESSEES ABOVE EXTRACTED INVESTMENTS HAVE NOT YIELDED ANY EXEMPT INCOME SO AS TO BE INCLUDED FOR THE PURPOSE OF INVOKING SECTION 14A R.W.RULE 8D DISALLOWANCE. WE ACCORDING LY DIRECT THE ASSESSING ITA NO. 162/AHD/2014 (MULTIMODE ENTERPRISE PVT. LTD . VS. ACIT) A.Y. 2010-11 - 4 - OFFICER TO RE-COMPUTE THE IMPUGNED DISALLOWANCE AFR ESH QUA ASSESSEES INVESTMENTS YIELDING EXEMPT INCOME ONLY. THE ASSES SEES SOLE SUBSTANTIVE GROUND IS PARTLY ACCEPTED. 5. THE ASSESSEE PARTLY SUCCEEDS IN ITS INSTANT APPE AL. [PRONOUNCED IN THE OPEN COURT ON THIS THE 8 TH DAY OF FEBRUARY, 2017.] SD/- SD/- ( AMARJIT SINGH ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 08/02/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 4 / GUARD FILE. BY ORDER / . // . /0