DCIT CIR - 3(3), MUMBAI V. SAURASHTRA FUELS PVT. LTD., MUMBAI

ITA 1659/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1869 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 20-03-2015
• Court: TRIBUNAL
• Department Lawyers: BRIJMOHAN P AGARWAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER I.T.A. NO.1659/M/2015 (ASSESSMENT YEAR: 2011 - 2012) DCIT - CIRCLE 3(3), R.NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROA, MUMBAI 400 020. / VS. M/S. SAURASHTRA FUELS PVT LTD., 93C MITTAL TOWER, NARIMAN POINT, MUMBAI 400 021. ./ PAN : AAACS7271G ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI BRIJMOHAN P. AGARWAL / RESPONDENT BY : SHRI B.V. JHAVERI / DATE OF HEARING : 09.11.2016 / DATE OF PRONOUNCEMENT : 18 .11.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 20.3.2015 IS AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 12.12.2014 FOR THE ASSESSMENT YEAR 2011 - 2012. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) WAS JUSTIFIED IN DELETING PROPORTIONATE INTEREST OF RS. 1,62,69,769/ - OUT OF TOTAL DISALLOWANCE U/S 14A OF RS. 1,77,66,839/ - HOLDING THAT THE ASSESSEE HAS OWN INTEREST FREE FUNDS AV AILABLE MORE THAN THE INVESTMENT MADE IN TAX FREE SECURITIES WITHOUT APPRECIATING THE FACT THAT AS PER SECTION 14A OF THE ACT, THE RELATION HAS TO BE SEEN BETWEEN THE EXEMPT INCOME AND THE EXPENDITURE INCURRED IN RELATION TO IT AND NOT VICE VERSA. 2. WHETH ER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) WAS JUSTIFIED IN DELETING PROPORTIONATE INTEREST OF RS. 1,62,69,769/ - OUT OF TOTAL DISALLOWANCE U/S 14A OF RS. 1,77,66,839/ - RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD WITHOUT APPRECIATING THE FACT THAT THE DECISION IS IN THE CONTEXT OF DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT AND HAS NO DIRECT APPLICATION FOR A DISALLOWANCE U/S 14A. 2 . AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BRIEFLY NARRATED THE FACTS OF THE CASE AND MENTIONED THAT THE AO DISALLOWED A SUM OF RS. 1,77,66,839/ - U/S 14A READ WITH RULE 8D(2) OF THE IT RULES, 1962 (THE RULES) . AO QUANTIFIED THE DISALLOWANCE 2 UNDER CLAUSE S (II) & (III) OF RULE 8D (2) OF THE RULES. FURTHER, LD COUNSEL FOR THE ASSESSEE BRIEFLY NARRATED SUBMITTED THAT THERE IS NO DISPUTE WITH REGARD TO THE DISALLOWANCE MADE AS PER CLAUSE - (III) OF THE RULES AND THE DISPUTE IS RESTRICTED TO THE CORRECTNESS OF QUANTIFICATION OF DISALLOWANCE OF INTEREST UNDER CLAUSE - (II) OF THE RULES. IN THIS REGARD, AO DISALLOWED THE SUM OF RS. 1.62 CRS (ROUNDED OFF), WHICH IS DELETED BY THE CIT (A) VIDE HIS FINDING GIVEN IN THE RELEVANT PARAS AT PAGES 6 AND 7 OF THE IMPUGNED O RDER. CONSIDERING THE IMPORTANCE OF THE SAID PARA FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAME IS EXTRACTED AS UNDER: - I FIND THAT IN THE CASE OF APPELLANT - COMPANY, PAID UP CAPITAL AND RESERVES AS AT 31.3.2011 WERE RS. 65.88 CRS. AS AGAINST IT, THE TOTAL INVESTMENT IN SHARES OF SUBSIDIARY COMPANIES AS AT 31.3.2011 WAS ONLY RS. 29.39 CRS. THUS, APPELLANT COMPANY HAD SUFFICIENT OWN FUNDS TO MAKE INVESTMENT IN SUBSIDIARY COMPANIES. IN CIT VS. HDFC BANK LTD (2014) 366 ITR 5.5 (BOM.), IT HAS BEEN HE LD IN THE CONTEXT OF DISALLOWANCE U/S 14A THAT IF THE ASSESSEES CAPITAL, RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS ARE HIGHER THAN THE COST OF TAX FREE INVESTMENTS, IT WOULD HAVE TO BE PRESUMED THAT THE SAID INVESTMENTS MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS. ALSO IT HAS BEEN HELD IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD 313 ITR 340 (BOM) THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND INTEREST BEARING, THEN A PRESUMPTION WOULD ARISE THAT THE INVESTMENTS MADE AR E OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY AND IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENT THEN THERE IS NO NEED FOR DISALLOWING ANY INTEREST. IN VIEW OF THE ABOVE, THE ADDITION OF RS. 1,62,69,769/ - MADE B Y THE AO IS DELETED. 3. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT (A) HELD THAT THE ASSESSEE S OWN FUND IS MUCH HIGHER THAN THAT OF THE BORROWED FUNDS AND THE INVESTMENTS STANDS COVERED BY THE SAID OWN FUNDS OF THE ASSESSEE. IN THAT CASE, THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD (SUPRA) IS APPLICABLE TO THE INSTANCE CASE . T HEREFORE, THE CIT (A)S DECISION IN FOLLOWING THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) WHILE GRANTING RELIEF TO THE ASSESSEE IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. WE ORDER ACCORDINGLY. THUS, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 8 T H NOVEMBER, 2016. S D / - S D / - ( C.N. PRASAD ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 18.11 .2016 . . ./ OKK , SR. PS 3 / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI