REVASHANKAR GEMS LTD, MUMBAI V. ASST CIT 5(3), MUMBAI

ITA 1679/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3043 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: APURVA R SHAH
• Keywords: Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NOS.1679 & 6423/MUM/2013 ASSESSMENT YEARS: 2009-10 & 2010-11 REVASHANKAR GEMS LTD. 322, PANCHRATNA, 14, MAMA PARMANAND MARG, OPERAS HOUSE, MUMBAI-400004 / VS. ACIT-5(3), R. NO.573, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( ! /ASSESSEE) ( ' / REVENUE) PAN. NO. AAACR4649D ! / ASSESSEE BY SHRI APURVA R. SHAH ' / REVENUE BY SHRI B.S. BIST-DR # '$ % ! & / DATE OF HEARING : 16/06/2016 % ! & / DATE OF ORDER: 16/06/2016 ITA NO. 1679 & 6423/MUM/2013 REVASHANKAR GEMS LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) BOTH THESE APPEALS ARE BY THE ASSESSEE FOR ASSESSME NT YEARS 2009-10 & 2010-11, AGGRIEVED BY THE IMPUGNED ORDERS DATED 29/01/2013 AND 02/09/2013 OF THE LD. FIRST AP PELLATE AUTHORITY, MUMBAI, ON THE GROUND STATED IN THE GROU NDS OF APPEAL WHICH ARE BROADLY WITH RESPECT TO DISALLOWAN CE U/S 14A AND 36 OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (HE REINAFTER THE RULES). THE ASSESSEE HAS DISALLOWED THE INTERE ST ETC. 2. DURING HEARING OF THESE APPEALS, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT IDENTICAL ISSUE AROSE FOR CONSIDERATION FOR ASSESSMENT YEAR 2008-09, WHEREIN, THE TRIBUNAL SEND THESE ISSUES TO THE FILE OF LD. ASSES SING OFFICER. RELIANCE WAS PLACED UPON THE DECISION IN CIT VS HDF C BANK LTD. 366 ITR 505 (BOM.) AND CIT VS. RELIANCE UTILIT IES POWER LTD. [2009] 313 ITR 340 (BOM). ASSESSEE ALSO FILED PAPER BOOK RUNNING INTO 6 PAGES CONTAINING BALANCE SHEET AS ON 31/03/2010. ON THE OTHER HAND, THE LD. DR, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY ADDI NG THAT THE IMPUGNED YEARS MAY ALSO BE SENT TO THE FILE OF THE LD. ASSESSING OFFICER SO THAT THE SAME CAN BE EXAMINED IN THE LIGHT OF THE AFORESAID DECISIONS. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS AN MANUFACTURER AND EXPORT ER OF CUT ITA NO. 1679 & 6423/MUM/2013 REVASHANKAR GEMS LTD. 3 AND POLISHED DIAMONDS. FOR THE ASSESSMENT YEAR , 20 09-10, THE ASSESSEE RECEIVED A SUM OF RS.3,96,590/- AS DIV IDEND INCOME AND SUO MOTO MADE A DISALLOWANCE OF RS.39,65 9/- U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER TH E ACT), BEING 10% OF THE DIVIDEND INCOME. THE LD. ASSESSING OFFICER MADE DISALLOWANCE U/S 14A OF THE ACT R.W.R. 8D OF T HE RULES. THE STAND OF THE ASSESSEE BEFORE US IS THAT THE ASS ESSING OFFICER DID NOT CONSIDER THAT THE INTEREST PAID WAS IN RESPECT OF SPECIFIC LOANS TAKEN AS SUCH AS CAR LOANS AND EX PORT PACKING CREDIT LOANS, WHICH WERE NOT CONSIDERED FOR CALCULATING PROPORTIONATE INTEREST. 2.2. LIKEWISE, THE ASSESSEE WAS ALLOTTED AN OFFICE AT BHARAT DIAMOND BOURSE, FOR WHICH INSTALLMENTS WERE PAID BY THE ASSESSEE. IN ADDITION, THE ASSESSEE GAVE ADVANC ES FOR BOOKING OTHER PREMISES. IT WAS CLAIMED BY THE ASSES SEE THAT NO AMOUNT WAS SPECIFICALLY BORROWED TO ACQUIRE THES E ASSETS AND THE ASSESSEE WAS HAVING ADEQUATE INTEREST FREE FUNDS. WE ALSO FIND THAT FOR ASSESSMENT YEAR 2008-09 IN ITA NO.6445/MUM/2011 ORDER DATED 04/09/2013. THE TRIBUN AL DELIBERATED UPON IDENTICALLY ON THE ISSUES IN HAND AND HELD AS UNDER:- THIS APPEAL FILED BY THE ASSESSEE ON 21.0.2011 AGA INST THE ORDER OF CIT (A)-9, MUMBAI DATED 30.6.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GR OUNDS WHICH READ AS UNDER: THE CIT (A) ERRED,- 1.1. IN CONFIRMING A DISALLOWANCE U/S 14A BY MECHAN ICALLY APPLYING RULE-8D. ITA NO. 1679 & 6423/MUM/2013 REVASHANKAR GEMS LTD. 4 1.2. WITHOUT PREJUDICE, IN ERRONEOUSLY COMPUTING T HE DISALLOWANCE BY INCLUDING INTEREST PERTAINING TO LO ANS SPECIFICALLY TAKEN FOR OTHER PURPOSES. 2.1. IN DISALLOWANCE OF I NTEREST ASSUMED TO BE EXTENDED ON INVESTMENT IN PROPERTY AT BHARAT DIAMOND BOURSE AND OTHER SIMILAR ADVANCES GIVEN WHICH WERE BUSINESS ASSETS. 2.2. IN NOT APPRECIATING THAT NO FUNDS HAD BEEN SPE CIFICALLY BORROWED FOR THE PURPOSES OF MAKING THIS INVESTMENT AND THAT HENCE NOTING WERE DISALLOWABLE ON THIS ACCOUNT. 2.3. IN NOT APPRECIATING THAT THE APPELLANT HAD ADE QUATE NON- INTEREST BEARING FUNDS AVAILABLE WITH IT AND THAT H ENCE NO DISALLOWANCE OF INTEREST WAS CALLED FOR. 3.1. IN DISALLOWING INTEREST PAID TO THE EXTENT THA T SUMS OF MONEY WERE ADVANCED TO A PARTNERSHIP FIRM WHERE THE APPEL LANT WAS A PARTNER ON AN INTEREST FREE BASIS. 3.2. IN NOT APPRECIATING THAT THE APPELLANT HAD BUS INESS TRANSACTIONS AS WELL WITH THE SAID FIRM AND HENCE T HESE ADVANCES WERE FOR COMMERCIAL EXPEDIENCY. 3.3. IN ASSUMING THAT INTEREST FREE ADVANCE GIVEN T O THE FIRM WAS GIVEN FROM BORROWED FUNDS OF THE COMPANY AS A WHOLE AND IN DISALLOWING PROPORTIONATE INTEREST EXPENSE; 3.4. IN NOT APPRECIATING THAT THE ASSESSEE HAD ADEQ UATE INTEREST FREE FUNDS TO MAKE THESE ADVANCES. 3. AT THE OUTSET, SHRI APURVA R. SHAH, LD COUNSEL F OR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS RAISE D BEFORE US AND MENTIONED THAT THERE ARE COUPLE OF ISSUES RA ISED IN THIS APPEAL. THEY ARE (I) THE APPLICABILITY OF RULE -8D R.W.S. 14A OF THE ACT WITHOUT REJECTING THE REASONING GIVE N BY THE ASSESSEE FOR MAKING DISALLOWANCE AND (II) THE DISAL LOWANCE U/S 36-1(III) OF THE ACT, WHEN THE ASSESSEE HAS ADE QUATE EXCESS INTEREST FREE FUNDS. 3.1. REFERRING TO THE FIRST ISSUE, LD COUNSEL MENTI ONED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 5,55,299 /- WHICH WAS EXEMPTED U/S 10(34) OF THE ACT. ASSESSEE MADE DISALLOWANCE TOWARDS THE EXPENDITURE FOR EARNING TH E SAID EXEMPT INCOME @ 10% OF THE EXEMPT INCOME. WITHOUT REJECTING THE CLAIM OF THE ASSESSEE, AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE-8D OF THE ACT AND RELIED ON THE BINDING JUDGMENT OF THE JURISDICTIONA L HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. L TD. VS. ITA NO. 1679 & 6423/MUM/2013 REVASHANKAR GEMS LTD. 5 DCIT, 328 ITR 81. CIT (A) CONFIRMED THE SAME. IN TH IS BACKGROUND OF THE FACTS, LD COUNSEL MENTIONED THAT INVOKING THE SAID PROVISIONS MECHANICALLY WITHOUT R EJECTING THE CLAIM OF THE ASSESSEE IE RS. 55,530/- IS THE EX PENDITURE INCURRED FOR EARNING OF THE EXEMPT INCOME, IS UNSUS TAINABLE IN LAW AND RELIED ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. LTD (SUPRA). IN THIS REGARD, LD COUNSEL PRAYED FOR SETTING ASIDE THE ISS UE FOR REEXAMINATION AND APPLYING OF THE JURISDICTIONAL HI GH COURT JUDGMENT ON THIS ISSUE. 3.2. ON THE OTHER HAND, LD DR HAS RELIED ON THE ORD ERS OF THE REVENUE AUTHORITIES AND MENTIONED THAT HE HAS N O OBJECTION IF THE ISSUE REMANDED TO THE FILES TO THE FILES OF THE AO FOR FRESH EXAMINATION OF THE ISSUE. 3.3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. WE FIND MERIT IN THE PRAYER OF THE LD CO UNSEL TO REMIT THE MATTER TO THE FILES OF THE AO FOR EXAMINA TION OF THE ISSUE AFRESH. THEREFORE, WE REMAND THE MATTER T O THE FILES OF THE AO TO RE-ADJUDICATE THE ISSUE IN ACCOR DANCE WITH THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE (SUPRA) AFTER GRANTING A REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. IT IS THE SETTLED LAW THAT THE AO IS UNDER OBLIGATION TO REJECT THE CLAIM OF THE A SSESSEE BY GIVING SPEAKING ORDER ON THIS ISSUE BEFORE HE RESOR T TO THRUST ON THE ASSESSEE THE PROVISIONS OF RULE 8D R W SECTI ON 14A OF THE ACT. ACCORDINGLY, ISSUE NO.1 IS REMANDED AND RE LEVANT CONCLUSIONS OF THE REVENUE AUTHORITIES ARE SET ASID E. 4. THE SECOND ISSUE RELATES TO THE DISALLOWANCE U/S 36(1)(III) OF THE ACT IN RESPECT OF THE INTEREST CLAIM OF THE ASSESSEE. AT THE OUTSET, LD COUNSEL MENTIONED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND IN THIS REGARD, HE BROUGHT OUR ATTENTION TO PARA 2.2 OF THE IMPUGNED ORDER AND MENTIONED THAT THE ADVANCES ARE NOT OUT OF INTEREST BEARING FUNDS. FURTHER, LD COUNSEL MENTIONED THAT ASSESSEE HAS RS. 26.9 CRS WORTH OF INTEREST FREE FUNDS BY WAY OF CAP ITAL, RESERVES AND INTEREST FREE LOANS, WHICH IS QUANTITA TIVELY MUCH HIGHER THAN THE ADVANCES GIVEN BY THE ASSESSEE . IT IS THE CLAIM OF THE ASSESSEE THAT CONSIDERING THE JURI SDICTIONAL ITA NO. 1679 & 6423/MUM/2013 REVASHANKAR GEMS LTD. 6 HIGH COURT JUDGMENT IN THE CASE OF CIT VS. RELIANCE UTILITIES POWER LTD. [2009] 313 ITR 340 (BOM), THE BENEFIT SH OULD BE GIVEN TO THE ASSESSEE CONSIDERING THE EXISTENCE OF EXCESS INTEREST-FREE FUNDS. FURTHER, LD COUNSEL FAIRLY MEN TIONED THAT THE FACTS ABOUT THE ISSUE OF EXISTENCE OF EXCE SS FUNDS WERE NOT EXAMINED BY THE LOWER AUTHORITIES. THEREFO RE, FOR THIS PURPOSE, THIS ISSUE MAY ALSO BE SET ASIDE FOR EXAMINING THE SAME AFRESH IN THE LIGHT OF THE BINDING JUDGMEN T OF THE HONBLE HIGH COURT IN THE CASE OF RELIANCE UTILITIE S POWER LTD (SUPRA). 4.1. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND HE HAS NO OBJECTION IF THE MATTER IS REMANDED BACK TO THE FILES OF THE AO FOR FRESH EXAM INATION OF THE ISSUE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES, WE FIND MER IT IN THE LD COUNSELS ARGUMENTS. IT IS A FACT THAT NEITHER T HE AO NOR THE CIT (A) HAVE REALLY GONE INTO THE ISSUE OF EXIS TENCE OF EXCESS FUNDS AND HAVE GIVEN CATEGORICAL FINDINGS AB OUT THIS FACT. THEREFORE, IN OUR CONSIDERED OPINION, THIS IS SUE SHOULD ALSO BE SET ASIDE TO THE FILES OF THE AO FOR FRESH ADJUDICATION CONSIDERING THE JUDGMENT OF THE SUPREME COURT IN TH E CASE OF RELIANCE PETRO-PRODUCTS (SUPRA) AS WELL AS THE R ELEVANT LAW IN FORCE. ACCORDINGLY, ISSUE NO.2 IS REMANDED A ND RELEVANT CONCLUSIONS OF THE REVENUE AUTHORITIES ARE SET ASIDE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. IN THE LIGHT OF THE FOREGOING DISCUSSION, WE DIRECT THE LD. ASSESSING OFFICER TO EXAMINE THE CASE OF THE ASSESS EE AND DECIDE AFRESH IN THE LIGHT OF THE DIRECTIONS CONTAI NED IN THE AFORESAID ORDER OF THE TRIBUNAL DATED 04/09/2013. N EEDLESS TO MENTION HERE THAT THE ASSESSEE BE GIVEN OPPORTUN ITY OF BEING HEARD WITH FURTHER LIBERTY TO FURNISH EVIDENC E, IF ANY, IN ITA NO. 1679 & 6423/MUM/2013 REVASHANKAR GEMS LTD. 7 SUPPORT OF ITS CLAIM. THUS, BOTH THE APPEALS ARE AL LOWED FOR STATISTICAL PURPOSES ONLY. FINALLY, BOTH THESE APPEALS OF THE ASSESSEE ARE ALL OWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 16/06/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ( DATED : 16/06/2016 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 # 1! ( *+ ) / THE CIT, MUMBAI. 4. 0 0 # 1! / CIT(A)- , MUMBAI 5. 3'4 .! , 0 *+& * 5 , # $ / DR, ITAT, MUMBAI 6. 6$ / GUARD FILE. / BY ORDER, /3+! .! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI