DCIT 1(1)(2), MUMBAI V. GRAVISS HOSPITALITY LTD, MUMBAI

ITA 1699/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8261 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 22-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: MAHESH R AJORA
• Keywords: Earning of tax free income
• Section: 2(14); 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJE SH KUMAR,(AM) I.T.A. NO.1699/MUM/2016 ( / ASSESSMENT YEAR:2011-12) DY.COMMISSONER OF INCOME TAX 1(1)(2), ROOM NO.579, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. / VS. M/S. GRAVISS HOSPITALITY LTD. HOTEL INTERCONTINENTAL, 135, NETAJI SUBASH ROAD, MARINE DRIVE, MUMBAI-400020 / REVENUE BY : SHRI RAJAT MITTAL / ASSESSEE BY : SHRI MAHESH RAJORA PAN : AAACOO480F /DATE OF HEARING : 23.10.2017 /DATE OF PRONOUNCEMENT : 24.11.2017 / O R D E R PER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE REVENUE WHICH IS DI RECTED AGAINST THE ORDER OF THE LD.CIT(A)-2, MUMBAI, DATED 28.12.2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE ISSUE RAISED BY THE REVENUE IN THE FIRST GRO UNDS OF APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF EXPENSES U/ S 14A OF THE INCOME TAX ACT, 1961 TO THE TUNE OF RS.17,92,649/- AT THE RAT E OF 0.5% OF THE AVERAGE INVESTMENT WITHOUT ESTABLISHING THE NEXUS BETWEEN INVESTMENT IN SHARES AND ASSESSEES OWN FUNDS AND THE ISSUE RAISED IN GROUN D NO.2 IS AGAINST THE 2 I.T.A. NO.1699/MUM/2016 RESTRICTION OF ADDITION U/S 14A TO RS.17,92,649/- WHILE COMPUTING BOOKS PROFIT U/S 115JB OF THE ACT. 3. AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ISS UE RAISED BY THE REVENUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.5693/MUM/2011 (AY-2008-09) ORDER DATED 17.6.2015 WHEREIN THE SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL WITH IDENTICAL FA CTS. THE LD.AR, THEREFORE, REQUESTED THAT THE SAME PRINCIPLE MAY BE ADOPTED IN THE PRESENT CASE AND APPEAL OF THE REVENUE BE DISMISSED. 4. THE LD. DR FAIRLY AGREED WITH THE SUBMISSIONS O F THE LD.AR THAT THE ISSUE RAISED IN THE PRESENT CASE IS COVERED BY THE DECISION IN THE CASE OF ASSESSEE(SUPRA) RENDERED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2008-09. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS, PERUSED THE IMPUGNED ORDERS AND CASES CITED BY THE LD.AR INCLUD ING THE DECISION RENDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE DATED 17.6.2015(SUPRA) WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER : 8. WE FIND THAT THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF A.Y. 2 009-10. WE MAY FURTHER OBSERVE THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (S UPRA) HAS CATEGORICALLY HELD THAT RESORT CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES, IF THE AO IS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM 3 I.T.A. NO.1699/MUM/2016 MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE . THE SATISFACTION OF THE AO HAS TO BE ARRIVED AT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION 2(14) DOES NOT IPSO-FACTO ENA BLE THE AO TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTWAY WITH OUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT O F SUCH EXPENDITURE IS CORRECT. THE SATISFACTION OF THE AO MUST BE ARRI VED AT ON AN OBJECTIVE BASIS. A PERUSAL OF THE ASSESSMENT ORDER UNDER CONS IDERATION REVEALS THAT THE AO HAS FAILED TO FOLLOW THE GUIDELINES OF OBJECTIVE SATISFACTION AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA) WH ILE MAKING THE DISALLOWANCE. THE AO HAS STRAIGHTWAY APPLIED RULE 8 D FOR WORKING OF THE DISALLOWANCE AGAINST THE MANDATE OF THE PROVISI ONS OF SECTION 14A OF THE INCOME TAX ACT. WE MAY FURTHER OBSERVE THAT THE LD. CIT(A) HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HAS O BSERVED THAT THE ASSESSEE HAS NOT INCURRED ANY INTEREST/INDIRECT EXP ENDITURE FOR EARNING OF THE EXEMPT INCOME. THE BALANCE SHEET OF THE ASSE SSEE REVEALS THAT THE ASSESSEE HAD RESERVE AND SURPLUS OF RS.2,69,82, 76,106/- AS ON 31.03.08 AS AGAINST THE TOTAL INVESTMENTS OF RS.69, 33,10,403/-. THE RESERVE AND SURPLUS INVESTMENTS OF THE ASSESSEE AS ON 31.03.06 WAS AT RS.1,31,08,13,906/- AND THEREFORE THERE WAS AN INCR EASE OF ABOUT RS.138 CRORES IN RESERVE AND SURPLUS DURING THE YEA R. THE TOTAL INVESTMENTS OF THE ASSESSEE AS ON 31.03.07 WAS AT R S.3,98,81,678/- WHICH HAVE INCREASED TO RS.69,33,10,403/- AS ON 31. 03.08 AND SO THERE WAS THE INVESTMENT OF RS.66 CRORE DURING THE YEAR U NDER CONSIDERATION. THE LOAN LIABILITY OF THE ASSESSEE HAD CONSIDERABLY DECREASED DURING THE YEAR AND THE NET CURRENT ASSETS OF THE ASSESSEE HAD INCREASED TO RS.72,19,41,777/- AS AGAINST OF RS.11,32,40,029/- A S ON 31.03.07. THE LD. D.R., FROM THE BALANCE SHEET HAS TRIED TO EXPLA IN THAT THERE IS AN INCREASE IN THE FIXED ASSETS OF THE ASSESSEE AND TH E ASSESSEE HAS ALSO USED ITS FUNDS IN REPAYMENT OF THE LOAN AMOUNT AND HENCE IT CANNOT BE SAID THAT THE ENTIRE SURPLUS WAS USED BY THE ASSESS EE FOR MAKING INVESTMENTS. HOWEVER, AFTER CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES AND THE EXPLANATION OF THE ASSESSEE R EGARDING THE UTILIZATION OF THE LOAN AMOUNT AND ALSO CONSIDERING THAT THERE IS SUFFICIENT INCREASE IN OWN/SURPLUS FUNDS OF THE ASS ESSEE AND THERE BEING NO DECREASE IN THE LOAN LIABILITY AND ALSO CONSIDER ING THE QUANTUM OF INVESTMENT MADE IN RELATION TO RESERVE AND SURPLUS FUND AVAILABLE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C IT(A) WHILE DELETING THE DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENDITURE UNDER RULE 8D(2) OF THE ACT. WE FURTHER FIND THAT MOST OF THE INVESTMEN TS MADE BY THE ASSESSEE DURING THE YEAR ARE IN MUTUAL FUNDS WHICH DO NOT REQUIRE ANY SPECIFIC INCURRING OF EXPENDITURE WHICH ARE GENERAL LY DONE THROUGH 4 I.T.A. NO.1699/MUM/2016 AGENTS. OTHERWISE, THERE IS NO CONSIDERABLE INCREAS E OF THE INVESTMENT IN EQUITY SHARES ETC. THE ASSESSEE HAS ALREADY DISA LLOWED A SUM OF RS.2 LAKH. CONSIDERING THE NATURE OF INVESTMENTS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, WE DO NOT FIND ANY JUSTIF ICATION ON THE PART OF THE AO IN STRAIGHTWAY APPLYING RULE 8D AND WITHOUT RECORDING ANY DISSATISFACTION IN RELATION TO THE SUO-MOTO WORKING MADE BY THE ASSESSEE. EVEN OTHERWISE, FACTS FOR THE YEAR UNDER CONSIDERATION ARE SQUARELY COVER WITH THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN THE SUBSEQUENT YEAR. WE THEREFORE DO NO T FIND ANY JUSTIFICATION FOR THE LD. CIT(A) TO CONFIRM THE DIS ALLOWANCE UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES WITHOUT CONSIDER ING THE WORKING/COMPUTATION OFFERED BY THE ASSESSEE AND ALS O WITHOUT IGNORING THE NATURE OF INVESTMENTS MADE BY THE ASSESSEE. THE ORDER OF THE LD. CIT(A) CONFIRMED THE DISALLOWANCE UNDER RULE 8D(2)( III) IS THEREFORE SET ASIDE. IN VIEW OF OUR OBSERVATIONS MADE ABOVE, THE DISALLOWANCE UNDER SECTION 14A IS RESTRICTED TO THE SUO-MOTO DISALLOWA NCE OF RS.2 LAKH OFFERED BY THE ASSESSEE AND THE REMAINING DISALLOWA NCE OVER AND ABOVE THE DISALLOWANCE OFFERED BY THE ASSESSEE HIMSELF IS THEREFORE ORDERED TO BE DELETED. 6. THE FACTS BEFORE US IN THE CURRENT YEAR ARE SIMI LAR TO ONE AS DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL AND HENCE, FOLLOWING THE SAME DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUN AL IN ASSESSEES OWN CASE, WE DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH NOV, 201 7. SD SD (JOGINDER SINGH) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 24.11.2017 SR.PS:SRL: 5 I.T.A. NO.1699/MUM/2016 !'!# / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. ! / THE RESPONDENT 3. #!# $ ( )! / THE CIT(A) 4. #!# $! / CIT CONCERNED 5. '()!* , ! #! ! * ,! ! / DR, ITAT, MUMBAI 6. )-!.! /! GUARD FILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI