DCIT CIR 3(3)(1), MUMBAI V. RALLIS INDIA LTD, MUMBAI

ITA 1724/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1974 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 25-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANU K AGARWAL
• Assessee Lawyers: HARMUZT TAMSHEDJI
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR AM ITA NO . 1724 /MUM/ 2015 (A.Y: 20 11 - 12 ) DY . COMMISSIONER OF INCOME TAX CIRCLE - 3(3)(1), ROOM NO - 609, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S RALLIES INDIA LTD. 156/157, NARIMAN BHAVAN,NARIMAN POINT MUMBAI - 400021 PAN AABCR2657N APPELLANT .. RESPONDENT REVENUE BY .. SHRI ANU K. AGARWAL, ADDL.CIT ASSESSEE BY .. SHRI HARMUZT TAMSHEDJI, AR DATE OF HEARING .. 15 - 11 - 2016 DATE OF PRONOUNCEMENT .. 15 - 11 - 2016 O R D E R PER MAHAVIR SINGH , JM : THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE ORDER OF CIT (A) - 8 , MUMBAI IN APPEAL NO. CIT (A) - 8/IT - 567/13 - 14 DATED 29 - 12 - 2014 . THE ASSESSMENT WAS FRAMED BY ADDL. CIT, RANGE - 3(3), MUMBAI FOR THE A . Y . 2011 - 1 2 VIDE ORDER DATED 31 - 01 - 2014 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER THE ACT). 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT (A) IN RESTRICTING THE DISALLOWANCE OF EXPENSES RELATABLE TO E XEMPT I NCOME AMOUNTING TO RS.68.39 LAKHS. A T THE OUTSET , IT IS NOTICED THAT THE DISALLOWANCE MADE BY AO IS AMOUNTING TO RS.121.99 LAKHS BY INVOKING PROVISION OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1960 (HEREINAFTER THE RULES ). FOR THIS REVENUE HAS RAISED FOLLOWING 2 GROUNDS: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING PROPORTIONATE INTEREST OF RS.53.59 LAKHS OUT OF TOTAL DISALLOWANCE U/S. 14A OF RS.121.99 LAKHS HOLDING THAT THE ASSESSEE HAS OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS WHICH ARE INTEREST FREE FUNDS AND IN EXCESS TO MEET THE AMOUNT OF INVESTMENTS MADE BY THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT AS PER SECTION 14A OF THE IT ACT, THE RELATION HAS TO BE SEEN BETWEEN THE EXEMPT INCOME AND EXPENDITURE INCURRED IN RELATION TO IT AND NOT VICE VERSA. ITA NO.1724/MUM/2015 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING PROPORTIONATE INTEREST OF RS.53.59 LAKHS OUT OF TOTAL DISALLOWANCE U/S. 14A OF RS.121.99 LAKHS 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 IN TEREST EXPENDITURE U/S./ 36(1)(III) OF THE ACT AND HAS NO DIRECT APPLICATION FOR A DISALLOWANCE U/S.14A. 3. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.4 ,16,90,772 AND CLAIM THE SAME AS EXEMPT U/S 10(34) AND 10(35) OF THE ACT . THE ASSESSEE HAS SUO MOTTO DISALLOW ED EXPENSES RELATABLE TO EXEMPT INCOME U/S 14A OF THE ACT READ WITH RULE 8D AMOUNTING TO RS. 19,905 / - . THE AO ESTIMATED THE DISALLOWANCE OF EXPENSE S AMOUNTING TO RS. 1,21,99,000 / - . AGGRIEVED ASSESSEE PREFERRED THE APPEAL BEFORE CIT (A), WHO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE NOTED THAT THE BALANCE SHEET OF ASSESSEE CLEARLY REVEALS IT HAS SHARE CAPITAL AMOUNTING TO RS.19.45 CRORES AND RESERV ES AMOUNTING TO RS.483.91 CRORES THEREBY THE ASSESS EE COMPANY OWNS FUND S TO THE TUNE OF RS.503.36 CRORES AS INTEREST FREE COMPARE TO INVESTMENT MADE WHICH GIVES TAX FREE INCOME AMOUNTING TO RS.151.93 CRORES. THE CIT (A) CONSIDERED THAT THE ASSESSEE HAS INC URRED TOTAL EXPENDIT URE AMOUNTING TO RS. 19,905 / - R ELATABLE TO EXEMPT INCOME AND SUO M OTO DISALLOWED U/S 14 A OF THE ACT. WE FIND THAT THE CIT(A) CONSIDERING THE ASSESSEE POSITION REGARDING AVAILABILITY OF INTEREST FREE FUNDS AMOUNTING TO RS.503.36 CRORES AS COMPARED TO INVESTMENT OF RS.151.93 CRORES, DRAW ING PRESUMPTION AND PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD. (2014) 366 ITR 505 (BOM), PRESUMED THAT THE ABOVE STATED INVESTMENT WAS MADE BY ASSE SSEE OUT OF INTEREST FREE FUNDS. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF RS.53.59 LAKH MADE BY THE AO AND RESTRICTED THE DISALLOWANCE AMOUNTING TO RS.68.39 LAKHS AFTER REDUCING ALREADY DISALLOWED BY ASSESSEE AMOUNTING TO RS. 19,905 / - . WE FIND NO INFIRM ITY IN THE ORDER OF CIT (A) HENCE THE SAME IS CONFIRMED. THIS ISSUE OF REVENUE APPEAL IS DISMISSED. ITA NO.1724/MUM/2015 3 4. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT (A) IN DIRECT ING THE AO TO TREAT THE EXPENDITURE ON ACCOUNT OF NEW PROJECT EAGLE AS R EVENUE EXPENDITURE. FOR THIS REVENUE HAS RAISED FOLLOWING GROUND NO. 3: - 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) DIRECTED THE AO TO TREAT THE EXPENDITURE ON ACCOUNT OF IMPLEMENTING PROJECT EAGLE AS REVENUE EXPEN DITURE WITHOUT APPRECIATING THE FACT THAT THE IMPLEMENTATION OF SAID PROJECT HAS RESULTED IN ENDURING BENEFIT TO THE ASSESSEE AND DESERVES TO BE CAPITALIZED. 5. WE HAVE HEARD RIVAL CONTENTION AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE GONE THROUGH THE FINDINGS RECORDED BY CIT (A) FOR DELETING THE DISALLOWANCE AND DIRECTING THE AO TO TREAT THE EXPENDITURE AS REVENUE BY OBSERVING AS UNDER: - I FIND THAT THE APPELLANT DURING THE YEAR UNDER CONSIDERATION HAS INCURRED LEGAL AND PROFESSIONAL FEES IN RESPECT OF A NEW INITIATIVE PROJECT CALLED EAGLE (EXPANSION AND AGGRESSIVE GROWTH THROUGH LEADERSHIP AND EXCELLENCE). IN ALEMBIC CHEMICAL WORKS VS. CIT 177 [TR 377 (SC), THE HONBLE SUPREME COURT HELD: - THE IMPROVISATION IN THE PROCESS AND TEC HNOLOGY IN SOME AREAS OF THE ENTERPRISE WAS SUPPLEMENTAL TO THE EXISTING BUSINESS AND THERE WAS NO MATERIAL TO HOLD THAT IT AMOUNTED TO A NEW OR FRESH VENTURE. THE FURTHER CIRCUMSTANCE THAT THE AGREEMENT PERTAINED TO A PRODUCT ALREADY IN THE LINE OF THE AS SESSEES ESTABLISHED BUSINESS AND NOT TO A NEW PRODUCT INDICATES THAT WHAT WAS STIPULATED WAS AN IMPROVEMENT IN THE OPERATIONS OF THE EXISTING BUSINESS AND ITS EFFICIENCY AND, PROFITABILITY NOT REMOVED FROM THE AREA OF THE DAY - TO - DAY BUSINESS OF THE ASSESS EES ESTABLISHED ENTERPRISE. IN VIEW OF THE ABOVE DECISION AND THE RATIO LAID DOWN IN THE CASE OF INDO RAMA SYNTHETICS INDIA LTD. VS. CIT (333 ITR 18) (DELHI); CIT V. PRAGA TOOLS LTD. (157 IT R282) (AP); CIT VS. CRO MPTON ENGINEERING CO. LTD. (242)I TR 317) (MAD); CIT V. JCT ELECTRONICS LTD. (P&H) (ITA 676 OF 2009); CIT V. ABBOTT LABORATORIES (I) P. LTD. (202 ITR 819) (BORN); EL FORGE LTD. V. DCIT (2013) 216 TAXMAN 114 (MAD); CIT U. CARBORANDUM UNIVERSAL LTD. (2003) 219 CTR 202 (MAD), THE A0 IS DIRECTED TO T REAT THE EXPENDITURE LEGAL AND PROFESSIONAL FEES AMOUNTING TO RS.2,71,54,486/ - . 6. WE FIND THAT THE CIT (A) HAS NOT DISCUSSED THE FACTS OF THE CASE AND NOT ANALYSIS THE ISSUE AND DECIDED THE ISSUE BY A NON - SPEAKING ORDER. HENCE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE CIT (A) FOR AFRESH ADJUDICATION AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.1724/MUM/2015 4 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 15 - 11 - 2016 . BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI SD/ ( RA JESH KUMAR ) ACCOUNTANT MEMBER MUMBAI, DATED: 15 - 11 - 2016 SUDIP SARKAR /SR.PS S D/ ( MAHAVIR SINGH ) JUDICIAL MEMBER COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//