SUHAMI POWER & FINANCE CORPORATION, MUMBAI V. ACIT-17(3), MUMBAI

ITA 1844/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5980 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2012-2013
• Appeal Filed On: 21-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH SR
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE
• Keywords: Opportunity of being heard; Earning of tax free income; Rule 8D; Set aside
• Section: 142(1); 14A; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI RAMIT KOCHA R , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO.1844 /MUM/201 8 ( / ASSESSMENT YEAR: 20 12 - 13 ) M/S. SUHAMI POWER & FINANCE CORPORATION 26, GOBIND MAHAL, 86 - B, NETAJI SUBHASH NAGAR, MARINE DRIVE, MUMBAI - 400002 . / VS. ACIT, RANGE - 17(3) AAYAKAR BHAVAN, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AASFS8718F ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 24 / 0 7 / 201 9 / DATE OF PRONOUNCEMENT : 31 / 07 / 201 9 / O R D E R PER A MARJIT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 13 . 1 2 .201 7 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 28 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 12 - 1 3 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE MADE ASSESSEE B Y : SHRI ANUJ KISNADWALA REVENUE BY: SHRI CHAUDHARY ARUN KUMAR SINGH (SR. AR) ITA NO. 1844 / M/201 8 A.Y.201 2 - 1 3 2 BY THE AO OF RS. 9,08,174/ - , UNDE R SECTION 14A OF THE ACT R.W.R 8 D. THE APPELLANT PRAY S THAT THE SAID DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELETED. GROUND NO. 2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) GROSSLY ERRED IN UPHOLDING THE DIS ALLOWANCE MADE BY THE AO OF RS. 5,72,805/ - UNDER SECTION 14A OF THE ACT R.W.R 8D(2)(II) TOWARDS THE FINANCE COST, WITHOUT NETTING OFF INTEREST INCOME WITH THE INTEREST EXPENSES. THE APPELLANT PRAYS THAT THE DISALLOWANCE OUT OF INTEREST EXPENSES, IF ANY, SHOULD BE NET OFF INTEREST INCOME. GROUND NO. 3: ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) GROSSLY ERRED IN UPHOLDING THE DIS ALLOWANCE MADE BY THE AO OF RS. 3,35,369/ - UNDER SECTION 14A OF THE ACT R.W.R 8D(2)(III) TOWARDS ADMINISTRATIVE COST. THE APPELLANT PRAYS THAT DISALLOWA NCE OF RS. 3,35,369/ - UNDER RULE 8D(2)(III) IS UNJUSTIFIED AND THE SAME MAY PLEASE BE DELETED. THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR DELETE THE GROUNDS OF APPEAL. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF I NCOME ON 12.09.2012 DECLARING TOTAL INCOME TO THE TUNE OF RS.56,67,600/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS . NOTICES U/S 143( 2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UP ON THE ASSESSEE. THE AS SESSEE WAS ENGAGED IN TRADING IN SHARES SECURITIES, LENDING AND BORROWING OF MONEY AND COMMISSION AGENTS. THE ASSESSEE WAS DERIVING INCOME BY WAY OF TRADING IN SECURITIES AND INCOME FROM COMMISSION, DIVIDEND AND INTEREST. THE ASSESSEE EARNED THE DIVIDEND I NCOME BUT FAILED TO DISALLOW THE EXPENSES TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX RULES, 1962 . THE AO APPLIED THE PROVISIONS U/S 14A R.W. RULE ITA NO. 1844 / M/201 8 A.Y.201 2 - 1 3 3 8D OF THE 1962 RULE S AND ASSESSED THE EXPENDITURE INCUR RED TO EARN THE EXEMPT INCOME TO THE TUNE OF RS. 9,08,174/ - . THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.65,75,780/ - . FEE LING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION , THEREFORE, THE ASSES SEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO . 1 4 . UNDER THIS ISSUE NO SPECIFIC ADJUDICATION IS REQUIRED BEING THE RELIEF CLAIMED IN THIS ISSUE IS RELATES TO ISSUE NOS. 2 & 3. ISSUE NO. 2 5 . UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMA TION OF THE DISALLOWANCE MADE BY THE AO OF RS.5,72,805/ - U/S 14A OF THE ACT R.W. RULE 8D (2)(II) OF THE RULES . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE RECEIVED THE INTEREST INCOME TO THE TUNE OF RS. 2,114,950/ - WHICH WAS CREDIT T O THE PROFIT AND LOSS ACCOUNT AS AGAINST THE INTEREST EXPENSES OF RS. 1,332,797/ - . IT IS ALSO ARGUED THAT WHILE COMPUTING THE DISALLOWANCE OF INTEREST EXPENSES, T HE INTEREST SHOULD BE NET OF F FROM THE INTEREST RECEIVED. IN THIS REGARD, THE LD. REPRESENTATIV E OF THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF PCIT VS. NIRMA CREDIT & CAPITAL P. LTD. (APPEAL NO. 409 & 514 OF 2017) AND HONBLE ITAT DELHI IN CASE OF ACIT VS. KESHAV SHARES & STOCK LTD. (ITA. NO.4394/DEL/ 2011 DECIDED ON 26.04.2013 DELHI BENCH. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. ON APPRAISAL OF THE ORDER PASSED BY THE AO, WE FIND THAT THE AO DID NOT CONSIDER THE INTEREST NET OF F AGAINST THE INTEREST RECEIVED WHILE DECIDING THE INTEREST EXPENDITURE IN VIEW OF THE PROVISIONS ITA NO. 1844 / M/201 8 A.Y.201 2 - 1 3 4 U/S 14A OF THE ACT R.W. RULE 8D(2) (II) OF THE RULES WHILE DE CIDING THE INTEREST EXPENDITURE . N ET OF F INTEREST IS REQUIRED TO BE ASSESSED OR NOT HAS BEEN DECIDED BY HONBLE ITAT MUMBAI BENCH IN CASE OF DCIT VS. M/S. JUBL IANT ENTERPRISES P. LTD. IN ITA. NO.6364/M/2012 DATED 12.03.2014 . THE RELEVANT FINDING HAS BEEN GIVEN AS UNDER: - 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHO RITIES. THE IMPUGNED ASSESSMENT IS A.Y 2008 - 09 AND THEREFORE RULE 8D IS VERY MUCH APPLICABLE FOR COMPUTING THE DISALLOWANCE U/S. 14A OF THE ACT. IN SO FAR AS THE INTEREST ELEMENT IS CONCERNED, FACTS ON RECORD SHOW THAT THE ASSESSEE HAS PAID INTEREST OF RS. 30,62,021/ - AND H AS ALSO RECEIVED INTEREST AT RS . 66,19,494/ - . THUS THE INTEREST RECEIVED BY THE ASSESSEE IS MORE THAN THE INTEREST PAID. IN THE CASE OF TRADE APARTMENT LTD., IN ITA NO. 1277/KOL/2011, IT WAS HELD THAT THE DISALLOWANCE OF INTEREST SHOULD B E MADE WITH REFERENCE TO THE NET INTEREST ONLY. A SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL MUMBAI BENCH (SAME COMBINATION) IN THE CASE OF PARESH K. SHAH IN IT A NO. 8214/M/201 1. THE LD. CI T(A) HAS RIGHTLY DIRECTED THE AO TO VERIFY THE GIVEN BY THE ASSESSEE A ND ONLY NET I NTEREST MAY BE TAKEN, IF ANY, COMPUTATION AS PER RULE 8D. WE DO NOT FIND ANY ERROR OR INFI RMITY IN THIS F INDINGS OF THE LD. CI T(A). THE DECISIONS RELIED UPON BY THE LD. DR ARE DISTINGUISHABLE ON THE FACTS OF THE CASE. IN SO FAR AS THE DISALLOW ANCE IN RESPECT OF ADMINISTRATIVE EXPENSE IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A CHART GIVING DETAILS AND BIFURCATION OF EXPENSES BETWEEN HEAD OFFICE AND DIVISION. WE FIND THAT THE TOTAL EXPENDITURE IS AT RS.1,86,18,068/ - OUT OF WHICH R S. 28,91,649/ - ARE DIRECTLY ATTRIBUTABLE TO THE DIVISION M/ S. JAI SYNTHETIC. THE LD. CIT(A) HAS DIRECTED THE AO TO RE - COMPUTE THE DISALLOWANCE ON PROPORTIONATE BASIS. CONSIDERING THE DETAILS OF EXPENSES, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. I & 2 ARE ACCORDINGLY DISMISSED. 6. THIS DECISION WAS CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT IN IT APPEAL N O.1512 OF 2014 DATED 28.02.2017. BY FOLLOWING THE DECISION MENTIONED ABOVE , WE ARE OF THE VIEW THAT THE DISALLOWANCE OF I NTEREST EXPENSES SHOULD BE MADE AFTER THE NET OF F INTEREST ONLY. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE IN THE MANNER AS INDICATIVE ABOVE. WE ORDER ACCORDINGLY . ISSUE NO.3 ITA NO. 1844 / M/201 8 A.Y.201 2 - 1 3 5 7 . ISSUE NO. 3 IS IN CONNECTION WITH THE A SSESSING THE EXPENDITURE IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D (2)(III) OF THE RULES . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME IS LIABLE TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 8D(2)(III) OF THE RULES AN D IN SUPPORT OF THIS CONTENTION, T HE LD. REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION IN CASE OF ACIT VS. VIREET INVESTMENT P. LTD. (165 ITD 27 (SB) (DEL). HOWEV ER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. IN THE CASE DECIDED BY SPECIAL BENCH OF DELHI TITLED AS ACIT VS. VIREET INVESTMENT P. LTD. IT IS SPECIFICALLY HELD THAT THOSE INVESTMENTS WHICH YIELDED THE EXE MPT INCOME IS LIABLE TO BE CONSIDERED FOR ASSESSING THE EXPENDITURE TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D(2)(III) OF THE RULES . IN THE INSTANT CASE, THE WHOLE INVESTMENT HAS BEEN CONSIDERED FOR ASSESSING THE EX PENDITURE TO EARN THE EXEMPT INCOME WHICH IS NOT JUSTIFIABLE. ACCORDINGLY, THE FINDING OF THE CIT(A) IS HEREBY ORDER TO BE SET ASIDE AND THE ISSUE IS REMANDED TO THE AO TO DECIDE THE MATTER OF CONTROVERSY AFRESH AND TO CONSIDER THE INVESTMENT WHICH YIELDED EXEMPT INCOME FOR ASSESSING THE EXPENDITURE TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D(2)(III) OF THE RULES IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN CASE OF ACIT VS. VIREET INVESTMENT P. LTD(SUPRA) IN ACCORD ANCE WITH LAW. NEEDLESS TO SAY THAT AN OPPORTUNITY OF BEING HEARD IS REQUIRED TO BE GIVEN IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF T HE ASSESSEE AGAINST THE REVENUE FOR STATISTICAL PURPOSES IN THE MANNER AS INDICATED ABOVE. WE ORDER ACCORDINGLY. ITA NO. 1844 / M/201 8 A.Y.201 2 - 1 3 6 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED AS INDICATED ABOVE . ORDER PRONOUNCED IN THE OPEN COURT ON 31 /07 /2019 . SD/ - SD/ - ( RAMIT KOCHA R ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 31 /07 /2019 V IJAY /SR. PS / 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. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI