DCIT CIR 3(3), MUMBAI V. TRINTY INFRATECH P.LTD, MUMBAI

ITA 1862/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92927 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Department
• Bench Allotted: E
• Next Hearing Date: 17-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2013
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO . 1862 / MUM/20 1 3 ( / ASSESSMENT YEAR : 200 9 - 10 ) DCIT, CIRCLE - 3(3), MUMBAI VS. M/S TRINITY INFRATECH PVT. LTD., 171 - C, 17 TH FLOOR, MITTAL COURT, NARIMAN POINT, MUMBAI - 400021 ./ ./ PAN/GIR NO. : A A ACT 3869 K ( / A PPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NEIL PHILIP /ASSESSEE BY : SHRI VIJAY MEHTA / DATE OF HEARING : 1 7 /0 6 / 2015 / DATE OF PRONOUNCEMENT 17/06 /2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 7 , MUMBAI , DATED 23 - 10 - 2012 FOR THE ASSESSMENT YEAR 200 9 - 10 IN THE MATTER ORDER PASSED U/S. 1 43 (3) OF THE I.T.ACT . 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO DELETING DISALLOWANCE OF INTEREST OF RS. 17,32,516/ - MADE BY THE AO U/S.14A OF THE ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FROM THE RECORD, WE FOUND THAT THE ASSESSEE COMPANY WAS ENGAGED IN TRADING AND INVESTM ENT IN SHARES AND SECURITIES, FINANCE BUSINESS AND RENTAL INCOME. THE COMPANY ALSO HOLDS SHARES OF FEW OTHER COMPANIES AS LONG TERM ITA NO. 1862 /1 3 2 INVESTMENTS. DURING THE YEAR THE ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF RS. 2,46,737/ - . IN THE ASSESSMENT PROCEEDINGS IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT NO SPECIFIC EXPENSES HAVE BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. HOWEVER, HE REJECTED THE SAID CONTENTION AND INVOKED PROVISIONS OF SECTION 14A OF THE ACT ASSUMING THAT EXPENSES MUST HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME AND COMPUTED THE DISALLOWANCE U/S.14A AT RS. 20,67,895/ - BY APPLYING RULE 8D OF THE INCOME TAX RULES, 1962 AS UNDER : - PARTICULARS AMOUNT IN RS. INTEREST EXPENSES 62,17,118/ - AVERAGE INVESTMENTS 6,70,75,816/ - AVER AGE OF TOTAL ASSETS 24,07,00,933/ - PROPORTIONATE INTEREST (RS.62,17,118 / RS.24,07,00,933 X RS.6,70,75,816) (A) 17,32,516/ - PROPORTIONATE ADMINISTRATIVE EXPENSES (0.5% * RS.6,70,75,816) (B) 3,35,379/ - TOTAL DISALLOWANCE U/S. 14A R.W.R.8D(A+B) 20,67,895/ - 4. BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE DISALLOWANCE OF INTEREST AFTER OBSERVING AS UNDER : - I HAVE CONSIDERED THE A.O.'S ORDER AS WELL AS. THE APPELLANT'S SUBMISSIONS. IT IS SEEN THAT AS PER THE BALANCE SHEET OF THE COMPANY, THE PAID UP CAPIT AL AND R ESERVES OF THE COMPANY AS AT 31 ST MARCH, 2008 AND 31'ST MARCH, 2009 AMOUNTED TO RS.L9.52 CRORES AND RS.19.37 CRORES RESPECTIVELY WHEREAS THE INVESTMENT IN SHARES ON THOSE DATES WERE RS.2.81 CRORES AND RS.I0.60 CRORES RESPECTIVELY. THE LOAN FUNDS AS ON 31.3.2008 WAS NIL AND AS ON 31.3.2009 THE SAME WERE RS.2 CRORES. THUS, IT IS SEEN THAT THE APPELLANT'S OWN FUND IS MORE THAN THE INVESTMENT MADE, WHICH IS GENERATING EXEMPT INCOME. IT IS ALSO NOTICED THAT THE A.O. COULD NOT ESTABLISH A NEXUS BETWEEN TH E INTEREST EXPENDITURE AND THE INVESTMENT MADE. AS IT IS EVIDENT FROM THE PROVISIONS OF LAW THAT THE A.O. HAS TO GIVE THE BASIS FOR WORKING OUT SUCH EXPENDITURE RELATED TO EXEMPT INCOME AND SUCH DISALLOWANCE CANNOT BE MADE MERELY ON ESTIMATION OR CONJECTUR ES. AS THE APPELLANT'S OWN FUND IS MORE THAT THE INVESTMENT MADE, WHICH IS GENERATING EXEMPT INCOME, HENCE ANY KIND OF DISALLOWANCE ON INTEREST EXPENDITURE WITHOUT ANY BASE CANNOT BE HELD JUSTIFIED IN VIEW OF THE HON'BLE BOMBAY HIGH ITA NO. 1862 /1 3 3 COURT DECISION IN THE C ASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 (BORN.). IN THE PRESENT CASE, THE APPELLANT COMPANY HAS OWN FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS AGGREGATING TO RS.19.37 CRORES WHICH ARE INTEREST FREE FUNDS. THE I NVESTMENTS AMOUNTED TO ONLY RS.10.60 CRORES. THUS, THE APPELLANT HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MEET ITS INVESTMENTS. 4.5 IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND ALSO KEEPING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA), THE DISALLOWANCE OF PROPORTIONATE INTEREST IS NOT WARRANTED U/S.14A AND THE SAID DISALLOWANCE OF RS. 62,17,118/ - MADE BY THE AO IS DELETED. 5. AGAINST THE ABOVE ORDER OF CIT(A), THE REV ENUE IS IN APPEAL BEFORE US. 6. IT WAS ARGUED BY THE LD. DR THAT RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS A.Y.2009 - 2010 , THEREFORE, THE AO WAS JUSTIFIED IN APPLYING RULE 8D TO WORK OUT DISALLOWANCE OF EXPENSES INCURRED FOR EARNING OF EXEMPT INCOME. 7. ON THE OTHER HAND, LD. AR DREW OUR ATTENTION TO THE PAID UP CAPITAL AND RESERVES OF THE COMPANY, SO AS TO INDICATE THAT OWN FUNDS OF THE ASSESSEE WAS SUFFICIENT TO INVEST IN THE SHARES AND SECURITIES ON WHICH DIVIDEND INCOME WAS EARNED. OUR ATTENTION W AS ALSO INVITED TO THE AUDITED BALANCE SHEET PLACED ON RECORD TO INDICATE THAT ASSESSEE HAS EARNED INTEREST INCOME MORE THAN THE INTEREST EXPENDITURE, THEREFORE, NO DISALLOWANCE ON ACCOUNT OF INTEREST IS TO BE MADE IN VIEW OF THE DECISION OF THE KOLKATA BE NCH OF THE TRIBUNAL IN THE CASE OF M.S.TRADE A PARTMENT LTD., ITA NO.1277/KOL/2011, ORDER DATED 30 - 3 - 2012. 8. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT A ITA NO. 1862 /1 3 4 CATEGORICAL FIND ING HAS BEEN RECORDED BY THE CIT(A) WITH REGARD TO AVAILABILITY OF OWN FUNDS WHICH WAS MORE THAN THE AMOUNT INVESTED IN SHARES AND SECURITIES. AFTER GIVING THIS FINDING THE CIT(A) HAS APPLIED THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF RELIANCE UTILITIES AND POWER LTD.(SUPRA) , 313 ITR 340 (BOM) AND DELETED THE DISALLOWANCE OF INTEREST. THE FINDING RECORDED BY CIT(A) WITH REGARD TO THE AVAILABILITY OF OWN FUNDS HAS NOT BEEN CONTROVERTED BY LD. DR, ACCORDINGLY, WE DO NOT F IND ANY REASON TO INTERFERE IN THE FINDING RECORDED BY CIT(A) WHICH RESULTED INTO DELETION OF DISALLOWANCE OF INTEREST EXPENSES. 9. WITH REGARD TO THE PROPOSITION OF LD. AR THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS WARRANTED WHEN THE INTER EST INCOME IS MORE THAN THE INTEREST EXPENDITURE, WE ARE IN AGREEMENT INSOFAR AS THE KOLKATA BENCH OF THE TRIBUNAL IN CASE OF M.S. TRADE APARTMENT LTD. (SUPRA ) HAS HELD THAT ONCE THE INTEREST INCOME IS FOUND TO BE IN EXCESS OF INTEREST EXPENDITURE, NO DIS ALLOWANCE U/S.14A IS WARRANTED WITH REGARD TO THE INTEREST DEBITED TO THE P&L ACCOUNT, WHICH IS LOWER THAN THE INTEREST INCOME CREDITED TO THE P&L ACCOUNT. 10 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 17 /06 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 17 /06 /201 5 . . /P KM , . / PS ITA NO. 1862 /1 3 5 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//