RADHIKA D. MEHTA, MUMBAI V. INCOME TAX OFFICER, WARD 19(3)(1), MUMBAI

ITA 1938/MUM/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5676 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Assessee Lawyers: RAJAN P VORA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 1938 / MUM/20 18 ( ASSESSMENT YEAR : 2012 - 13 ) ITA NO. 1939 /MUM/20 18 ( ASSESSMENT YEAR : 2013 - 14 ) ITA NO. 1940 /MUM/20 18 ( ASSESSMENT YEAR : 2 014 - 15 ) MS. RADHIKA D. MEHTA 73 - A, SKY SCRAPPER 7 TH WARDEN ROAD MUMBAI 400 026 VS. THE INCOME TAX OFFICER OF INCOME TAX WARD 19(3)(1), MATRU MANDIR, MUMBAI 400 020 PAN/GIR NO. AAEPM4477H APPELLANT ) .. RESPONDENT ) ASSESSEE BY S HRI RAJAN P. VORA REVENUE BY MS. N. HEMALATHA DATE OF HEARING 04 / 06 /201 8 DATE OF PRONOUNCEMENT 26 / 07 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THESE APPEALS ARE FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 6, MUMBAI DATED 22/02/201 8 FOR A.Y.1012 - 14 TO 2014 - 15 IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE IT ACT. 2. THE COMMON GROUNDS TAKEN BY ASSESSEE ARE AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CTT(A)] ASSESS ING OFFICER GENERAL 1. ERRED IN CONFIRMING AN ADDITION OF RS. 11,91,119/ - TO THE TOTAL INCOME OF THE APPELLANT. ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 2 DISALLOWANCE UNDER SECTION 14A IN RESPECT OF DIVIDEND INCOME EXEMPT UNDER SECTION 10(34) 2. ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 11,9 1,119/ - UNDER SECTION 14A OF THE ACT R.W.R. 8D (I.E. RS. 10,22,1997 - OF INTEREST UNDER RULE 8D(2)(II) AND RS. 1,68,9207 - OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III)OF THE RULES); INVESTMENT MADE FROM NON - INTEREST BEARING FUNDS 3. FAILED TO APPRECIATE THE FACT THAT INTEREST BEARING FUNDS WERE NOT USED FOR THE PURPOSE OF MAKING INVESTMENT AND APPELLANT HAD SUFFICIENT OWN FUNDS (NON INTEREST BEARING FUNDS) AND THERE BY NO INTEREST EXPENSES CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES; NON - EXCLUSION OF STRATEGIC INVESTMENT 4. ERRED IN NOT EXCLUDING THE STRATEGIC INVESTMENT MADE BY THE APPELLANT FROM THE TOTAL INVESTMENTS, WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D THE RULES; RESTRICTION OF DISALLOWANC E U/S 14A OF THE ACT 5. WITHOUT PREJUDICE TO THE ABOVE, DISALLOWANCE IF ANY, UNDER SECTION 14A OF THE ACT SHOULD BE RESTRICTED TO 1% OF THE EXEMPT DIVIDEND INCOME EARNED BY THE APPELLANT; 6. WITHOUT PREJUDICE TO THE ABOVE, DISALLOWANCE IF ANY, UNDER SEC TION 14A OF THE ACT SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMPT DIVIDEND INCOME EARNED BY THE APPELLANT; SET - OFF OF BROUGHT FORWARD LOSSES 7. ERRED IN DENYING CARRY FORWARD OF THE BROUGHT FORWARD LOSSES OF EARLIER YEARS TO SUBSEQUENT YEARS, TO THE EXTENT IT WAS SET OFF BY THE ASSESSING OFFICER IN CURRENT YEAR AGAINST THE ADDITION UNDER SECTION 14A OF RS. 1 1,91,119 / - THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, AMEND OR DELETE ONE OR MORE OF THE ABOVE GROUNDS OF APPEAL AT ANY TIME BEFORE, OR AT THE TIME OF, HEARING OF THE APPEAL, SO AS TO ENABLE HON'BLE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. THE COMMON GRIEVANCE OF THE ASSESSEE PERTAIN S TO DISALLOWANCE MADE UNDER SECTION 14A O F THE AC T. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING/DEALING IN SHARES AND SECURITIES ON THE STOCK EXCHANGE. THE ASSESSEE HAD MADE INVESTMENT IN ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 3 THE SHARES FROM WHICH DIVIDEND INCOME WAS RECEIVED DURING THE THREE YEARS UNDER CONSIDERATION. THE DETAILS OF INVESTMENT IN SHARE ARE AS UNDER: 4. DURING THE COURSE OF SCRUTINY ASSESSMENT T HE ASSESSING OFFICER MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D FOR THESE ASSESSMENT YEARS UNDER CONSIDERATION, AND THE SUMMARY OF THE SAME IS AS UNDER: ASSESSMENT YEAR DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D INTEREST UNDER RULE 8D(2)(II) OTHER ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) TOTAL 2012 - 13 10,22,199 1,68,920 RS. 11,91,119 2013 - 14 18,16,140 3,33 ,501 RS. 21,49,641 2014 - 15 17,57,395 3,34,022 RS. 20,91,418 5. IT WAS ARGUED BY THE LEARNED A.R. THAT I N RESPECT OF A.Y. 2013 - 14 & A.Y. 2014 - 15 THE ASSESSEE HAD MADE A SUO - MOTO DISALLOWANCE UNDER SECTION 14A OF THE ACT OF RS. 10,481/ - AND RS. 9,817/ - RES PECTIVELY. ACCORDING TO THE LEARNED A.R. THERE IS INAPPROPRIATE APPLICATION OF RULE 8D BY THE AO WITHOUT RECORDING DIS - SATISFACTION AS TO CORRECTNESS OF SUO - MOTO DISALLOWANCE OFFERED BY THE ASSESSEE. IT WAS VEHEMENTLY ARGUED BY THE LEARNED A.R. THAT RULE 8 D CANNOT BE APPLIED IN CASE OF THE ASSESSEE, SINCE PARTICULARS AS ON 31 MARCH 2012 AS ON 31 MARCH 201 3 AS ON 31 MARCH 2014 INVESTMENT IN SHARES (MAINLY IN AX IS CAPITAL MARKETS (I) LTD.) RS. 6,65,96,146 RS. 6,68,04,441 RS. 6,68,04,441 ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 4 THE ASSESSEE HAD ALREADY MADE SUO - MOTO DISALLOWANCE UNDER SECTION 14A OF THE ACT AND THE AO HAS NOT GIVEN ANY REASON WITH REGARD TO THE DISSATISFACTION ON THE SAME. HE FURTHER CONTENDED THAT WHILE COMPUTIN G DISALLOWANCE FOR ASSESSMENT YEARS 2013 - 14 AND 2014 - 15, THE AO HAS NOT GIVEN CREDIT FOR THE SUO - MOTO DISALLOWANCE ALREADY OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME, THEREBY TO THE EXTENT OF RS. 10,481 IN A.Y. 2013 - 14 AND RS. 9,817 IN A.Y. 2014 - 15, TH ERE IS A DOUBLE DISALLOWANCE MADE BY THE AO. AS PER THE LEARNED A.R. THE AFORESAID INVESTMENT IN AXIS CAPITAL MARKET (I) LTD. WAS MADE FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND NO DIRECT OR INDIRECT EXPENSE HAS BEEN INCURRED IN RELATION TO E ARNING EXEMPT INCOME. INVESTMENT IN SHARES WAS MADE IN ASSESSMENT YEARS 2011 - 12 AND 2012 - 13 AND THE SAME INVESTMENTS WERE CONTINUED IN SUBSEQUENT ASSESSMENT YEARS. AS PER LEARNED AR , SUFFICIENT OWN/ INTEREST - FREE FUNDS WERE AVAILABLE IN THE SAID YEARS WHEN THE INVESTMENTS WERE MADE. AFTER MAKING THE INVESTMENT NO FURTHER EFFORTS OR COST WERE REQUIRED FOR EARNING DIVIDEND INCOME FROM THE SAID INVESTMENT. THEREFORE, IT WAS SUBMITTED THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT SHOULD BE MADE. 6. IN VIEW OF ABOVE, HE CONTENDED THAT T HE ASSESSING OFFICER HAS HOWEVER, WITHOUT APPRECIATING THE FACTUAL MATRIX, HAS ARRIVED AT THE CONCLUSION THAT THE INVESTMENT HAS BEEN MADE FROM INTEREST BEARING BORROWED FUNDS. ACCORDINGLY, HE SUBMITTED THAT NO INTEREST SHOULD BE ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 5 DISALLOWED SINCE OWN FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENT. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING DECISIONS: HDFC BANK LTD. (366 ITR 505) (BOM) RELIANCE UTILITIES & POWER LTD. (31 3 ITR 340) (BOM) M/S. UMA POLYMERS LTD. VS. DCIT (ITA 3329/MUM/2015) DATED 9 TH FEBRUARY 2017 (MUM) 7 . ON THE OTHER HAND, THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND CONTENDED THAT THE AO AS PRECISELY APPLIED RULE 8D, WHICH IS APPLICABLE FOR ASSESSMENT YEARS U NDER CONSIDERATION AND THAT PROPER FINDING HAS BEEN RECORDED BY THE AO TO THE EFFECT THAT THE ASSESSEE HAS NOT OFFERED THE DISALLOWANCE KEEPING IN VIEW THE QUANTUM OF EXPENDITURE INCURRED ON ACCOUNT OF INTEREST AND ADMINISTRATIVE EXPENSES. 8 . WE HAVE CONSI DERED THE CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT THE AO HAD COMPUTED THE DISALLOWANCE AS PER RULE 8D AFTER OBSERVING THAT ASSESSEE HAD INCURRED INTEREST ON FUNDS WHICH WAS USED FOR EARNING EXEMPT INCOME. FROM THE RECORD , WE FOUND THAT THE ASSESSEE HAS USED INTEREST FREE FUNDS BORROWED FROM SPOUSE, THE DETAILS OF WHICH ARE AS UNDER: - PARTICULARS AY 12 - 1 3 AY 13 - 14 AY 14 - 1 5 AVERAGE VALUE OF INVESTMENT IN SHARES AS CONSIDERED BY THE AO (OPE NING BALANCE + CLOSING BALANCE 12) A 3,37,84,005 6,67,00,294 6,68,04,442 AVERAGE INTEREST - FREE FUNDS BORROWED FROM SPOUSE (OPENING BALANCE + CLOSING BALANCE 12) B 3,17,02,000 3,50,10,500 3,44,03,000 ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 6 INVESTMENT MADE FROM BORROWED FUNDS (A - B) C 20, 82,005 3,16,89,794 3,24,01,442 TOTAL INTEREST EXPENSES D 24,80,484 25,02,256 26,06,036 AVERAGE ASSETS E 9,42,91,440 9,18,98,862 8,61,30,292 DISALLOWANCE OF INTEREST TO BE MADE UNDER SECTION 14A (D*C/E) F 54,770 8,62,861 9,80,367 DISALLOWAN CE OF INTEREST MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D G 10,22,199 18,16,140 17,57,395 EXCESS DISALLOWANCE MADE BY AO (G - F) 9,67,429 9,53,279 7,77,028 9 . IT IS CLEAR FROM THE ABOVE TABLE THAT THE AO HAS COMPUTED EXCESS DISALLOWANCE OF INTEREST BY NOT GIVING CREDIT FOR THE INVESTMENT MADE OUT OF INTEREST FREE FUNDS BORROWED FROM SPOUSE. ACCORDINGLY WE DIRECT THE AO TO DELETE THE EXCESS DISALLOWANCE OF INTEREST SO MADE. SO FAR AS DISALLOWANCE MADE UNDER RULE 8D(2)(III) IS CONCERNED, WE OBSERVE THA T THE AO HAS MADE PROPER DISALLOWANCE. 10 . WE ALSO FOUND THAT AS PER THE FOLLOWING JUDICIAL PRONOUNCEMENTS DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE EXEMPT INCOME: - I) M/S UMA POLYMERS LTD. VS. DCIT (ITA 3329/MUM/2015) DATED 9 TH FEBRUARY, 2017 (MUM) II) JOINT INVESTMENTS PVT. LTD. VS. CIT (92 CCH 88) (DELHI HC) III) DAGA GLOBAL CHEMICAL PVT. LTD. VS. ACIT (43 CCH 613)(MUM) IV) M/S DILIGENT INVESTMENTS PVT. LTD. (ITA NO.2224/MUM/2013) DATED 24 TH SEPTEMBER, 2015 V) JINDAL STAINLESS STEELWAY LTD. (ITA NO.6167/DEL/201 2) DATED 28 TH MAY, 2015 VI) PCIT VS. EMPIRE PACKAGE (P) LTD. (95 CCH 219) (PUNJAB & HARYANA HC) ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 7 11 . LN RESPECT OF ASSESSMENT YEARS 2012 - 13 AND 2014 - 15, DISALLOWANCE MADE BY THE AO EXCEEDS THE AMOUNT EXEMPT INCOME EARNED BY WAY OF DIVIDEND, AS UNDER: PARTICULA RS ASSESSMENT YEAR 2012 - 1 3 2014 - 15 DIVIDEND EARNED RS. 2,16,024 RS. 15,11,640 DISALLOWANCE MADE BY AO UNDER SECTION 14A R.W. RULE 8D RS. 11,91,119 RS. 20,91,418 12 . IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE JUDICIAL PRONOUNCEMENTS AS STATED ABOVE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE IN THE ASSESSMENT YEARS 2012 - 13 & 2014 - 15 TO THE EXTENT OF EXEMPT INCOME. AO TO GIVE CREDIT OF DISALLOWANCE OFFERED BY ASSESSEE . WE DIRECT ACCORDINGLY. 12. IN THE RESULT APPLES FILE BY THE ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 6 / 07 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI ; DATED 26 / 07 /201 8 KARUNA SR. PS ITA NO. 1938/MUM/2018 TO 1940/MUM/2018 MS. RADHIKA D. MEHTA 8 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI DA TE INITIAL 1. DRAFT DICTATED ON 28/06/2018 SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/P S 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DICTATION PAD IS ENCLOSED YES 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//