SETO TEKNOLOG PVT LTD, MUMBAI V. D.C.I.T. RANGE 10(2), MUMBAI

ITA 2082/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83584 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 23-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C M VAZE
• Keywords: Earning of tax free income; Proportionate interest; Commercial expediency; Capital expenditure
• Section: 14A; 37

Judgement Text

M/S. SETO TEKNOLOG PVT. LTD. , IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI , !' # # # # , $ %% , , !' & BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUICIAL MEMBER ./ I.T.A. NO.2082/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR : 2008-09 A N D ./ I.T.A. NO.2802/MUM/2012 ( ' ' ' ' / ASSESSMENT YEAR : 2009-10 M/S. SETO TEKNOLOG PVT. LTD., 101/406, HILL VIEW IND. ESTATE, OFF LBS MARG, GHATKOPAR (W), MUMBAI-400 086 / VS. THE DCIT, RANGE-10(2), MUMBAI '( ./ $) ./ PAN/GIR NO. : AABCS 4066J ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SHRI C.M. VAZE +,(* . - / RESPONDENT BY: SHRI KISHORE DHULE . /0 / DATE OF HEARING :13.08.2014 12' . /0 / DATE OF PRONOUNCEMENT :20.08.2014 M/S. SETO TEKNOLOG PVT. LTD. !3 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AGA INST TWO SEPARATE ORDERS OF THE LD. CIT(A)-22, MUMBAI DT.31.12.2010 AND 2.3. 2012 RESPECTIVELY FOR ASSESSMENT YEARS 2008-09 AND 2009-2010. AS BOTH TH ESE APPEALS WERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 2082/M/2011 A.Y. 2008-09 2. THE FIRST GRIEVANCE RELATES TO THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED DIVIDE ND INCOME OF RS. 6,892/- WHICH WAS CLAIMED AS EXEMPT FROM TAX. THE ASSESSEE WAS A SKED TO FURNISH THE DETAILS OF EXPENDITURES ATTRIBUTABLE TO EXEMPT INCOME. THE AS SESSEE EXPLAINED THAT FOR EARNING THE EXEMPT INCOME, IT HAS INCURRED AN EXPEN DITURE OF RS. 3,218/-. THE AO DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE AND P ROCEEDED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. M/S. SETO TEKNOLOG PVT. LTD. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE AO HAS MADE THE DISALLOWANCE WITHOUT RECORDING ANY NON SATISFACTION IN RESPECT OF THE CLAIM OF THE ASSESSEE. IT WAS STRONGLY CONTENDED THAT APPLICATIO N OF SEC. 14A(3) & (4) ARE NOT AUTOMATIC RULE 8D CAN BE INVOKED ONLY WHEN THE AO H AVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE ASSESSEE HAS QUANTIFIED THE EXPENDITURE ATTRIBUTABLE FOR EAR NING OF THE EXEMPT INCOME AT RS. 3,218/- WHICH INCLUDED ONE MONTH SALARY PAID TO ONE EMPLOYEE AT RS. 2,074/- AND CONVEYANCE RS. 1,114/-. THE AO HAS NOWHERE RECORDE D HIS DISSATISFACTION SO FAR AS THIS CLAIM OF THE ASSESSEE IS CONCERNED. WE, FURTH ER FIND THAT THE ASSESSEE HAS ACQUIRED SHARES OF LOSS MAKING DEBT RIDDEN COMPANY M/S. SAMEERA ELECTRONICS PVT. LTD. WHICH IS NOTHING BUT A STRATEGIC INVESTMENT WH ICH ARE LONG TERM INVESTMENT WHICH DO NOT REQUIRE ANY DECISION FOR MAKING THE IN VESTMENT OR DISINVESTMENT ON REGULAR BASIS. THESE INVESTMENTS ARE STRATEGIC IN NATURE IN THE SUBSIDIARY COMPANIES ON LONG TERM BASIS. THEREFORE, NO DIRECT OR INDIRECT EXPENDITURE IS INCURRED. THE AO HAS NOT BROUGHT OUT ANY CONTRARY FACTS OR MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR MAINT AINING THESE INVESTMENTS. CONSIDERING THE FACT THAT THE A.O HAS NOT RECORDED ANY DISSATISFACTION FURTHER SUPPORT THE FACT THAT THE INVESTMENT WAS A STRATEGI C INVESTMENT, WE DO NOT FIND ANY M/S. SETO TEKNOLOG PVT. LTD. MERIT IN THE DISALLOWANCE MADE U/S. 14A OF THE ACT R.W. RULE 8D AMOUNTING TO RS. 18,17,845/-. THE AO IS DIRECTED TO DELETE THE SAME . THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. GROUND NO. 2 RELATES TO DISALLOWANCE OF INTEREST COST AMOUNTING TO RS. 29,94,879/-. 9. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN A.Y . 2007-08 IN ITA NO. 4195/M/10. 10. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE TRI BUNAL (SUPRA). WE FIND THAT THE TRIBUNAL AT PARA-9 ON PAGE-7 OF ITS ORDER HAS H ELD THAT ACQUIRING SHARES IN SAMEERA ELECTRONICS PVT. LTD. BY THE ASSESSEE IS NO T CONNECTED FOR THE PURPOSE OF BUSINESS. THEREFORE, THE ACQUISITION OF SHARES IN SAMEERA ELECTRONICS PVT. LTD. IS NOT FOR THE PURPOSE OF THE BUSINESS AND THE INTERES T PAID THEREON IS NOT ALLOWABLE EITHER IN THE SECTION 36(1)(III) OR SECTION 37 OF T HE ACT. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT BEFORE US, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), WE DISMISS GROUND NO. 2. 11. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF INT EREST COST AMOUNTING TO RS. 3,76,422/- BEING THE PROPORTIONATE INTEREST ON INTE REST FREE ADVANCE GIVEN TO M/S. SAMEERA ELECTRONICS PVT. LTD. IT WAS POINTED OUT T HAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A .Y. 2007-08. M/S. SETO TEKNOLOG PVT. LTD. 13. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIB UNAL IN ITA NO. 4195/M/10 (SUPRA). WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL AT PARA-16 OF ITS ORDER AND AT PARA-19, THE TRIBUNAL H AS RESTORED THE ISSUE TO THE FILE OF THE AO TO EXAMINE THAT THE ASSESSEE IS HAVING SUFFI CIENT OWN FUNDS FOR GIVING INTEREST FREE ADVANCES. FACTS AND ISSUES BEING IDE NTICAL, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO VERIFY WHETHER THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING INTEREST FREE ADVANCES TO M/S. SAMEERA ELECTRONICS PVT. LTD. AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 2802/M/2012 A.Y. 2009-10 14. THE FIRST GRIEVANCE RELATES TO THE DISALLOWANC E U/S. 14A R.W. RULE 8D OF THE ACT. THIS ISSUE IS IDENTICAL TO GROUND NO. 1 IN ITA NO. 2082/M/11 FOR A.Y. 2008- 09. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY ALL OWED. 15. GROUND NO. 2 RELATES TO DISALLOWANCE OF INTERES T COST AMOUNTING TO RS. 29,23,856/-. THIS ISSUE IS IDENTICAL TO GROUND NO. 2 IN ITA NO. 2082/M/11 FOR A.Y. 2008-09. THEREFORE, THIS GROUND OF THE ASSESSEE IS DISMISSED. 16. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF INT EREST COST AMOUNTING TO RS. 8,80,674/-/- BEING THE PROPORTIONATE INTEREST ON IN TEREST FREE ADVANCE GIVEN TO M/S. SAMEERA ELECTRONICS PVT. LTD. THIS ISSUE IS IDENTI CAL TO GROUND NO. 3 IN ITA NO. M/S. SETO TEKNOLOG PVT. LTD. 2082/M/11 FOR A.Y. 2008-09. THEREFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 17. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF LIC ENSE FEE OF RS. 10,44,383/-. 18. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT PAR A-7 OF HIS ORDER WHEREIN THE AO ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF PAYM ENT OF LICENSE FEES AMOUNTING TO RS. 10,44,383/-. IT WAS EXPLAINED THAT IT WAS P AID TO MIDC FOR PERMISSION TO USE THE PREMISES OF M/S. SAMEERA ELECTRONICS PVT. LTD. FOR THE BUSINESS OPERATION OF THE ASSESSEE. THE AO WAS OF THE OPINION THAT THE A NNUAL LICENSE FEES CHARGED BY MIDC IS ONE TIME EXPENDITURE FOR ACQUISITION OF LIC ENSE TO USE THE PREMISES AND IT IS NOTHING BUT PART OF SALE CONSIDERATION OF BUSINE SS OF M/S. SAMEERA ELECTRONICS PVT. LTD. . THE AO TREATED THE SAME AS CAPITAL EX PENDITURE. 19. BEFORE THE LD. CIT(A), THE ASSESSEE REITERATED ITS CLAIM. THE LD. CIT(A) HAS CONSIDERED THE GRIEVANCE OF THE ASSESSEE AT PARA-5 OF HIS ORDER. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS C ONVINCED THAT THE EXPENSES RELATED TO THE ACQUISITION OF BUSINESS AND SHARES O F THE COMPANY M/S. SAMEERA ELECTRONICS PVT. LTD. IS OF CAPITAL IN NATURE AND CONFIRMED THE FINDINGS OF THE AO. 20. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT THE EXPENDITURE HAS BEEN INCURRED AFTER ACQUIRING THE SHARES OF M/S. SA MEERA ELECTRONICS PVT. LTD., THEREFORE, IT CANNOT BE CONSIDERED AS PART OF THE S ALE CONSIDERATION. IT IS THE SAY OF THE LD. COUNSEL THAT LICENSE FEE PAID TO MIDC IS OF REVENUE IN NATURE AND SHOULD E ALLOWED ACCORDINGLY. M/S. SETO TEKNOLOG PVT. LTD. 21. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE FINDINGS OF THE REVENUE AUTHORITIES. 22. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE PAYMENT HAS BEEN MADE TO MIDC IS NOT IN DISPUTE. THE LICEN SE FEE HAS BEEN PAID BY THE ASSESSEE SO THAT IT CAN OPERATE FROM THE BUSINESS P REMISES OF M/S. SAMEERA ELECTRONICS PVT. LTD. WITHOUT THE PAYMENT OF THIS LICENSE FEE TO MIDC, THE ASSESSEE WOULD NOT BE IN A POSITION TO DO BUSINESS FROM THE PREMISES OF M/S. SAMEERA ELECTRONICS PVT. LTD. THEREFORE, IN OUR CO NSIDERED VIEW, COMMERCIAL EXPEDIENCY OF THE EXPENDITURE CANNOT BE QUESTIONED AS NO NEW ASSET HAS BEEN CREATED BY THE PAYMENT OF THIS LICENSE FEE, IT CANN OT BE TREATED AS A CAPITAL EXPENDITURE. WE, ACCORDINGLY SET ASIDE THE FINDING S OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF EXPENDITURE OF RS. 10, 44,383/-. 23. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2014 SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) !' / JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 4! DATED : 20 TH AUGUST, 2014 . . ./ RJ , SR. PS M/S. SETO TEKNOLOG PVT. LTD. !3 !3 !3 !3 . .. . +/ +/ +/ +/ 5'/ 5'/ 5'/ 5'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 7% +/ , , / DR, ITAT, MUMBAI 6. %8 9 / GUARD FILE. !3 !3 !3 !3 / BY ORDER, ,/ +/ //TRUE COPY// : :: : / ; ; ; ; $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI