FORTUNE FINANCIAL SERVICES (INDIA) LTD., MUMBAI V. ADDL. CIT RANGE 4(1),

ITA 2103/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8098 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 2103 / MUM/20 16 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. FORTUNE FINANCIAL SERVICES (INDIA) LTD., 21 ST FLOOR, A WING NAMAN MIDTOWN SENAPATI BAPAT MARG, ELEPHINSTONE ROAD (WEST) MUMBAI 400 013 VS. ADDL. CIT RANGE 4(1), MUMBAI PAN/GIR NO. AAACF0610J APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI ANUJ KISNADWALA REVENUE BY MS. POOJA SWAROOP DATE OF HEARING 21 / 1 1 /201 7 DATE OF PRONOUNCEME NT 18 / 12 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 9, MUMBAI DATED 04/12/2015 FOR A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - DISALLOWANCE U/S 14A OF INCOME TAX ACT, 1961 OF RS. 61,14,053/ - THE LD. CIT (A) EARED IN LAW AND ON FACTS CONFIRMING DISALLOWANCE OF RS. 61,14,053/ - U/S 14A. 2. DISALLOWANCE OF PREMIUM PAID ON INSURANCE PREMIUM PAID OF RS. 1,32,832/ - THE LD. CIT (A) EARED IN LAW AND ON FACTS CONFIRMING DISALLOWANCE OF RS. 1,32,832/ - TOWARDS PREMIUM PAID ON THE INSURANCE POLICY. ITA NO. 2103/MUM/20 16 FORTUNE FINANCIAL SERVICES (INDIA) LTD., 2 3. THE APPELLANT FURTHER CRAVES LEAVE TO ADD, ALTER OR AMEND HIS GROU NDS OF APPEAL DURING THE COURSE OF APPEAL. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT BANKING, EQUITY / DEBT SYNDICATION, ISSUE MANAGEMENT AND CORPORATE ADVI SORY. IN THE RETURN OF INCOME, T HE ASSESSEE HAD SUE - MOTO DISALLOWED SUM OF RS.38,037/ - U/S 14A R/W RULE 8D. WHILE FRAMING ASSESSMENT U/S.143(3), AO DISALLOWED INTEREST AND OTHER EXPENDITURE AMOUNTING TO RS.61,14,053/ - U/S.14A, ON THE PLEA THAT SA ME WER E INCURRED FOR EARNING THE EXEMPT INCOME. 5. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE DISALLOWANCE SO MADE BY THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. LEARNED AR DRAWN OUR ATTENTION TO THE INVESTMENT MADE BY THE ASSESSEE WHICH WAS IN ITS SUBSIDIARY COMPANIES. OUR ATT ENTION WAS ALSO DRAWN TO THE FA CT THAT ASSESSEE WAS HAVING ITS OWN CAPITAL AND FREE RESERVES MUCH MORE THAN THE INVESTMENT SO MADE, ACCORDINGLY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF RELIANCE UTI LITIES AND POWER LTD., AND HONBLE BOMBAY HIGH COURT IN CASE OF HDFC BANK LTD., IT WAS CONTENDED THAT NO DISALLOWANCE OF INTEREST SHOULD BE MADE. 7. WITH REGARD TO THE OTHER DISALLOWANCE, IT WAS SUBMITTED THAT ASSESSEE HIMSELF HAS OFFERED DISALLOWANCE OF R S.38,000/ - UNDER RULE 8D (2)(III), ACCORDINGLY, NO FURTHER DISALLOWANCE WAS WARRANTED. ITA NO. 2103/MUM/20 16 FORTUNE FINANCIAL SERVICES (INDIA) LTD., 3 8. ON THE OTHER HAND, IT WAS CONTENDED BY LEARNED DR THAT ASSESSEE COULD NOT DEMONSTRATE ONE TO ONE INVESTMENT IN SHARES OUT OF THE OWN FUNDS AND RESERVES, THEREFORE, A O WAS JUSTIFIED IN DISALLOWING THE PROPORTIONATE INTEREST SO DEBITED TO THE P & L ACCOUNT. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. AS PER THE BALANCE SHEET ON RECORD, WE FOUND THAT ASSESSEE WA S HAVING ITS OWN SHARE CAPITAL AN D RESERVES OF RS.10004.10/ - LAKHS AS AGAINST THE INVESTMENT OF RS.8094.70 LAKHS. SINCE OWN CAPITAL AND RESERVE WAS MORE THAN THE INVESTMENT, IN TERMS OF DECISION OF THE BOMBAY HIGH COURT IN CASE OF HDFC BANK, N O DISALLOWANC E O N ACCOUNT OF INTEREST IS WARRANTED. WE ALSO FOUND THAT THE DECISION OF THE TRIBUNAL RELIED ON BY CIT(A) HAS BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT. 10. NO INTEREST DISALLOWANCE CAN BE MADE U/S.14A OF THE ACT SINCE OWN FUNDS ARE SUFFICIENT TO COV ER THE VALUE OF INVESTMENTS, IN TERMS OF THE FOLLOWING JUDICIAL PRONOUNCEMENTS: - 1. CIT VS. RELIANCE UTILITIES LTD., [313 ITR 340 (BOM) 2. CIT VS. HDFC BANK LTD [366 ITR 505 (BOM) 3. HDFC BANK VS. DY. CIT [383 ITR 529 (BOM) 1 1 . IN VIEW OF THE ABOVE, WE DIRECT THE AO TO DELETE THE DISALLOWANCE ON ACCOUNT OF INTEREST MADE U/S.14A. 12 . WITH REGARD TO THE OTHER DISALLOWANCE MADE UNDER RULE 8D(2)(III), WE FOUND THAT ASSESSEE HIMSELF HAS OFFE RED DISALLOWANCE OF RS.38,000/ - .WE ALSO FOUND THAT MOST OF THE INVE STMENTS OF THE ASSESSEE ARE IN GROUP ITA NO. 2103/MUM/20 16 FORTUNE FINANCIAL SERVICES (INDIA) LTD., 4 CONCERNS WHICH ARE REQUIRED TO BE EXCLUDED FROM AVERAGE INVESTMENT WHILE COMPUTING DISALLOWANCE UNDER RULE 8D, IN VIEW OF THE FOLLOWING JUDICIAL PRONOUNCEMENTS. 1) CHEMINVEST LTD. V CIT [378 ITR 33 (DEL)/ 281 CTR 447 (D EL)] 2) GARWARE WALL ROPES LIMITED V ADDL. CIT (ITA NO. 5408/MUM/2012) 3) M/S JM FINANCIAL LIMITED V ADDL. CIT (ITA NO: 4521/MUM/2012) 4) CIT V ORIENTAL STRUCTURAL ENGINEERS PVT. LTD (DELHI HIGH COURT) 13 . RESPECTFULLY FOLLOWING THE JUDICIAL PRONOUNCEMENT S, WE DIRECT THE AO TO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D (2)(III) AFTER EXCLUDING THE INVESTMENT MADE IN GROUP CONCERNS. WE DIRECT ACCORDINGLY. 15 . WITH REGARD TO THE PREMIUM OF RS.1,32,832/ - PAID ON MEDICAL INSURANCE POLICY OF MANAGING DIRECTOR , WE FOUND THAT IT WAS PAID ON THE INSURANCE POLICY OF KEY MANAGEMENT PERSONNEL MR. NIMISH C SHAH, MANAGING DIRECTOR OF THE COMPANY. RELIANCE WAS PLACED BY LEARNED AR ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF V.N. EXPORT 323 ITR 178, WHEREIN IT W AS HELD THAT ASSESSEE HAS NOT TAKEN KEY MAN INSURANCE POLICY FOR THE PERSONAL BENEFIT OF ITS PARTNER BUT FOR THE BENEFIT OF THE FIRM IN ORDER TO PROTECT ITSELF AGAINST THE SET BACK THAT MAY BE CAUSED ON ACCOUNT OF THE DEATH OF THE PARTNER, INSURANCE PREMIU M SO PAID IS DEDUCTABLE. HOWEVER, I N THE INSTANT CASE THE POLICY HAS BEEN TAKEN FOR THE MANAGING DIRECTOR OF THE COMPANY WHO IS A KEY PERSONNEL OF THE COMPANY. HOWEVER THE TERMS OF EMPLOYMENT OF MANAGING DIRECTOR WAS NOT BROUGHT ON RECORD TO SUBSTANTIATE T HE CONTENTION THAT PREMIUM SO PAID WAS FOR THE BENEFIT OF COMPANY. UNLESS IT IS SHOWN THAT PREMIUM SO PAID WAS FOR THE BENEFIT OF COMPANY AND NOT THE PERSONAL BENEFIT OF MANAGING ITA NO. 2103/MUM/20 16 FORTUNE FINANCIAL SERVICES (INDIA) LTD., 5 DIRECTOR, THE RATIO LAID DOWN BY BOMBAY HIGH COURT IN THE CASE OF V.N. EXPOR T (SUPRA) CANNOT BE APPLIED. WE THEREFORE, RESTORE THE MATTER BACK TO AO FOR DECIDING AFRESH IN TERMS OF ABOVE OBSERVATION. 16 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 12 /2017 S D/ - ( AMARJIT SINGH ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 12 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTR AR) ITAT, MUMBAI 1 . THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//