DCIT 1(3)(1), MUMBAI V. STCI FINANCE LTD, MUMBAI

ITA 2170/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9965 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 18-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARTHIK NATARAJANDR
• Assessee Lawyers: SAURABH KUMAR
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 115JB

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL IBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./I.T.A./2170/MUM/2015 , /ASSESSMENT YEAR: 2011-12 DCIT-1(3)(1) 564, 5TH FLOOR, AAYAKAR BHAWAN M.K. ROAD, MUMBAI-400 020. VS. M/S. STCI FINANCE LIMITED A/B, 1-802, A-WING, 8TH FLOOR, MARATHON INNOVA, MARATHON NEXTGEN COMPOUND,OFF. GANPATRAO KADAM MARG, LOWER PAREL (W), MUMBAI-400 013. PAN:AAGCS 9709 K ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./1678/MUM/2015 , /ASSESSMENT YEAR: 2011-12 M/S. STCI FINANCE LIMITED LOWER PAREL (W).MUMBAI-400 013. VS. DCIT-1(3)(1) MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI KARTHIK NATARAJAN-DR ASSESSEE BY: SHRI SAURABHKUMAR -AR / DATE OF HEARING: 24/08/2017 / DATE OF PRONOUNCEMENT: 01/09/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 19/01/2015,OF THE CIT(A )-3,MUMBAI,THE ASSESSEE AND THE ASSESSING OFFICER(AO)HAVE FILED CROSS APPEALS FOR T HE YEAR UNDER CONSIDERATION.ASSESSEE- COMPANY, ENGAGED IN BUSINESS OF LENDING AS WELL AS TRADING AND INVESTMENT INTO FIXED INCOME MARKET,FILED ITS RETURN OF INCOME ON 29/9/2011,DECL ARING INCOME OF RS.NIL.THE AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 31/01/2014. ITA/2170/MUM/2015: 2. EFFECTIVE GROUND OF APPEAL, RAISED BY THE AO, IS AB OUT DELETING THE ADDITION MADE BY HIM UNDER RULE 8D(2)(II) OF THE INCOME TAX RULES,1962 ( RULES) R.W.S.14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 1.11 CRORES,THAT IT HAD NOT MADE ANY DISALLOWANCE U/S.14 A. HE CALLED FOR AN EXPLANATION FROM THE ASSESSEE IN THAT REGARD.HE HELD THAT THE EXPLANATIO N OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED FOR EARNING THE EXEMPT INCOME COULD NOT BE ACCEPTED,THAT INVESTMENT DECISIONS REQUIRED THE INCURRING OF ADMINISTRATIVE EXPENSES-B OTH DIRECT AND INDIRECT.HE RELIED UPON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ MANUFACTURING COMPANY 1689/ & 2170/M/15-STCI 2 LTD.(234 CTR 1) AND DISALLOWED RS.7.92 CRORES AND R S.1.28 CRORES UNDER CLAUSE (II) AND (III) OF THE RULES. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS.AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD THAT IN THE EARLIER TWO AY.S NO DI SALLOWANCE WAS MADE UNDER CLAUSE (II) OF THE RULE 8D (2)OF THE RULES. HE REFERRED TO THE CAS ES OF HDFC BANK LTD (366 ITR 505) AND RELIANCE UTILITIES AND POWER LTD.(313 ITR 340)AND H ELD THAT ASSESSEES CAPITAL,PROFIT RESERVES WERE HIGHER THAN THE INVESTMENTS MADE IN TAX-FREE S ECURITIES, THAT IT HAD TO BE PRESUMED THAT INVESTMENTS MADE BY THE ASSESSEE WERE OUT OF INTERE ST REFUNDS,THAT OWN FUND OF THE ASSESSEE WERE TO THE TUNE OF RS. 784.34 CRORES,THAT THE INVE STMENTS MADE BY IT WERE OF RS.219.27 CRORES.FINALLY, HE DELETED THE ADDITION OF RS.7.92 CRORES, MADE BY THE AO UNDER RULE 8D (2) (II)OF THE RULES.WITH REGARD TO DISALLOWANCE MADE U NDER CLAUSE (III), HE HELD THAT WHILE DECIDING THE APPEAL FOR THE AY.2010-11 THE THEN FAA HAD UPHELD THE DISALLOWANCE KEEPING IN VIEW THE APPELLATE ORDER FOR THE AY.2009-10,THAT SUBSTANTIAL INVESTMENTS MADE BY THE ASSESSEE DURING THE YEAR UNDER APPEAL.FOLLOWING THE ORDER OF HIS PREDECESSOR, HE UPHELD THE DISALLOWANCE MADE UNDER CLAUSE (III) OF THE RULES. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. THE AUTHORISED REPR ESENTATIVE (AR) SUPPORTED THE ORDER OF THE FAA.WE FIND THAT THE FAA HAS GIVEN A CATEGORICAL FI NDING OF FACT THAT THE FUNDS OWNED BY THE ASSESSEE WERE SUFFICIENT TO MAKE INVESTMENTS.RE SPECTFULLY FOLLOWING THE JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HD FC BANK AND RELIANCE UTILITIES(SUPRA), WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST TH E AO. ITA/1689/MUM/2015: 5. FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWA NCE MADE BY THE AO UNDER CLAUSE (III) OF THE RULE 8D(2).IN THE EARLIER PART OF OUR ORDER, WE HAVE MENTIONED THE FACTS OF THE CASE.BEFORE US,THE AR ARGUED THAT THE ASSESSEE HAD MADE STRATEG IC INVESTMENTS,THAT SAME SHOULD NOT HAVE BEEN CONSIDERED FOR DISALLOWANCE, THAT ONLY THE IN VESTMENT YIELDING DIVIDEND INCOME DURING THE YEAR SHOULD HAVE BEEN CONSIDERED FOR MAKING ANY DISALLOWANCE,THAT DISALLOWANCE OUGHT TO HAVE BEEN RESTRICTED TO THE ACTUAL DIVIDEND RECEIVE D DURING THE YEAR. HE REFERRED CASES OF MAXOPP INVESTMENTS LTD.(347 ITR 272),FIDUCIARY EURO MAX GLOBAL MARKET LTD.(ITA/ 1349/ MUM/2012);VIREET INVESTMENTS PRIVATE LTD.(ITA.502/D EL/2012);CHEMINVEST LTD.(377 ITR 78).THE DR SUPPORTED THE ORDER OF THE FAA. 1689/ & 2170/M/15-STCI 3 6. WE FIND THE WHILE DECIDING THE APPEAL,WITH REGARD T O IDENTICAL GROUND,FOR THE EARLIER YEAR,THE TRIBUNAL HAD HELD AS UNDER: 15. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. NO DOUBT, ASSESSEE IN THE RETURN OF INCOME HAS ITSELF DISALLOWED RS.1,53,10,782 U/S.14A OF THE ACT. HOWEVER, IN OUR VIEW, THAT CANN OT DEBAR THE ASSESSEE FROM CHIMING EITHER DURING THE ASSESSMENT PROCEEDINGS OR IN APPELLATE F ORUM THAT NO DISALLOWANCE U/S.14A IS CALLED FOR, AS THERE IS NO ESTOPPEL AGAINST LAW. IF A PARTICULAR DEDUCTION IS NOT PERMISSIBLE IN LAW, IT CANNOT BE ALLOWED EVEN IF THE ASSESSEE CLAI MS IT IN THE RETURN OF INCOME. LIKEWISE, IF A RECEIPT IS NOT TAXABLE BUT WRONGLY OFFERED IN THE R ETURN OR A PARTICULAR DEDUCTION OTHERWISE ALLOWABLE PER MISTAKE WAS NOT CLAIMED IN THE RETURN , CANNOT BE BROUGHT TO TAX AS THE INTENT AND PURPOSE OF THE ACT IS TO TAX THE REAL INCOME OF THE ASSESSEE. THUS, CONSIDERED IN THE AFORESAID PERSPECTIVE ASSESSEE IS WELL WITHIN ITS R IGHT TO CHALLENGE THE DISALLOWANCE MADE U/S.14A. IT IS SEEN, BEFORE THE DEPARTMENTAL AUTHOR ITIES, ASSESSEE HAD OBJECTED SUCH DISALLOWANCE FOR FOLLOWING REASONS. FIRSTLY, GOVT. SECURITIES ARE HELD AS STOCK IN TRADE, HENCE, SECTION 14A, IS NOT APPLICABLE; SECONDLY; ASSESSEE HAD ENOUGH INTEREST FREE SURPLUS FUND AVAILABLE WITH IT TO MAKE THE INVESTMENTS, HENCE, N O DISALLOWANCE U/S.14A R/W RULE 8D, AT LEAST, OF INTEREST EXPENDITURE CAN BE MADE. IN OUR VIEW, AFORESAID CONTENTIONS OF THE ASSESSEE ARE VALID CONTENTIONS, HENCE, WORTHY OF BEING TAKEN NOTE OF. IN CASE OF CIT V/S INDIA ADVANTAGES SECURITIES LTD., ITA NO.1131 OF 2013, DE CIDED ON 30TH APRIL 2014, THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT NO DISALLOWANCE U/S.14A, CAN BE MADE WHERE TAX FREE SECURITIES ARE HELD AS STOCK IN TRADE. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILITIES & POWER LTD. HELD WHERE ASSESSEE HAS MIXED FUNDS, BOTH INTEREST BEARING AND INTEREST FREE, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE CAN BE MADE AS THE PRESUMPTION WOULD BE INVESTMENT IN SUBSIDIARY / SISTER CONCERN IS OUT OF SURPLUS INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE. THOUGH, THE AFORESAID DECISION O F THE HON'BLE JURISDICTIONAL HIGH COURT WAS IN THE CONTEXT OF SECTION 36(1)(III), HOWEVER, APPLYING THE PRINCIPLE LAID DOWN THEREIN THE HON'BLE JURISDICTIONAL HIGH COURT IN CASE OF CIT V/ S HDFC BANK LTD., 368 ITR 377 (BOM.) HELD THAT NO DISALLOWANCE OF INTEREST EXPENDITURE U /S.14A, CAN BE MADE IF THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH HIM T O MAKE THE INVESTMENTS. THE SAME VIEW WAS REITERATED AGAIN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN HDFC BANK LTD. V/S DCIT, WHILE DECIDING WRIT PETITION NO.1753 OF 2016, IN JU DGMENT DATED 25TH DECEMBER 2016. THUS, THE LEGAL PRINCIPLE EMERGING FROM THE AFORESAID JUD ICIAL PRONOUNCEMENTS ARE; (I) NO DISALLOWANCE U/S.14A CAN BE MADE IF SECURITIES ARE HELD AS STOCK IN TRADE; (II) NO DISALLOWANCE CAN BE MADE IF THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABLE WITH HIM TO MAKE THE TAX FREE INVESTMENTS. THOUGH, ASSESSEE RAISED THESE CON TENTIONS BEFORE THE DEPARTMENTAL AUTHORITIES, AS IS EVIDENT, THE DEPARTMENTAL AUTHOR ITIES FAILED TO CONSIDER THE CONTENTION OF THE ASSESSEE BOTH FACTUALLY AND LEGALLY. OFCOURSE, IT NEEDS TO BE MENTIONED THE DECISIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CASE OF HD FC BANK LTD. (SUPRA), AND INDIA ADVANTAGES SECURITIES LTD., WERE NOT AVAILABLE WHEN THE ORDERS WERE PASSED BY LEARNED COMMISSIONER (APPEALS) AND ASSESSING OFFICER. KEEPI NG IN VIEW THE AFORESAID FACTS, WE ARE OF THE CONSIDERED OPINION, ASSESSEES CONTENTIONS AGAI NST DISALLOWANCE U/S.14A, R/W RULE 8D, REQUIRES TO BE REEXAMINED AFTER VERIFYING THE RELE VANT FACTS AND IN THE LIGHT OF THE PRINCIPLES LAID DOWN IN THE JUDICIAL PRONOUNCEMENTS REFERRED T O ABOVE. THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND PASS A WELL REASONED ORDER DEALING WITH THE CONTENTIONS OF THE ASSESSEE AND KE EPING IN VIEW THE RATIO OF THE DICTIONS RELIED UPON BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL,WE RESTORE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION,WHO WOULD DECIDE THE MATT ER AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND AFTER CO NSIDERING THE CASES RELIED UPON BY THE ASSESSEE BEFORE US.FIRST EFFECTIVE GROUND OF APPEAL , RAISED BY THE ASSESSEE,STANDS PARTLY ALLOWED. 1689/ & 2170/M/15-STCI 4 7. SECOND EFFECTIVE GROUND OF APPEAL IS ABOUT IMPORTIN G SECTION 14 A INTO WORKING OF 115 JB OF THE ACT.THE FAA,WHILE CONFIRMING THE ORDER OF TH E AO RELIED UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF DABUR INDIA LTD.AND HELD TH AT WHILE COMPUTING THE INCOME UNDER THE MAT PROVISIONS,DISALLOWANCE U/S.14 A CAN BE CONSIDE RED. 8. BEFORE US,THE AR RELIED UPON THE CASE OF VIREET INV ESTMENT PVT.LTD.(SUPRA)OF THE SPECIAL BENCH OF THE TRIBUNAL WHEREIN IT WAS HELD THAT WHIL E COMPUTING THE INCOME AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT,DISALLOWANCE U/S.14A CANNOT BE CONSIDERED. RESPECTFULLY,FOLLOWING THE ORDER OF THE SPECIAL BEN CH OF THE TRIBUNAL,WE DECIDE THE SECOND GROUND OF APPEAL IN FAVOUR OF THE ASSESSEEE. AS A RESULT,APPEAL FILED BY THE AO IS DISMISSED AND APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED I N THE OPEN COURT ON 1 ST SEPTEMBER, 2017. 01 , 2017 SD/- SD/- ( (( ( /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 01.09.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.