NAVYUG KRISHI SADHAN P.LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 2203/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2238 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLKAR
• Assessee Lawyers: B P PUROHIT
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.2203/M/2015 ASSESSMENT YEAR: 2011-12 M/S. NAVYUG KRISHI SADHAN PVT. LTD., PLOT NO.1, ADARSH HOUSING SOCIETY, CROSS ROAD NO.2, MALAD, MUMBAI 400 064 PAN: AAACN 2326D VS. DCIT 9(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI B.P. PUROHIT, C.A. REVENUE BY : SHRI C.W. ANGOLKAR, D.R. DATE OF HEARING : 20.07.2016 DATE OF PRONOUNCEMENT : 27.07.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 13.02.2015 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2011-12. 2. THE SOLE ISSUE TAKEN BY THE ASSESSEE IN THIS APP EAL IS REGARDING THE DISALLOWANCE UNDER SECTION 14A RELATING TO THE EXPE NDITURE INCURRED FOR EARNING OF TAX EXEMPT INCOME. DURING THE ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,19,405/- WHICH H AD BEEN CLAIMED EXEMPT UNDER SECTION 10 OF THE ACT. THE ASSESSEE, HOWEVER , HAD NOT SUO-MOTO DISALLOWED ANY EXPENDITURE RELATING TO THE EARNING OF THE EXEMPT INCOME. ON BEING ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT DURING THE YEAR THE ASSESSEE ITA NO.2203/M/2015 M/S. NAVYUG KRISHI SADHAN PVT. LTD. 2 HAD INCURRED TOTAL INTEREST EXPENDITURE OF RS.1,16, 72,848/-. HOWEVER, THE INTEREST RECEIPTS DURING THE YEAR WERE AT RS.1,20,1 2,701/-. THUS, THE ASSESSEE HAD NET INTEREST INCOME OF RS.3,39,853/-. THEREFOR E, NO DISALLOWANCE OF INTEREST EXPENDITURE WAS ATTRACTED. HOWEVER, THE A SSESSEE SUBMITTED THAT AN EXPENDITURE OF RS.27,750/- WAS ATTRACTED FOR DISALL OWANCE UNDER RULE 8D(2)(III) AS BEING 0.5% OF AVERAGE INVESTMENT. THE ASSESSEE WHILE DOING SO EXCLUDED THE SHARE APPLICATION MONEY OF RS.10 CRORE. THE AO , HOWEVER, REJECTED THE CONTENTIONS OF THE ASSESSEE AND DISALLOWED THE INTE REST EXPENDITURE OF RS.3,47,141/- UNDER RULE 8D(2)(III) AND ALSO RETAIN ED THE DISALLOWANCE OF RS.27,750/- UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES. THUS, HE DISALLOWED THE TOTAL EXPENDITURE OF RS.3,74,891/- U NDER SECTION 14A READ WITH RULE 8D OF THE IT RULES. BEING AGGRIEVED BY THE OR DER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). 3. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED TH AT NO DISALLOWANCE OF INTEREST EXPENDITURE WAS ATTRACTED AS THERE WAS A N ET POSITIVE INTEREST INCOME OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT EVEN OTHERWISE THE OWN PAID UP CAPITAL AND RESERVES OF THE ASSESSEE WERE MORE T HAN THE TOTAL INVESTMENTS MADE. HOWEVER, THE LD. CIT(A) REJECTED THE CONTENT IONS OF THE ASSESSEE OBSERVING THAT THE ASSESSEE COULD NOT ESTABLISH ONE TO ONE RELATION REGARDING THE AVAILABILITY OF INTEREST FREE FUNDS WITH THAT OF IN VESTMENTS MADE. THE ASSESSEE, THUS, HAS COME IN APPEAL BEFORE US. 4. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS STAT ED THAT THE PAID UP CAPITAL AND RESERVES OF THE ASSESSEE AS ON 31.03.10 WERE RS .10,37,57,569/-. WHEREAS, AS ON 31.03.11 THE SAME WERE AT RS.11,37,88,432/-. THE TOTAL INVESTMENTS MADE BY THE ASSESSEE WERE AT RS.1,05,30,000/-. HE, THEREFORE, HAS STATED THAT SINCE THE OWN INTEREST FREE FUNDS OF THE ASSESSEE W ERE MORE THAN THE TOTAL INVESTMENTS MADE BY THE ASSESSEE, HENCE, IN VIEW OF THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASES OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) AND CIT VS. H DFC BANK LTD. IN ITA NO.2203/M/2015 M/S. NAVYUG KRISHI SADHAN PVT. LTD. 3 ITA NO.330 OF 2012 DECIDED ON 23 RD JULY 2014, THE PRESUMPTION ARISES THAT INVESTMENTS WERE MADE FROM THE OWN INTEREST FREE FU NDS AND HENCE NO DISALLOWANCE UNDER SECTION 14A WAS ATTRACTED. THE LD. A.R. HAS FURTHER SUBMITTED THAT THE ASSESSEE HAD INVESTED IN THE PRE FERENCE SHARES OF THE PVT. LTD. COMPANY, THE LONG TERM GAINS REGARDING THE SAL E AND PURCHASE OF THE SAME WERE NOT EXEMPT UNDER SECTION 10(38) OF THE ACT AND HENCE, THE PROVISIONS OF SECTION 14A, OTHERWISE, WERE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. D.R. HAS SUBMITTED TH AT THE DIVIDEND INCOME RELATING TO THE INVESTMENTS WAS EXEMPT UNDER SECTIO N 10(34) OF THE ACT. HENCE, THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D HAS RIGHTLY BEEN MADE BY THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. AS OBSERVED ABOVE, THE LD. A.R., BEFORE US , HAS DEMONSTRATED THAT THE OWN FUNDS OF THE ASSESSEE WERE MUCH MORE THAN THE I NVESTMENTS MADE. EVEN, THERE IS AN INCREASE IN THE OWN FUNDS OF THE ASSESS EE FROM RS.10,37,57,569/- AS ON 31.03.10 TO RS.11,37,88,432/- AS ON 31.03.11. F URTHER, WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASES OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) AND CIT VS. HDFC BANK LTD. (S UPRA) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND O VER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOU LD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. IN THE LIGH T OF THE ABOVE CITED DECISIONS, NO INTEREST DISALLOWANCE IS ATTRACTED IN RELATION T O INVESTMENTS MADE BY THE ASSESSEE AS THE ASSESSEE HAD ITS OWN SUFFICIENT FUN DS FOR THE PURPOSE OF MAKING INVESTMENTS. MOREOVER, THERE IS A NET POSITIVE INT EREST INCOME OF THE ASSESSEE OF THE ASSESSEE DURING THE YEAR. THE VARIOUS COURT S OF LAW HAVE HELD THAT FOR THE NETTING OF THE INTEREST INCOME AND INTEREST EXP ENDITURE IS TO BE PERMITTED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE OF INTER EST EXPENDITURE. ITA NO.2203/M/2015 M/S. NAVYUG KRISHI SADHAN PVT. LTD. 4 7. IN VIEW OF THE ABOVE, NO DISALLOWANCE OF INTERES T EXPENDITURE IS ATTRACTED IN THIS CASE UNDER SECTION 14A. HOWEVER, THE DISAL LOWANCE OF ADMINISTRATIVE EXPENDITURE AMOUNTING TO RS.27,750/- UNDER RULE 8D( 2)(III) IS HEREBY CONFIRMED. 8. WITH THE ABOVE OBSERVATIONS, THE APPEAL OF THE A SSESSEE IS HEREBY PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.07.2016. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.07.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.