SHALIMAR HOTEL P. LTD, MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 2265/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0981 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 29-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Earning of tax free income; Period of limitation; Time period of passing order
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.2265/M/2013 ASSESSMENT YEAR: 2009-10 M/S. SHALIMAR HOTELS PVT. LTD., AUGUST KRANTI MARG, KEMPS CORNER, MUMBAI-400020 PAN: AABCS 7887H VS. ADDL. CIT, RANGE 5(3), 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PRAKASH K. JOTWANI, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 02.07.2015 DATE OF PRONOUNCEMENT : 02.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 24.01.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. THERE IS NOTE OF THE REGISTRY ON THE FILE THAT THE APPEAL IS BARR ED BY LIMITATION. HOWEVER THE LD. AR OF THE ASSESSEE INVITED OUR ATTENTION TO FOR M NO.36 WHICH IS THE OPENING FORM FOR FILING OF APPEAL BEFORE THIS TRIBUNAL, WHE REIN THE DATE OF RECEIPT OF THE ORDER OF THE CIT(A) HAS INADVERTENTLY MENTIONED AS 17.02.2012 AND A DEFECT MEMO WAS ISSUED BY THE REGISTRY IN THIS RESPECT. TH E ASSESSEE FILED FRESH OPENING FORM WITH CORRECT DATE OF RECEIPT OF THE OR DER OF THE CIT(A) AS ITA NO.2265/M/2013 M/S. SHALIMAR HOTELS PVT. LTD. 2 17.02.2013. HENCE THE APPEAL HAS BEEN TREATED AS FI LED WITHIN THE LIMITATION PERIOD. 2. THE SOLE GROUND TAKEN BY THE ASSESSEE IN ITS APP EAL IS RELATING TO THE DISALLOWANCE OF RS.9,53,378/- ON ACCOUNT OF INTERES T EXPENDITURE MADE BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) UNDER SECTION 14A OF THE ACT. THE CONTENTION OF THE ASSESSEE HAS BEEN THAT NO BORROWED FUNDS HAD BEEN USED FOR MAKING INVESTMENTS. THE BORROWED FUNDS WE RE USED FOR THE SPECIFIC PURPOSES FOR WHICH IT WERE OBTAINED I.E. FOR CONSTR UCTION OF HOTEL AND INSTALLATION OF WIND MILL. THE INVESTMENTS WERE MA DE ONLY OUT OF PROFITS. HOWEVER, THE LOWER AUTHORITIES DID NOT AGREE WITH T HE CONTENTION OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE UNDER RULE 8 D(2) OF THE INCOME TAX RULES READ WITH SECTION 14A OF THE ACT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. THE LD. A.R. OF THE ASSESSEE HAS SUBMITTE D THAT AS PER THE PROVISIONS OF SECTION 14A ,THE AO WAS REQUIRED TO CONSIDER THE WORKING OF THE ASSESSEE IN RESPECT OF THE SUO-MOTO DISALLOWANCE MADE BY THE AS SESSEE UNDER SECTION 14A OF THE ACT. HE HAS SUBMITTED THAT THE ASSESSEE HAD SUO-MOTO MADE THE DISALLOWANCE OF RS.6,62,056/-. HE HAS FURTHER SUBM ITTED THAT THE LOWER AUTHORITIES HAVE TOTALLY IGNORED THE WORKING SUBMIT TED BY THE ASSESSEE. IT HAS BEEN FURTHER CONTENDED THAT NO BORROWED FUNDS WERE USED FOR INVESTMENT PURPOSES BUT OWN FUNDS OF THE ASSESSEE WERE USED. EVEN THE OVERALL DEBTS/LOANS OF THE ASSESSEE DURING THE YEAR HAVE RE DUCED WHICH MEANS THAT THE ASSESSEE HAD NOT UTILIZED THE BORROWED FUNDS. THE LD. D.R., ON THE OTHER HAND, HAS RELIED UPON T HE FINDINGS OF THE LOWER AUTHORITIES. ITA NO.2265/M/2013 M/S. SHALIMAR HOTELS PVT. LTD. 3 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES. IT MAY BE OBSERVED THAT IN THE C ASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE AND ALSO NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008-09 ONWARDS . IT HAS BEEN FURTHER HELD THAT UNDER SECTION 14A OF THE INCOME TAX ACT, RESOR T CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE . THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) DOES NOT IPSO FACTO ENABL E THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAW AY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT S UCH EXPENDITURE IS CORRECT. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE A RRIVED AT ON AN OBJECTIVE BASIS. IN A SITUATION WHERE THE ACCOUNTS OF THE ASS ESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATI SFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THERE WOU LD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNI TY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCO UNTS AND RECORDING OF REASONS BY THE AO IN THE EVENT THAT HE COMES TO THE CONCLUS ION THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 5. WE MAY FURTHER OBSERVE THAT THE HON'BLE BOMBAY H IGH COURT IN THE CASE OF 'CIT VS. RELIANCE UTILITIES AND POWER LTD.'[200 9] 313 ITR 340 (BOM.), HAS OBSERVED THAT IF THERE ARE FUNDS AVAILABLE, BOTH I NTEREST FREE AND OVERDRAFT/LOANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT S WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE ASSESSEE. HOWEVER, A PERUSAL ITA NO.2265/M/2013 M/S. SHALIMAR HOTELS PVT. LTD. 4 OF THE ORDERS OF LOWER AUTHORITIES REVEAL THAT THE ABOVE STATED EXPLANATION PUT BY THE ASSESSEE REGARDING INVESTMENTS MADE FROM OWN FUNDS HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES. 6. BEFORE US, THE COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FINANCIAL POSITION OF THE ASSESSEE AND POINTED OUT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE OWN FUNDS TO COVER THE INV ESTMENT. IN SUPPORT, THE COUNSEL RELIED UPON THE DECISION OF THE HON'BLE BOM BAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD 313 ITR 340 AND ALSO ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HDFC B ANK LTD. IN ITA NO.330 OF 2012 VIDE ORDER DATED 23RD JULY 2014. 7. IN VIEW OF OUR ABOVE OBSERVATIONS, THE DISALLOWA NCE MADE BY THE LOWER AUTHORITIES IS HEREBY SET ASIDE AND THE MATTER IS R ESTORED TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE AND THE RELEVANT CASE LAWS ON THE ISSUE. NEE DLESS TO SAY, THE AO WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. WITH THE ABOVE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS HEREBY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 02.07.201 5. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 27.10.2015. * KISHORE, SR. P.S. ITA NO.2265/M/2013 M/S. SHALIMAR HOTELS PVT. LTD. 5 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.