DCIT 2(1), MUMBAI V. BETTER VALUE LEASING & FIANANCE LTD, MUMBAI

ITA 2288/MUM/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2118 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANTOSH MANKOSKAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , ,, , !'# , ,, , $ BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY,JUDICIAL MEMBER /.ITA NO.2288/MUM/2014, % & /ASSESSMENT YEAR-2007-08 DCIT-2(1) ROOM NO.561, 5 TH FLOOR AAYAKAR BHAVAN, MK ROAD MUMBAI-400 020. VS M/S. BETTER VALUE LEASING & FINANCE LTD.8 TH FLOOR, MAHALAXMI CHAMBERS, 22 BHULABHAI DESAI ROAD MAHALAXMI,MUMBAI-400 026. PAN: AAACB 4410 A ( / APPELLANT) ( / RESPONDENT) %'# /ASSESSEE BY : NONE / REVENUE BY : DR. SANTOSH MANKOSKAR / DATE OF HEARING : 28-09 -2015 / DATE OF PRONOUNCEMENT : 07 -10-2015 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) )*# ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.21.01.2014 OF CIT(A)-4, MU MBAI THE ASSESSING OFFICER(AO),HAS FILED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER NET INTEREST FOR THE PURPOSE OF COMPUTING INTEREST EXPENDITURE U/S 14A R.W.R 8D. WITHOUT APPRECIATING THAT, IN FACT T HE INTEREST EXPENSES DEBITED BY THE ASSESSEE IN ITS P&L A/C CANNOT BE DIRECTLY LINKED WITH THE INTERES T INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW. THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER NET INTEREST FOR THE PURPOSE OF COMPUTING INTEREST EXPENDITURE U/S. 14A R.W.R 8D, WITHOUT APPRECIATING THAT, THERE IS NO PROVISION IN THE ACT, THAT THE INTEREST EXPENSES SHOULD NOT BE ADJUSTED WITH INTEREST INCOME WHILE CONSIDERING THE DISALLOWANCE OF INTEREST EXPENSES U/S 14A OF THE IT ACT, 1961. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. THE DECISION OF THE CTT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTO RED. BRIEF FACTS: 2. ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF HIRE PU RCHASE FINANCING FILED ITS RETURN ON 29.10. 2007,DISCLOSING TOTAL INCOME OF 61.64 LACS.THE AO C OMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT ON,31.1.2013,DETERMINING THE INCOME OF THE ASSE SSEE AT RS.55.74 LACS.HE DISALLOWED AN AMOUNT OF 13.85 LACS U/S. 14A OF THE ACT.IN THE APP ELLATE PROCEEDINGS,FIRST APPELLATE AUTHORITY (FAA)CONFIRMED THE ADDITION MADE BY AO. THE ASSESSE E PREFERRED THE SECOND APPEAL BEFORE THE TRIBUNAL,WHO SET ASIDE THE ISSUE OF DISALLOWANCE TO THE FILE OF AO FOR FRESH ADJUDICA -TION.IN RESPONSE TO THE NOTICE ISSUE BY AO U/S.142(1) OF TH E ACT,THE ASSESEE VIDE ITS LETTER DT.12. 10.2012 SUBMITTED THAT IT HAD CALCULATED THE DISALLOWANCE O N NET INTEREST BASIS I.E. AFTER REDUCING INTEREST EARNED FROM INTEREST PAID, THAT AS PER JUDGMENT OF GODREJ BOYCE MFG. CO, LTD. (328 ITR 81)RULE 8D WAS NOT APPLICABLE FOR THE YEAR UNDER APPEAL, TH AT NO DISALLOWANCE WAS REQUIRED TO BE ITA/2288/M/14/BETTER VALUE LEASING & FINANCE,AY.07 -08 2 MADE.HOWEVER, THE AO DID NOT AGREE WITH THE SUBMISS IONS OF THE ASSESSEE AND CALCULATED THE DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D AND MADE ADDITION OF RS.8.66 LACS. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE FAA AND STATED THAT THE AO HAD ERRED IN NOT ACCEPTING THE DECISIONS OF VARIOUS TRIBUNALS WHEREIN IT HAS BEEN CONCLUSIVELY HELD THAT NET INTEREST AMOUNT DEBITED TO P&L ACCOUNT WAS TO BE WORKED OUT ON PRO RATA BASIS,WHILE WORKING OUT THE DISALLOWANCE U/S. 14A R.W. RULE 8D, THAT THE AO HAD CONSIDERED CURRENT ASSETS INSTEAD OF TOTAL ASSETS AS STIPULATE D IN CLAUSE 2 OF RULE 8D WHILE CALCULATING DISALLOWANCE, THAT NOT DISALLOWANCE WAS TO BE MADE IN THE LIGHT OF THE DECISION OF GODREJ BOYCE MFG. LTD. (SUPRA).THE ASSESSEE REFERRED TO THE CASE S OF CHEM INVESTS LTD. AND K ESHAV SALES AND STOCKS LTD. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D ASSESSMENT ORDER,THE FAA HELD THAT THE ASSESSEE HAD MADE AVERAGE INVESTMENT OF RS.1.25 CRO RES,THAT EXPENDITURE CLAIMED BY IT FOR EARNING EXEMPT INCOME COULD BE CONSIDERED FOR DISAL LOWANCE, THAT IT COULD NOT ESTABLISH THE NEXUS BETWEEN THE ENTIRE CAPITAL BEING INVESTED IN SECURITIES,THAT IT WAS POSSIBLE THAT SOME PART OF IT WOULD HAVE GONE TO INVESTMENT IN SHARES ALSO, TH AT THE ASSESSEE ITSELF WAS NOT CATEGORICAL AS TO HOW MUCH OF THE SUM HAD BEEN INVESTED IN SECURITIES .HE FURTHER OBSERVED THAT THE ASSESSEE HAD NOT GIVEN ANY DETAIL TO WORK OUT THE DIRECT NEXUS O F INTEREST EXPENDITURE RELATED TO THE EXEMPT INCOME,THAT THE ASSESSEES CASE WAS COVERED BY THE PROVISION OF S.14A(3) OF THE ACT, THAT IT HAD CLAIMED THAT NO EXPENDITURE WAS INCURRED IN RESPECT OF EXEMPTED INCOME.HE REFERRED TO THE CASE OF VISHNY ANANTH MAHAJAN(22 TAXMANN.COM 108),AMERIC AN EXPRESS BANK LTD. 24 TAXMANN. COM 50; GODREJ & BOYCE MFG. LTD.(SUPRA).FINALLY,HE HELD THAT THE DISALLOWANCE U/S. 14A OF THE ACT WAS RIGHTLY MADE BY THE AO.HOWEVER,HE HELD THAT WHILE COMPUTING DISALLOWANCE U/S. 14A OF THE ACT, THE INTEREST SHOULD BE DISALLOWED ON TH E NET BASIS. HE REFERRED TO THE CASE OF TWENTY FIRST SECURITIES LTD. (ITA/1126/KOL/2003);MAXOPP LT D.(203 TAXMANN 364)AND HELD THAT INTEREST WAS DEBITED TO THE P&L ACCOUNT WAS ON NET BASIS THA T THE DISALLOWANCE SHOULD ALSO BE MADE U/S. 14A OF THE ACT WITH REFERENCE TO THE NET INTEREST.F INALLY, HE DIRECTED THE AO TO CONSIDER THE NET INTEREST DEBITED TO P&L ACCOUNT FOR COMPUTING THE D ISALLOWANCE U/S. 14A OF THE ACT. 4 44 4 . BEFORE US , DR RELIED UPON THE ORDER OF THE AO AND AR SUPPORTED THE ORDER OF THE FAA.WE FIND THAT IN THE MATTER OF MAXOPP INVESTMENT LTD.(SUPRA) ,THE HONBLE DELHI HIGH COURT HAS DEALT THE ISSUE OF APPORTIONMENT OF INTEREST AS UNDER: IF ONE EXAMINES SUB-RULE (2) OF RULE 8D ,THE METHOD FOR DETERMINING THE EXPENDITURE IN RELA TION TO EXEMPT INCOME HAS THREE COMPONENTS.THE FIRST COM PONENT IS THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE SECOND IS BEING COMPUTED ON THE BASIS OF THE FORMULA GIVEN THEREIN IN A CASE WH ERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THE FORMULA ESSENTIALLY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST (OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)) INCURRED DURING TH E PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, TO THE AVERAGE OF THE TOTAL ASSETS OF THE ASSESSEE. THE TH IRD COMPONENT IS AN ARTIFICIAL FIGUREONE HALF PER CENT. OF THE AVERAGE VALUE OF THE INVESTMENT, I NCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALAN CE-SHEETS OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE AGGREG ATE OF THESE THREE COMPONENTS WHICH WOULD CONSTITUTE THE EXPENDITURE IN RELATION TO EXEMPT IN COME AND IT IS THIS AMOUNT OF EXPENDITURE WHICH WOULD BE DISALLOWED UNDER SECTION 14A OF THE ACT. I T IS, THEREFORE, CLEAR THAT IN TERMS OF THE RULE, ITA/2288/M/14/BETTER VALUE LEASING & FINANCE,AY.07 -08 3 THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INC OME HAS TWO ASPECTS (A) DIRECT, AND (B) INDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWAY TA KEN INTO ACCOUNT BY VIRTUE OF CLAUSE (I) OF SUB- RULE (2) OF RULE 8D .THE INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF IN TEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT. RESPECTFULLY,FOLLOWING THE ABOVE JUDGMENT,WE HOLD T HAT THE FAA HAD RIGHTLY HELD THAT WHILE MAKING DISALLOWANCE U/S.14A OF THE ACT,THE AO SHOUL D HAVE CONSIDERED ONLY NET INTEREST. EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE A O. AS A RESULT,APPE AL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH OCTOBER,2015. +,, #- 7. ,2015 SD/- SD/- ( !'# / SAKTIJIT DEY) ( / / RAJENDRA) +, 0 / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 07. 1 0. 2015 . . . .. . JV.SR.PS. +# ,&# / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ $13 *4 , 4. THE CONCERNED CIT / $13 *4 5. DR A BENCH, ITAT, MUMBAI / , , . . +, . 6. GUARD FILE/ ! //TRUE COPY// / BY ORDER, / , DY./ASST. REGISTRAR , , , /ITAT, MUMBAI.