DCIT CENTRAL CIRCLE-7(1), MUMBAI V. M/S.PAN INDIA NETWORK INFRAVEST PRIVATE LIMITED, MUMBAI

ITA 2296/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3353 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR PRAMOD NIKALJE
• Assessee Lawyers: JAI BHANSALI
• Keywords: Depreciation; Earning of tax free income; Tax effect; Rule 8D
• Section: 14A; 115JB

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 2296/MUM/2018 (ASSESSMENT YEAR 2011-12 ) DCIT CENTRAL CIRCLE- 7(1) R.NO. 653, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. VS. M/S PAN INDIA NETWORK INFRAVEST LTD., 153, CONTINENTAL BUILDING, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400018. PAN: AACCP2459H APPELLANT RESPONDE NT CROSS OBJECTION NO. 89/MUM/2019 (ASSESSMENT YEAR 20 11-12 ) M/S PAN INDIA NETWORK INFRAVEST LTD., 153, CONTINENTAL BUILDING, DR. ANNIE BE SANT ROAD, WORLI, MUMBAI-400018 . PAN: AACCP2459H VS. DCIT CENTRAL CIRCLE- 7(1) R.NO. 653, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. APPELLANT RESPONDE NT ITA NO. 2297/MUM/2018 (ASSESSMENT YEAR 2012-13 ) DCIT CENTRAL CIRCLE- 7(1) R.NO. 653, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. VS. M/S PAN INDIA NETWORK INFRAVEST LTD., 153, CONTINENTAL BUILDING, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400018 . PAN: AACCP2459H APPELLANT RESPONDE NT CROSS OBJECTION NO. 90/MUM/2019 (ASSESSMENT YEAR 20 13-14 ) M/S PAN INDIA NETWORK INFRAVEST LTD., 153, CONTINENTAL BUILDING, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400018 . PAN: AACCP2459H VS. DCIT CENTRAL CIRCLE- 7(1) R.NO. 653, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 2 APPELLANT RESPONDEN T APPELLANT BY : DR. PRAMOD NIKALJE (DR RESPONDENT BY : SHRI JAI BHANSALI (AR) DATE OF HEARING : 22.04.2019 DATE OF PRONOUNCEMEN T : 22.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE TWO APPEAL BY REVENUE AND CROSS OBJECTIONS TH EREIN BY ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-49 [HEREINAFTER REFERRED AS LD CIT (A)], MUMBAI DATED 09.01.2018 FOR ASSESSMENT YEAR 2011-12 & 2012-13. T HE ASSESSEE AS WELL AS REVENUE HAS RAISED COMMON GROUNDS OF APPEAL , THEREFORE, BOTH THE APPEALS AND CROSS OBJECTIONS WERE CLUBBED, HEA RD AND ARE DECIDED BY A CONSOLIDATED ORDER. IN APPEAL FOR ASSESSMENT YEAR 2011-12, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: A) 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLO WANCE U/S 14A TO THE DIVIDEND INCOME OF RS. 17,012/- INSTEAD OF RS. 37,7 6,098/- WORKED OUT BY THE AO AS PER RULE 8D, EVEN WHEN HON'BLE BOMBAY HIG H COURT HAS UPHELD THE CONSTITUTIONAL VALIDITY OF RULE 8D IN CASE OF G ODREJ BOYCE & MFG. CO. VS. ACIT. B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWAN CE U/S 14A TO THE DIVIDEND INCOME OF RS. 17,012/- INSTEAD OF RS. 37,76,098/- W ORKED OUT BY THE AD AS PER RULE 8D, EVEN WHEN SUCH RESTRICTION IS CONTRARY TO STATUTORY PROVISIONS AND CBDT'S CIRCULAR NO. 5 OF 2014 DATED 11.02.2014 WHICH PROVIDES FOR ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 3 DISALLOWANCE OF EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME'. 2. IN CROSS OBJECTIONS, THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS OF APPEAL: WITHOUT PREJUDICE TO THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 49 [HEREINAFTER REFERRED TO AS 'THE CIT(A)], WHEREI N THE CIT (A) DIRECTED TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') READ WITH RU LE 8D OF THE INCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS 'THE RULES' ) TO THE EXTENT OF EXEMPT INCOME AMOUNTING TO RS. 17,012/-, THE RESPONDENT RA ISES THE FOLLOWING CROSS- OBJECTIONS: 1. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO A S ''THE AO) ERRED IN MAKING DISALLOWANCE OF RS. 34,76,098/- UNDER SECTIO N 14A READ WITH RULE 8D(2)(III) WITHOUT GIVING ANY SPECIFIC FINDING OR R ECORDING ANY DISSATISFACTION WITH THE CLAIM MADE BY ASSESSEE IN THE RETURN OF INCOME. 2. THE AO ERRED IN DISALLOWING EXPENSES OF RS. 34,7 6,098/- UNDER SECTION 14A READ WITH RULE 8D(2)(III) WITHOUT ESTABLISHING ANY NEXUS BETWEEN EXPENSES AND EXEMPT INCOME 3. THE AO/CIT(A) FAILED TO APPRECIATE THAT FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A UNDER RULE 8D(III) O NLY AVERAGE VALUE OF OPENING AND CLOSING INVESTMENT WHICH HAVE EARNED EX EMPT INCOME OUGHT TO BE CONSIDERED. THE AO/CIT(A) FAILED TO APPRECIATE T HAT SINCE NONE OF INVESTMENT FORMING PART OF OPENING OR CLOSING VALUE OF INVESTMENTS HAVE EARNED INCOME, NO DISALLOWANCE UNDER SECTION 14A R. W. RULE 8D(2)(III) CAN BE MADE. INFACT, EVEN THE DISALLOWANCE OF RS. 17,01 2/- CONFIRMED BY THE CIT(A) REQUIRES TO BE DELETED. 4. THE AO/CIT(A) FAILED TO APPRECIATE THAT DISALLOW ANCE U/S 14A READ WITH RULE 8D COULD NOT BE ADDED TO BOOK PROFIT U/S 115JB OF THE ACT. 3. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT TAX EFFECT INVOLVE IN THE PRE SENT APPEAL IS LESS THAN THE PRESCRIBED MONETARY LIMIT OF FIXED BY CBDT VIDE CIRCULAR NO. 3 ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 4 DATED 11.07.2018, THEREFORE, IN VIEW OF THE SAID C IRCULAR, THE APPEAL OF THE REVENUE IS LIABLE TO BE DISMISSED. TH. LD AR FU RTHER SUBMIT THAT HE IS NOT PRESSING THE GROUNDS OF CROSS OBJECTION RAISED BY ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDE R BESIDES THE OTHER ADDITIONS/DISALLOWANCE, DISALLOWED RS. 34,76,098/- UNDER SECTION 14A BEING .5% OF AVERAGE VALUE OF INVESTMENT ON THE FIR ST DAY AND THE LAST DAY OF PREVIOUS YEAR. ON APPEAL BEFORE THE LD. CIT( A), THE CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME I.E. RS. 1,701/-. 5. WE HAVE FURTHER NOTED THAT TAX EFFECT INVOLVED IN T HE GROUNDS OF APPEAL RAISED BY REVENUE IS ONLY RS. 10,68,858/-, THEREFOR E, CONSIDERING THE CONTENTS OF CBDT CIRCULAR NO CIRCULAR NO. 3 DATED 1 1.07.2018 THE GROUNDS OF APPEAL RAISED BY REVENUE ARE DISMISSED A S TAX EFFECT INVOLVED IN THE APPEAL IS LESS THAN RS. 20,00,000/-. 6. THE LD. AR OF THE ASSESSEE HAS ALREADY SUBMITTED TH AT HE IS NOT PRESSING GROUND OF APPEAL RAISED IN THE CROSS OBJECTIONS. TH EREFORE, THE CROSS OBJECTIONS RAISED BY ASSESSEE ARE ALSO DISMISSED. ITA NO. 2297/MUM/2018 FOR A.Y. 2012-13 7. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 5 A) 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLO WANCE U/S 14A TO THE DIVIDEND INCOME OF RS. 82,147/- INSTEAD OF RS. 14,0 5,94,100/- WORKED OUT BY THE AO AS PER RULE 8D, EVEN WHEN HON'BLE BOMBAY HIGH COURT HAS UPHELD THE CONSTITUTIONAL VALIDITY OF RULE 8D IN CA SE OF GODREJ BOYCE & MFG. CO. VS. ACIT. B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWAN CE U/S 14A TO THE DIVIDEND INCOME OF RS. 82,147/- INSTEAD OF RS. 14,05,94,100/ - WORKED OUT BY THE AD AS PER RULE 8D, EVEN WHEN SUCH RESTRICTION IS CONTR ARY TO STATUTORY PROVISIONS AND CBDT'S CIRCULAR NO. 5 OF 2014 DATED 11.02.2014 WHICH PROVIDES FOR DISALLOWANCE OF EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME'. 8. IN CROSS OBJECTIONS, THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS OF APPEAL: WITHOUT PREJUDICE TO THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 49 [HEREINAFTER REFERRED TO AS 'THE CIT(A)], WHEREI N THE CIT (A) DIRECTED TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') READ WITH RU LE 8D OF THE INCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS 'THE RULES' ) TO THE EXTENT OF EXEMPT INCOME AMOUNTING TO RS. 82,147/-, THE RESPONDENT RA ISES THE FOLLOWING CROSS- OBJECTIONS: 1. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO A S ''THE AO) ERRED IN MAKING DISALLOWANCE OF RS. 14,05,91,722/- UNDER SEC TION 14A READ WITH RULE 8D(2)(III) WITHOUT GIVING ANY SPECIFIC FINDING OR RECORDING ANY DISSATISFACTION WITH THE CLAIM MADE BY ASSESSEE IN THE RETURN OF INCOME. 2. THE AO ERRED IN DISALLOWING INTEREST OF RS. 2,37 8/- AND EXPENSES OF RS. 14,05,91,722/- UNDER SECTION 14A READ WITH RULE 8D( 2)(II( & (III) WITHOUT ESTABLISHING ANY NEXUS BETWEEN EXPENSES AND EXEMPT INCOME 3. THE AO/CIT(A) FAILED TO APPRECIATE THAT FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A UNDER RULE 8D(III) O NLY AVERAGE VALUE OF ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 6 OPENING AND CLOSING INVESTMENT WHICH HAVE EARNED EX EMPT INCOME OUGHT TO BE CONSIDERED. THE AO/CIT(A) FAILED TO APPRECIATE T HAT SINCE NONE OF INVESTMENT FORMING PART OF OPENING OR CLOSING VALUE OF INVESTMENTS HAVE EARNED INCOME, NO DISALLOWANCE UNDER SECTION 14A R. W. RULE 8D(2)(III) CAN BE MADE. INFACT, EVEN THE DISALLOWANCE OF RS. 82,14 7/- CONFIRMED BY THE CIT(A) REQUIRES TO BE DELETED. 4. THE AO ERRED IN DISALLOWING A SUM OF RS. 14,05,9 1,722/- ALTHOUGH THE TOTAL EXPENDITURES CLAIMED BY ASSESSEE WAS ONLY RS. 4,84,16,152/- (EXCLUDING DEPRECIATION). HE FURTHER FAILED TO APPR ECIATE THAT DEPRECIATION CLAIMED BY THE ASSESSEE CANNOT BE A SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A. 5. THE AO ERRED IN TAKING INTO CONSIDERATION INVEST MENTS OF RS. 5,477 CRORES IN CONVERTIBLE DEBENTURES OF ESSEL INFRAPROJECTS LI MITED, CONVERTED INTO EQUITY SHARES AT THE FAG END OF THE YEAR I.E. ON 30 .30.2012, WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A WITH REFERENCE TO RU LE 8D. 6. THE ABOVE CROSS OBJECTIONS ARE WITHOUT PREJUDICE TO EACH OTHER. 9. AT THE OUTSET OF HEARING, THE LD. AR OF THE ASSESSE E SUBMITS THAT THE GROUNDS OF APPEAL RAISED BY REVENUE IS ALSO COVERED AGAINST THE REVENUE BY THE DECISION OF HONBLE DELHI HIGH COURT IN CHEM INVESTMENT LTD. VS. DCIT (ITA NO. 749 OF 2014 DATED 2 ND SEPTEMBER 2015) AND PCIT VS. CARAF BUILDERS & CONSTRUCTIONS (P.) LTD. (101 TAXMA NN.COM 167 (DEL.) AND DECISION OF MUMBAI TRIBUNAL IN M/S APTECH LTD. VS. DCIT IN ITA NO. 5216/MUM/2015 DATED 13.02.2018. THE LD. AR OF T HE ASSESSEE FURTHER SUBMITS THAT IN VIEW OF THE FACT THAT THE G ROUND OF APPEAL RAISED BY REVENUE IS COVERED IN FAVOUR OF ASSESSEE. THEREF ORE, HE IS NOT PRESSING THE GROUNDS OF CROSS OBJECTION RAISED BY THE ASSESS EE. 10. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE (DR) FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER. ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 7 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE CLAIMED TO HAVE EARNED DIVIDEND INCOME OF RS. 82,147/-. WE HAVE NOTED THAT WHILE PA SSING THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE DISALLOWANCE UNDE R SECTION 14A OF RS. 14,05,94,100/- BEING .5% OF AVERAGE VALUE OF INVEST MENT. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME BY FOLLOWING THE DECISION OF JURISDICTIONAL TRIBUNAL IN DAGA GLO BAL CHEMICAL P. LTD. IN ITA NO. 5592/MUM/2012. BEFORE US, THE LD. AR OF THE ASSESSEE HAS STRONGLY RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN CHEM INVESTMENT LTD. (SUPRA) AND DECISION OF HONBLE BOM BAY HIGH COURT IN PCIT VS. CARAF BUILDERS & CONSTRUCTIONS (P.) LTD. ( SUPRA), WHEREIN IT WAS HELD THAT DISALLOWANCE UNDER SECTION 14A CANNOT EXC EED THE EXEMPT INCOME OF THE RELEVANT ASSESSMENT YEAR. THUS, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). SIMILAR VIEW WAS TAKEN BY THIS COMBINATION US IN M/S APTECH LTD . (SUPRA). NO CONTRARY FACT OR LAW IS BROUGHT TO OUR NOTICE TO T AKE OTHER VIEW. 12. IN THE RESULT, APPEALS OF THE REVENUE AS WELL AS CR OSS OBJECTIONS OF THE ASSESSEE ARE ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/04/2019. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 22 .04.2019 ITA NO. 2296, 2297 MUM 2018 & C.O. 89 & 90 MUM 2019 M/S PAN INDIA NETWORK INFRAV EST LTD. 8 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI