DCIT CIR 3(1), MUMBAI V. BAJAJ CAPITAL VENTURES P.LTD, MUMBAI

ITA 2326/MUM/2014

• Counselvise Citation: 232619914 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANTOSH MANKUSKAR
• Assessee Lawyers: V MOHAN
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY ,JUDICIAL MEMBER /. ITA NO. 2326/MUM/2014 , / ASSESSMENT YEAR - 2010 - 11 DCIT - CIRCLE - 3(1) ROOM NO.607, 6 TH FLOOR AAYAKAR BHAVAN MUMBAI - 400 020 VS M/S. BAJAJ CAPITAL VENTURES PVT. LTD.(FORMERLY KNOWN AS M/S. ANUNIT A INV. PVT. LTD.) 106/107, 10 TH FLOOR, BAJAJ BHAVAN JAMNALAL BAJAJ MARG, NARIMAN POINT MUMBAI - 400 030. PAN:AAACA 3565 F ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : MR. V. MOHAN / REVENUE BY : DR. SANTOSH MANKUSKAR - DR / DATE OF HEARING : 29 - 09 - 2015 / DATE OF PRONOUNCEMENT : 29 - 09 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 30/01/2014 OF CIT(A) - 5,MUMBAI, THE A SSESS ING OFFICER(AO) HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.78,36,495 / - OUT OF THE INTERES T EXPENDITURE MAD E BY THE AO U/ S . 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE INTEREST EXPENDITURE CLAIMED WAS DIRECTLY RELATABLE TO ACTIVITY OF INVESTMENT IN SHARE/MUTUAL FUNDS AND SUBSIDIARIES RESULTING IN EXEMPTED INCOME.' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE DISA LLOWANCE OUT OF ADMINISTRATIVE EXPENSES BE RESTRICTED TO RS.6, 36, 389/ - AS AGAINST RS.24,14,299/ - MADE U/ S14A R.W.R.8D(2)(III) WITHOUT APPRECIATING THE FACT THAT DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES WAS MADE BY THE AO BY APPLYING THE PROVI SIONS OF 36(1)(III) AS WELL AFTER CRITICAL ANALYSIS OF THE EXPENSES CLAIMED IN RESPECT OF BUSINESS OPERATION OF THE ASSESSEE ON WHICH NO FINDING IS GIVEN BY LD.CIT(A ).' 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE SUM OF RS. 1 ,02, 50 ,794/ - ADDED B Y THE AO TO THE BOOK PROFIT U/ S .115 JB WITHOUT APPRECIATING THE FACT THAT EXPENDITURE RELATED TO E ARNING DIVIDEND INCOME IS REQUIRED TO ADD BACK WHIL E COMPUTING THE BOOK PROFIT U/ S .115 JB AS PER CLAUSE (F) OF EXPLANATION - 1.' 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN TREATING INTEREST EAR NED ON MO NEY LENDING OPERATION OF RS.3,5 2,14,074/ - UNDER THE HEAD 'PROFIT AND GAINS FROM BUSINESS AND PROFESSION' INSTEAD OF 'INCOME FROM OTHER SOURCES' TREATED BY THE AO WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS NOT AN NBFC AND HENCE GIVING LO ANS AND ADVANCES TO OTHER PARTIES CANNOT BE CONSIDERED AS BUSINESS ACTIVITY.' 5. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED.' ITA/ 23 26 /14 ,AY. 10 - 11 BAJAJ CAPITAL 2 6. 'THE APPELLANT CRAVES LEAVE TO AMEND OR A LTER ANY GROUND OR ADD A NEW GROUND WHICH MAY NECESSARY' ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING,FILED ITS RETURN OF INCOME ON 13.10.2010,DECLARING TOTAL INCOME AT RS.NIL UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK - PROFIT OF RS.1.75 CRORES U/S.115JB OF THE ACT.THE AO COMPLETED THE ASSESSMENT ON 31.10. 2010,U/S.143(3)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSE AT RS.2.79 CRORES. 2. FIRST TWO GROUND OF APPEAL ARE ABOUT DELETING THE ADDITION MADE U/S.14A OF THE ACT,AMOUN TING TO RS. 78.36 LAKHS OUT OF INTEREST EXPENDITURE AND RESTRICTING THE DISALLOWANCE TO RS.6.36 LAKHS AGAINST THE DISALLOWANCE OF RS.24.14 LAKHS,RESPECTIVELY .DURING THE COURSE OF HEARING BEFORE US, R EPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT, HAS BEEN DELIBERATED UPON AND DECIDED BY THE TRIBUNAL IN ITS ORDER DATED 02.08.2013(ITA/4005/ MUM/2012 )WHILE DECIDING THE APPEAL FOR THE AY.2008 - 09 AND SAME READS AS UNDER: 8. GROUND NO.2 AND 3 RELATE TO THE DISALLOWANCE S U/S 14A R.W. RULE - 8D OF IT RULES, 1962. DURING THE ASSESSMENT PROCEEDINGS, ON FINDING THE CLAIM OF EXEMPT INCOME, AO MADE A DISALLOWANCE AMOUNTING TO RS. 67,33,850/ - IN RESPECT OF INTEREST EXPENDITURE AND RS. 26,21,175/ - IN RESPECT OF ADMINISTRATIVE EXPE NSES. AO HAS NOT STRICTLY FOLLOWED THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT, 328 ITR 82 (BOM) AND COMPUTED THE DISALLOWANCE IN ACCORDANCE WITH RULE - 8D OF THE IT RULES. 9. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE VARIOUS SUBMISSIONS ABOUT THE NEED FOR COMPUTING THE DISALLOWANCE FOR THE AY 2008 - 2009 AND AS PER RULE - 8D OF THE IT RULES READ WITH JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA). ASSESSEE FURNISHED THE COMPUTATION AS PER RULE - 8D FOR THE AY 2008 - 2009 AND SUBMITTED THAT BY APPLYING THE FORMULA AS PER RULE - 8D(2)(III), THE DISALLOWANCE WORKS OUT TO RS. 4,04,568/ - ONLY. THUS, THE ASSESSEE COMPUTED THE DISALLOWANCE ON ACCOU NTS OF CLAUSE (II) AND (III) OF RULE 8D TOGETHER SHOULD BE ONLY TO THE TUNE OF RS. 16,91,489/ - . CIT (A) CONSIDERED THE ABOVE CALCULATIONS AND CONFIRMED THE DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS. 16,91,489/ - . ASSESSEE GOT PART RELIEF IN THIS REGAR D. AGGRIEVED, THE REVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE GROUND NO.2 MENTIONED ABOVE. 10. DURING THE PROCEEDINGS BEFORE US, LD DR SUBMITTED THAT THE RELIEF GRANTED BY THE CIT (A) IS EXCESS. FURTHER, HE MENTIONED THAT CIT (A) A CCEPTED THE COMPUTATION WITHOUT DUE VERIFICATION OF THE FACTS, CORRECTNESS OF THE SAID COMPUTATION OF DISALLOWANCE AT RS. 16,91,489/ - AND THE APPLICABILITY OF THE EXISTING LAW IN FORCE. HOWEVER, HE RELIED ON THE PROVISIONS OF RULE 8D R W S 14A AND ASKED FO R STRICT COMPLIANCE BY THE AO. DR IS NOT HAPPY WITH THE CIT(A) FOR NOT REMANDING THE CALCULATION TO THE AO BEFORE ACCEPTING THE FIGURE OF RS 16,91,489/ - . 11. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE SAID AMOUNT OF RS. 16,91,489/ - WAS COMPUTED IN ACCORDANCE WITH RULE - 8D AND THE SAID CALCULATIONS BEING VERY SIMPLE IN NATURE, THEY NEVER REQUIRE ATTENTION OF THE AO BY WAY OF REMANDING THE MATTER TO THE FILES OF THE AO. 12. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES. THE LIMITED ISSUE RAISED BEFORE US IS RESTRICTED TO THE CORRECTNESS OF THE CALCULATION OF DISALLOWANCE AS PER RULE - 8D OF THE ACT. AFTER DISCUSSION OF THE PARTIES IN THE OPEN COURT, WE ARE OF THE OPINION THAT THE DISALLOWAN CE CONFIRMED BY THE CIT (A) IS PROPER BUT THE SAME IS SUBJECTED TO THE CORRECTNESS OF THE CALCULATIONS AS PER CLAUSE - (II) & (III) OF RULE - 8D(2). AO MAY EXAMINE THE CORRECTNESS BEFORE RESTRICTING THE DISALLOWANCE AS HELD BY THE CIT (A). 5 IN THIS REGARD, WE CONFIRM THE ORDER OF THE CIT (A) IN SUBSTANCE AND THEREFORE, IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 & 3 RAISED BY THE REVENUE ARE DISMISSED. WE FIND THAT THE FIRST APPELLATE AUTHORITY( FAA ) HAS FOLLOWED THE ABOVE ORDER OF THE TRI BUNAL AND DELETED THE INTEREST EXPENDITURE OF RS.78,36,495/ - .HE RESTRICTED THE ADMINISTRATIVE EXPENDITURE TO RS.6,36,389/ - .HE FOUND THAT THE ASSESSEE HAD DEBITED EXPENSES OF RS.6.72 LAKHS AND IT INCLUDED EXPENSES OF ROC FILING FEES(RS.8,500/ - ),AUDIT FEES( 16,545/ - )AND TAX AUDIT ITA/ 23 26 /14 ,AY. 10 - 11 BAJAJ CAPITAL 3 FEE(RS.11, 030/ - ).CONSIDERING THE ABOVE,HE RESTRICTED IT TO RS.6.36 LAKHS.IN OUR OPINION,THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY INFIRMITY.THEREFORE,RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE AY.2008 - 09,WE CONFIRM THE ORDER OF THE FAA.GROUNDS NO.1 - 2 ARE DECIDED AGAINST THE AO. 3. NEXT GROUND PERTAINS TO DELETING THE SUM OF RS.1,02,50,794/ - THAT WAS ADDED BY THE AO TO THE BOOK PROFIT COMPUTED U/S.115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT WHILE COMPUTING BOOK PROFIT THE ASSESSEE HAD CLAIMED DIVIDEND INCOME OF RS.2.10 LAKHS AS EXEMPT INCOME U/S.10 OF THE ACT,THAT SAME HAD NOT B EEN INCLUDED IN THE BOOK PROFIT.INVOKING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION 1 TO THE SECTION 115JB,HE MADE AN ADDITION OF RS.1.02 CRORES TO THE INCOME TO BE COMPUTED UNDER MAT PROVISIONS. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.BEFORE HIM THE ASSESSEE CONTENDED THAT THE DISALLOWANCE COMPUTED BY THE AO U/S.14A OF THE ACT WAS NOT AS PER LAW,THAT DISALLOWANCE MADE BY HIM COULD NOT BE CONSIDERED FOR COMPUTING THE INCOME AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT.AFTER CONSIDERING THE SUBMISSIONS OF THE AO,THE FAA HELD THAT DISALLOWANCE U/S.14A HAD TO BE RESTRICTED TO RS.6.36 LAKHS. 5. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO AND THE AUTHORI - SED REPRESENTATIVE(DR)RELIED UPON THE ORDER OF THE FAA.WE HAVE,WHILE DECIDING THE GROUNDS NO.1AND 2,UPHELD THE ORDER OF THE FAA RESTRICTING THE DISALLOWANCE TO RS.6.36 LAKHS.THEREFORE, FOLLOWING THE SAME WE CONFIRM HIS ORDER AND DECIDE GROUND NO.3 AGAINST THE AO. 6 .LAST GROUND OF APPEAL DEALS WITH TREATING INTEREST EARNED ON MONEY LENDING OPERATION OF RS.3, 5 2,14,074/ - UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS AND PROFESSION INSTEAD OF INCOME FROM OTHER SOURCES .WE FIND THAT IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL,WHILE DECIDING THE APPEAL FOR THE AY.2008 - 09.WE WOULD LIKE TO REPRODUCE THE RELEVANT PART OF THE ORDER AND SAME READS AS UNDE R: AO OBSERVED THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING.THEREFORE,THE AO TREATED THE INTEREST INCOME OF RS.1,25,22,877/ - EARNED DURING THE YEAR AS INCOME FROM OTHER SOURCES. AGGRIEVED WITH THE ABOVE DISALLOWANCES MADE BY THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. WE SHALL TAKE UP THE ISSUE RELATING TO TAXING THE INTEREST INCOME U/H INCOME FROM OTHER SOURCES. IN APPEAL BEFORE THE CIT(A), ASSESSEE DEMONSTRATE THE BOOK ENTRIES, OBJECT CLAUSE OF THE MOA AND RELIED ON VARIOUS BINDING JUDGMENTS. THEREFORE, CIT (A) ALLOWED THE CLAIM OF TH E ASSESSEE BY HOLDING AS UNDER: I HAVE CONSIDERED THE ABOVE FACTS AND SUBMISSIONS AND THE ARGUMENTS MADE BY THE LD AR OF THE APPELLANT. THE OBJECT CLAUSE PERMITTED BY THE COMPANY TO CARRY ON THE ACTIVITY OF MONEY LENDING. IT CAN BE SEEN FROM THE RESOLUTI ONS PASSED AT THE MEETING HELD ON SEPTEMBER 3 RD , 2007 THAT CONSENT OF THE BOARD OF DIRECTORS WAS OBTAINED TO BORROW MONIES FROM TIME TO TIME UP TO AN AMOUNT NOT EXCEEDING RS. 200 CRS, FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY SUBJECT TO INTEREST RAT E NOT EXCEEDING 12% PER ANNUM. A RESOLUTION WAS ALSO PASSED BY THE BOARD OF DIRECTORS TO MAKE LOANS FROM TIME TO TIME PROVIDED THAT THE MAXIMUM AMOUNT OF LOAN FOR EACH INDIVIDUAL PURPOSE DID NOT EXCEED RS. 100 CRS. THE ANALYSIS OF THE BANK ACCOUNT FOR THE PERIOD OCTOBER, 2007 TO MARCH, 2008 ALSO INDICATES THAT MONIES WERE BORROWED AND ADVANCED IN A SYSTEMATIC AND ORGANIZED MANNER. THE FREQUENCY OF 3 MONEY LENDING TRANSACTIONS UNDER TAKEN AND THE AMOUNTS BORROWED AND LENT DURING THE PREVIOUS YEAR ALSO INDICA TE THAT THE ACTIVITY OF MONEY LENDING WAS A REAL AND SUBSTANTIVE ACTIVITY. THE RATES OF INTEREST AT WHICH MONIES WERE BORROWED IN COMPARISON TO THE RATES OF INTEREST AT WHICH MONIES WERE LENT INDICATE THAT THE ACTIVITY WAS CARRIED ON WITH A MOTIVE OF MAKIN G PROFIT. IN THESE CIRCUMSTANCES, THE DECISIONS OF THE HONBLE SUPREME COURT IN NARAIN SWADESHI WEAVING MILLS VS. COMMISSIONER OF EXCESS PROFITS TAX (26 ITR 765) AND IN SOLE TRUSTEE LOKA SHIKSHANA TRUST VS. CIT (101 ITR 234) DEFINING THE TERM BUSINESS, ARE CLEARLY SATISFIED. CONSEQUENTLY, THE INTEREST EARNED ON MONEY LENDING OPERATION OF ITA/ 23 26 /14 ,AY. 10 - 11 BAJAJ CAPITAL 4 RS. 1,25,22,877/ - AROSE FROM A SYSTEMATIC AND ORGANIZED ACTIVITY CARRIED ON WITH A MOTIVE OF PROFIT AND HENCE OUGHT TO BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OF PROFESSION. GROUND NO.3 IS, THEREFORE, ALLOWED. 4.1. AGGRIEVED WITH THE SAID DECISION OF CIT (A), REVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE GROUND NO.1. 5. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED ON THE ORDER OF THE AO. 6. PER CONTRA, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US ON THIS ISSUE. ON PERUSAL OF THE ORDER OF THE CIT (A) ORDER, WE ARE OF THE OPINION THAT THE CIT (A)S DECISION, IN TREATING THE INTEREST INCOME OF RS. 1,25,22,877/ - EARNED ON MONEY LENDING OPERATION AS PROFITS & GAINS OF BUSINESS OR PROFESSION, IS REASONABLE AND IT DOES NOT CALL FOR ANY INTERFER ENCE. IN THIS REGARD, WE HAVE CONSIDERED OBJECT CLAUSE AUTHORIZING THE ASSESSEE TO CONDUCT THE BUSINESS OF MONEY LENDING AND THE ENTRIES IN THE BOOKS OF ACCOUNTS AND THE BANK ACCOUNTS. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED . RESPEC TFULLY,FOLLOWING THE ABOVE,WE DECIDE GROUND NO.4 AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPE N COURT ON 29 TH ,SEPTEMBER,2015. 29 , 2015 SD/ - SD/ - ( / SAKTIJIT DEY ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE:29 .09. 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.