WARTSILA INDIA P.LTD, NAVI MUMBAI V. DCIT 15(3)(1), MUMBAI

ITA 234/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5428 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHOUDHARY ARUNKUMAR SINGH
• Assessee Lawyers: JEHANGIR D MISTRI
• Keywords: Earning of tax free income; TDS; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.234/M/2018 ASSESSMENT YEAR: 2013-14 M/S. WARTSILA INDIA PVT. LTD., 21 ST FLOOR, KESAR SOLITAIRE, PLOT NO.5, SEC 19, PALM BEACH RD., SANPADA, NAVI MUMBAI 400 705 PAN: AAACW0345D VS. DCIT 15(3)(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JEHANGIR D. MISTRI, A.R. REVENUE BY : SHRI CHOUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 01.05.2019 DATE OF PRONOUNCEMENT : 21.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 01.11.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE O RDER OF LD. CIT(A) CONFIRMING THE ACTION OF THE DCIT (15)(3)(1) , MUMBAI IN INVOKING THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D IN MAKING ADDITION OF RS.45,86,331/- AND PRAYED BEFOR E THE BENCH THAT THE DCIT, MUMBAI BE DIRECTED TO RESTRICT THE D ISALLOWANCE AT RS.6,91,341/- AS CALCULATED BY THE ASSESSEE. ITA NO.234/M/2018 M/S. WARTSILA INDIA PVT. LTD. 2 3. THE FACTS IN BRIEF ARE THAT THE AO DURING THE CO URSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS S HOWN EXEMPT INCOME BY WAY OF DIVIDEND OF RS.3,59,21,689/ - AND HAS MADE SUO MOTTO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT RS.6,91,341/-. THE AO VIDE ORDER SHEET DATED 14.09.2016 ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WH Y THE DISALLOWANCE SHOULD NOT BE WORKED OUT BY APPLYING P ROVISIONS OF SECTION 14A READ WITH RULE 8D WHICH WAS REPLIED BY THE ASSESSEE BY SUBMITTING THAT IT HAS ALREADY DISALLOWED RS.6,9 1,341/- IN THE COMPUTATION OF INCOME AS HAS BEEN CALCULATED BY THE TAX AUDITOR IN THE TAX AUDIT REPORT. HOWEVER, THE AO DI D NOT AGREE TO THE CONTENTIONS OF THE ASSESSEE AND APPLIED THE PRO VISIONS OF SECTION 14A READ WITH RULE 8D BY RELYING ON THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. LTD. VS. DCIT 234 ITR BOMBAY (1) ( 2010) AND ALSO THE DECISION OF SPECIAL BENCH OF ITAT DELHI IN THE CASE OF CHEM INVESTMENTS VS. ITO AND FINALLY COMPUTED THE DISALLOWANCE AT RS.52,77,672/- COMPRISING RS.90,960 /- UNDER RULE 8D2(II) AND RS.51,86,712/- UNDER RULE 8D2(III) BEING 0.5% OF THE AVERAGE INVESTMENTS AND AFTER MAKING ALLOWAN CE OF SUO- MOTTO DISALLOWANCE OF RS.6,91,641/-, NET ADDITION OF RS.45,86,331/- WAS MADE TO THE INCOME OF THE ASSESS EE. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS UNDOUBTEDLY GOT MIXED FUNDS AND THEREFORE PROVISION S OF SECTION 14A OF THE ACT READ WITH RULE 8D WERE APPLICABLE AN D THUS UPHELD THE INVOCATION OF PROVISIONS OF SECTION 14A READ WITH RULE 8D BY UPHOLDING THE ORDER OF AO. ITA NO.234/M/2018 M/S. WARTSILA INDIA PVT. LTD. 3 5. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT AO HAS NOT RECORDED ANY OBJECTIVE SATISFACTION WHILE REJEC TING THE DISALLOWANCE OF RS.6,91,341/- AS MADE BY THE ASSESS EE AND STRAIGHTWAY APPLIED PROVISIONS OF SECTION 14A READ WITH RULE 8D WHICH IS AGAINST THE PROVISIONS OF THE ACT. THE LD . A.R. ARGUED THAT IT IS MANDATORY ON THE PART OF AO TO RECORD OB JECTIVE SATISFACTION BEFORE APPLYING SECTION 14A READ WITH RULE 8D BY REFERRING TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS TO HOW THE DISALLOWANCE WORKED OUT BY THE ASSESSEE IS NOT WRON G AND IS NOT ACCEPTABLE. THE LD. A.R. RELIED ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EAR LIER YEARS IN ITA NO.696/M/2017 & ORS. ORDER DATED 24.04.2019 AND ITA NO.1279/M/2016 A.Y. 2010-11 ORDER DATED 08.11.2018. THEREFORE, THE LD. A.R. SUBMITTED THAT THE ORDER OF LD. CIT(A) SHOULD BE SET ASIDE ON THE GROUND THAT IT HAS FAILE D TO CONSIDER THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO IN THE ASSESSMENT ORDER IN VIEW OF THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL. THE LD. A.R. FURTHER REFERR ED TO THE BALANCE SHEET OF THE ASSESSEE AT PAGE 8 OF THE PAPE R BOOK AND SUBMITTED THAT ASSESSEES OWN FUNDS WHICH WERE TO THE TUNE OF RS.254,65,30,000/- AND THE INVESTMENTS IN SECURITI ES WERE FAR BELOW THE SAID AMOUNT AND THUS IN VIEW OF THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HD FC BANK LTD. (2014) 49 TAXMANN.COM 335 (BOM.) NO DISALLOWAN CE UNDER RULE 8D2(II) IS REQUIRED TO BE MADE. ALTERNATIVELY THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT ONLY THOSE INVESTME NTS WHICH FETCHED EXEMPT INCOME DURING THE YEAR SHOULD BE CON SIDERED FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE UNDER R ULE 8D2(III) AS HAS BEEN HELD BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE ITA NO.234/M/2018 M/S. WARTSILA INDIA PVT. LTD. 4 OF ACIT VS. VIREET INVESTMENTS (2017) 82 TAXMANN.COM 415 (DELHI SB). FINALLY, THE LD. A.R. PRAYED BEFORE THE BENCH THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND BE DIRECTE D TO ACCEPT THE DISALLOWANCE AS MADE BY THE ASSESSEE. 6. THE LD. D.R., ON THE OTHER HAND, STRONGLY OPPOSE D THE ARGUMENTS OF THE LD. A.R. BY SUBMITTING THAT THE PR OPER SATISFACTION HAS BEEN RECORDED BY THE AO IN THE ASS ESSMENT ORDER AND LD. CIT(A) AFTER CONSIDERING ALL THE FACT S OF THE ASSESSEES CASE UPHELD THE ORDER OF AO. THE LD. D. R. ALSO FILED THE WRITTEN SUBMISSIONS AT THE TIME OF HEARING AND PRAYED BEFORE THE BENCH THAT MATTER BE DECIDED AFTER TAKING INTO CONSIDERATION THE SAID SUBMISSIONS AND THE ORDER OF LD. CIT(A) MA Y BE UPHELD. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ISSUE IS W HETHER THE AO HAS RECORDED OBJECTIVE SATISFACTION BEFORE INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D FOR CALCULATING TH E DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCO ME. WE NOTE THAT THE ASSESSEE HAS MADE DISALLOWANCE OF RS.6,91, 341/- WHICH HAS BEEN TABULATED BY THE TAX AUDITOR IN THE TAX AU DIT REPORT. AFTER PERUSING THE ASSESSMENT ORDER CAREFULLY WE OB SERVE THAT THE AO HAS NOT RECORDED ANY SATISFACTION AS TO HOW THE DISALLOWANCE WORKED OUT BY THE ASSESSEE OF RS.6,91, 341/- IS WRONG HAVING REGARDS TO THE BOOKS OF ACCOUNTS OF TH E ASSESSEE. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT [(2010) 328 IT R 81 (BOM)] WHEREIN IT HAS BEEN HELD THAT NO DISALLOWAN CE SECTION 14A READ WITH RULE 8D CAN BE MADE IF THE AO HAS NOT RECORDED ITA NO.234/M/2018 M/S. WARTSILA INDIA PVT. LTD. 5 OBJECTIVE SATISFACTION ON THE DISALLOWANCE AS MADE BY THE ASSESSEE UNDER SECTION 14A READ WITH RULE 8D WITH R EFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH HAS BEE N FOLLOWED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE DEC IDING THE CASE OF THE ASSESSEE IN ITA NO.696/M/2017 A.Y. 2009-10 A ND ITA NO.1279/M/2016 A.Y. 2010-11 (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE AO HAS NOT RECORDED ANY OBJECTIVE SATISFAC TION AS TO HOW THE DISALLOWANCE AS CALCULATED BY THE ASSESSEE IS WRONG BY REFERRING TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ACCORDINGLY, WE, RESPECTFULLY, FOLLOWING THE DECISION OF THE HON BLE BOMBAY HIGH COURT AND ALSO THE CO-ORDINATE BENCH OF THE TR IBUNAL IN THE ASSESSEES OWN CASE IN A.Y. 2009-10 AND 2010-11, SE T ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO ACCEPT THE DISALLOWANCE OF RS.6,91,341/- AS CALCULATED BY THE ASSESSEE. THE GROUND NO. 1 IS ALLOWED. 8. THE SECOND ISSUE RAISED BY THE ASSESSEE IS IN RE SPECT OF EXCESS INTEREST CHARGED UNDER SECTION 234C OF THE A CT OF RS.5,90,691/-. 9. THE FACTS IN BRIEF ARE THAT THE ASSESSEE CALCULA TED THE INTEREST U/S 234C OF THE ACT WITHOUT GIVING CREDIT OF TDS OF RS. 14,85,028/-. 10. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) UP HELD THE ORDER OF AO BY REJECTING THE CONTENTIONS OF THE ASS ESSEE RAISED IN THIS CONTEXT. THE LD. A.R. STATED BEFORE THE LD. C IT(A) THAT THE AO HAS CALCULATED EXCESS INTEREST UNDER SECTION 234 C OF THE ACT BY GIVING SHORT CREDIT OF TDS TO THE TUNE OF RS.14, 85,028/- WHICH IS WRONG AND HAS TO BE RESTORED TO THE FILE O F THE AO WITH ITA NO.234/M/2018 M/S. WARTSILA INDIA PVT. LTD. 6 THE DIRECTION THAT THE SAME MAY BE CALCULATED AFTER GIVING CREDIT OF TDS TO THE ASSESSEE. 11. LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDE R OF AUTHORITIES BELOW. 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ONLY ISSUE IS EXCESS INTEREST OF RS.5,90,691/- CHARGED UNDER SECTION 234 C WHICH HAS OCCURRED DUE TO NON GRANTING OF CREDIT OF TDS TO TH E TUNE OF RS.14,85,028/-. IN OUR OPINION, THIS INTEREST NEED S TO BE CALCULATED CORRECTLY AS PER THE PROVISIONS OF LAW. THEREFORE, THE ISSUE IS RESTORED TO THE FILE OF THE AO WITH THE DI RECTION TO CALCULATE THE INTEREST AFTER ALLOWING CREDIT OF TDS AS PER FACTS AND LAW AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.05.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21.05.2019. * 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// ITA NO.234/M/2018 M/S. WARTSILA INDIA PVT. LTD. 7 [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.