DCIT CIR. 3(3)(1), MUMBAI V. RELIANCE CAPITAL LTD., NAVI MUMBAI

ITA 2341/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0981 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT PATANKAR
• Assessee Lawyers: JITENDRA B SANGHVIAR
• Keywords: Earning of tax free income; Revised return
• Section: 14A; 115JB

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./2341/MUM/2016, / ASSESSMENT YEAR: 2011-12 DCIT-CIRCLE-3(3)(1) ROOM NO.609, 6TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. RELIANCE CAPITAL LTD. H-BLOCK, 1ST FLOOR, DHIRUBHAI AMBANI KNOWLEDGE CITY, KOPERKHAIRANE, NAVI MUMBAI-400 710. PAN:AAACR 5054 J ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI ABHIJIT PATANKAR- DR /ASSESSEE BY: SHRI JITENDRA B. SANGHVI-AR / DATE OF HEARING: 12/12/2017 / DATE OF PRONOUNCEMENT: 03/01/2018 , / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 25/01/2016OF CIT(A)-8, MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED I N THE BUSINESS OF LEASING,INVESTMENT IN SHARES/STOCKS,MERCHANT AND INVESTMENT BANKING,ILED ITS RETURN OF INCOME ON 30/09/2011 DECLARING LOSS OF RS.173.73 CRORES UNDER NORMAL P ROVISIONS AND BOOK LOSS OF RS.212.75 CRORES.LATER ON,A REVISED RETURN WAS FILED,DECLARIN G LOSS OF RS.159.60 CRORES AND BOOK LOSS OF RS.79.97 CRORES. 2. FIRST TWO GROUNDS OF APPEAL ARE ABOUT SECTION 14A R .W.R. 8D OF INCOME TAX RULES (RULES). FIRST GROUND OF APPEAL IS ABOUT DELETING ADDITION O F RS.23.78 CRORES MADE BY THE AO U/S. 14A OF THE ACT R.W.R.8D(2)(II)OF THE RULES.THE SECOND G ROUND DEALS WITH DISALLOWANCE MADE UNDER RULE 8D(2)(III). IN THE APPELLATE PROCEEDINGS ,THE FIRST APPELLATE AUTHORITY (FAA) HAD HELD THAT FOR THE PURPOSE OF DISALLOWANCE ONLY THOS E INVESTMENTS HAVE TO BE CONSIDERED WHICH WOULD YIELD EXEMPT INCOME.IT WAS BROUGHT TO OUR NOT ICE THAT IDENTICAL ISSUE WAS DEALT WITH BY THE TRIBUNAL WHILE DECIDING APPEAL OF THE ASSESSEE FOR AY.2012-13(ITA/4008/MUM/2016 DTD.7/11/2017).WE WOULD LIKE TO REPRODUCE THE RELEV ANT PORTION OF THE ORDER AND IT READS AS UNDER :- 4.DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER OBSERVED THAT IN THE ORIGINAL AND REVISED COMPUTATIONS OF IN COME THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS.1,95,13,01,536/- NAMELY SHARE OF PROFI T IN PARTNERSHIP FIRM, DIVIDEND AND LONG TERM CAPITAL GAIN OF RS.30,39,27,298/-, RS.1,55,78, 52,561/-AND RS.8,95,21,677/- RESPECTIVELY. THE ASSESSEE MADE SUO MOTO MADE DISALLOWANCE U/S.14 A OF RS.15,61,02,809/- TOWARDS INTEREST EXPENSES AND RS.8,57,73,798/- TOWARDS OTHE R ADMINISTRATIVE EXPENSES I.E. 0.5% OF AVERAGE INVESTMENT. THUS, THE ASSESSEE WORKED OUT T HE AGGREGATE DISALLOWANCE U/S. 14A TO RS.24,18,76,607/- IN THE COMPUTATION. THEREFORE, TH E ASSESSING OFFICER ASKED THE ASSESSEE TO 2341/M/16 M/S. RELIANCE CAPITAL LTD. 2 FURNISH DETAILS REGARDING THE WORKING OF EXPENDITUR E INCURRED FOR EARNING EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 14A R.W. RULE 8D AND ALSO TO SUBMIT FUND FLOW STATEMENTS TO PROVE THAT THE INVESTMENTS WERE MADE OUT OF THEIR O WN FUNDS AND NOT OUT OF BORROWED FUNDS. THE ASSESSEE FILED SUBMISSIONS BUT THE ASSESSING OF FICER FOUND IT TO BE NOT SATISFACTORY. THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE AS PE R THE FORMULA LAID DOWN IN RULE 8D AND BASED ON THE TOTAL INVESTMENTS YIELDING EXEMPT TO R S.32,45,55,590/-. THUS, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.32,45,55,590/- U/S. 14A R.W. RULE 8(D)(2)(III) OF EXPENSES OTHER THAN INTEREST AND SINCE THE ASSESSEE HAD SUO MOTTO DISALLOWED AS SUM OF RS. 8,57,73,798/-, THE BALANCE AMOUNT OF RS. 23,87,81,7 92/- WAS DISALLOWED BEING ADMINISTRATIVE COST FOR EARNING EXEMPT INCOME. THE ASSESSING OFFIC ER MADE FURTHER DISALLOWANCE U/S. 14A R.W. RULE 8D OF RS.26,46,62,753/- (2,58,80,961 + 2 3,87,81,792) I.E. THE DIFFERENCE OF ATTRIBUTABLE INTEREST, WHICH IS OVER AND ABOVE THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE AND ADDED IT BACK TO THE TOTAL INCOME OF T HE ASSESSEE. 5.THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT MADE AN ADDITION OF RS.15,61,02,809/- TOWARDS INTEREST BEING EXPENDITUR E RELATING TO EXEMPT INCOME. THE ASSESSING OFFICER DID NOT ACCEPT THE WORKING OF THE ATTRIBUTABLE EXPENDITURE TOWARDS INTEREST AND COMPUTED THE SAME AT RS.18,19,83,770/-. ACCORDI NGLY, THE DIFFERENCE OF ATTRIBUTABLE INTEREST OF RS.2,58,80,961/- WAS CONSIDERED AS PER RULE 8D(2)(III) FOR COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. THE ASSESSEE HAD ALSO NOT COMPUTED THE ADMINISTRATIVE EXPENSES AS PER PROVISIONS OF RULE 8D(2)(III) WHILE COMPUTIN G THE BOOK PROFIT THOUGHT THE SAME WAS CONSIDERED WHILE COMPUTING THE 'NORMAL INCOME'. THE ASSESSEE MADE SUBMISSIONS FOR NON DISALLOWANCE OF EXPENDITURE UNDER RULE 8D(2)(III) F OR COMPUTATION OF BOOK PROFIT U/S. 115JB AND RELIED ON VARIOUS CASE LAWS. THE ASSESSING OFFI CER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE BUT DID NOT ACCEPT THE SAME. THE ASSESSING OFFICER CALCULATED THE DISALLOWANCE UNDER SECTION 14A AS PER THE FORMULA LAID DOWN IN R ULE 8D AND THIS COMPUTATION OF DISALLOWANCE WAS USED AS A BASE TO THE DISALLOWANCE U/S. 115JB ALSO BY CALCULATING THE EXPENDITURE ON A BASIS I.E., THE RATIO OF INCOMES G RANTED EXEMPTION U/S. 115JB AND IN NORMAL COMPUTATION. THUS, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE BY TAKING DISALLOWANCE U/S. 14A READ WITH RULE 8D AS THE BASE AND MADE FUR THER DISALLOWANCE OF RS.30,96,65,651/- WHILE COMPUTING THE BOOK PROFIT U/S. 115JB. 6.AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BE FORE THE LD. CIT(A). 7.AS REGARDS THE DISALLOWANCE U/S. 14A IN THE NORMA L COMPUTATION OF INCOME, THE LD. CIT(A) FOLLOWED HIS ORDER FOR ASSESSMENT YEAR 2011-12 AND HELD AS UNDER: 5.1.4 THE SAME ISSUE HAD BEEN DECIDED BY ME IN THE APPELLANT'S CASE IN THEIRAPPEAL FOR ASSESSMENT YEAR 2011-12. THE RELEVANT PART OF THAT DECISION IS QUOTED BELOW: '6.2.10 I HAVE CONSIDERED THE SUBMISSIONS OF THE A PPELLANT AND THE ORDER OF ASSESSING OFFICER. THE ASSESSING OFFICER HAS APPLIED THE DECISION OF S PECIAL BENCH IN CASE OF CHEMINVEST LTD. THE DECISION OF CHEMINVEST LTD. HAS BEEN REVERSED BY DE LHI HIGH COURT. THE APPELLANT HAS RELIES UPON THE VARIOUS DECISIONS IN SUPPORT OF THEIR CONT ENTION THAT THE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR SHOULD BE EXCLUDED IN COMPUTING AVERAGE INVESTMENTS. IN OTHER WORDS, AS PER THE APPELLANT O NLY THOSE INVESTMENTS ON WHICH THE EXEMPT INCOME IS RECEIVED DURING THE YEAR SHOULD BE CONSID ERED FOR COMPUTING AVERAGE INVESTMENTS FOR THE PURPOSE OF APPLYING 0.5% UNDER RULE 8D(2)(I II). RESPECTFULLY FOLLOWING THE VARIOUS DECISIONS POINTED BY LEARNED AR OF THE APPELLANT, I AGREE THAT DISALLOWANCE UNDER RULE 8D(2)(III) SHOULD BE COMPUTED WITH REFERENCE TO THOS E INVESTMENTS ON WHICH EXEMPT INCOME IS RECEIVED DURING THE YEAR AND EXCLUDING THOSE INVEST MENTS N WHICH NO EXEMPT INCOME IS RECEIVED DURING THE YEAR. THE ASSESSING OFFICER IS DIRECTED TO DO SO. THESE GROUNDS OF APPEAL ARE ALLOWED.' 5.1.5 IN VIEW OF MY DECISION FOR ASSESSMENT YEAR 20 11-12 QUOTED ABOVE, DISALLOWANCE UNDER RULE 8D(2)(III) SHOULD BE COMPUTED WITH REFER ENCE TO THOSE INVESTMENTS ON WHICH EXEMPT INCOME IS RECEIVED DURING THE YEAR AND EXCLU DING THOSE INVESTMENTS ON WHICH NO EXEMPT INCOME IS RECEIVED DURING THE YEAR. THE ASSE SSING OFFICER IS DIRECTED TO DO SO. THESE GROUNDS OF APPEAL ARE ALLOWED. 2341/M/16 M/S. RELIANCE CAPITAL LTD. 3 8.AS REGARDS THE DISALLOWANCE U/S. 115JB IN CONSEQU ENCE TO DISALLOWANCE U/S. 14A, THE LD. CIT(A) FOUND THAT THE ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE AT RS.30,96,65,651/- . HE REFERRED TO EARLIER DECISION FOR THE PROPOSITI ON THAT RULE 8D U/S. 14A CANNOT BE APPLIED FOR COMPUTING PROFIT U/S. 115JB, THE LD. CIT(A) DIR ECTED THE ASSESSING OFFICER TO ESTIMATE THE EXPENSES DIRECTLY RELATABLE TO EXEMPT INCOME AT RS. 40 LACS, INSTEAD OF THE ADDITION MADE BY THE ASSESSING OFFICER BASED UPON RULE 8D OF SECTION 14A. 9.AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 10.THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE GROUNDS OF APPEAL AND THE ORDERS OF THE ASSESSING OFFICER. 11.PER CONTRA, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT BOTH THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISIO N IN THE CASE OF ASST. CIT VS. VIREET INVESTMENT (P.) LTD. [2017] 82 TAXMANN.COM 415 (DEL TRIB.) (SB) AND ALSO SEVERAL OTHER DECISIONS OF TRIBUNAL, WHEREIN THE SPECIAL BENCH DE CISION HAS BEEN FOLLOWED AS ABOVE. 12.WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE REVENUES GRIEVANCE IN GROUND NO. 1 IS AGAINST THE LD. CIT(A)S DIRECTIONS THAT DISALLOWANCE U/S. 14A HAS TO BE COMPUTED ONLY WITH REFERENCE TO THE INVESTMENT ON WHICH EXEMPT INCOME HAS BEEN EARNED DURING THE YEAR. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISION AS REFERRED ABOVE. TH E SPECIAL BENCH HAS EXPOUNDED THAT ONLY INVESTMENTS HAS TO BE CONSIDERED FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT ON WHICH EXEMPT INCOME IS EARNED DURING THE YEAR. SINCE THE LD. CIT(A)S DIRECTIONS ON THIS ISSUE IS TO CONSIDER ONLY THOSE INVESTMENT ON WHICH EXEMPT INCO ME IS RECEIVED, THE SAME IS IN ACCORDANCE WITH THE ABOVE SAID SPECIAL BENCH DECISI ON. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE SAME AND, ACCORDINGLY, WE UPHOLD THE SAME. 13.AS REGARDS THE DISALLOWANCE U/S. 115JB IS CONCER N, WE FIND THAT THE REVENUES GRIEVANCE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THAT THE PRINCIPLE AS APPLIED U/S. 14A R/W RULE 8D IS NOT APPLICABLE WHILE COMPUTING PROFIT U/S. 115JB. 14.IN THE PRESET CASE, WE FIND THAT THE ASSESSEE HA S ALREADY MADE DISALLOWANCE OF RS.15,61,02,809/- TOWARDS INTEREST BEING EXPENDITUR E RELATING TO EXEMPT INCOME. THE ASSESSING OFFICER PROCEEDED TO APPLY THE PROVISIONS OF RULE 8D U/S. 14A AND ACCORDINGLY BASED UPON THESE CALCULATION MADE FURTHER DISALLOWA NCE OF RS.30,96,65,651/-. 15.UPON THE ASSESSEE'S APPEAL, THE LD. CIT(A) INCRE ASED THE DISALLOWANCE IN THIS REGARD BY RS.40 LACS. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED BEFORE US THAT NO DISALLOWANCE U/S. 14A READ WITH RULE 8D HAS TO BE D ONE WHILE COMPUTING BOOK PROFIT U/S. 115JB. WE FIND THAT THIS PROPOSITION DRAW SUPPORT F ROM THE SPECIAL BENCH DECISION IN THE CASE OF VIREET INVESTMENT (P.) LTD. (SUPRA). THE SA ME RATIO HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE SEVERAL OTHER DECISIONS FOLLOWING THE ABOVE SAID SPECIAL BENCH DECISION. IN THE PRESENT CASE, WE NOTE THAT THE ASSESSEE HAS ALREADY MADE AN ADDITION OF RS.15,61,02,809/- TOWARDS DISALLOWANCE OF EXPENDITURE RELATING TO EXEMPT INCO ME. THE LD. CIT(A) HAS FURTHER ENHANCED IT BY RS.40 LACS. THE REVENUE HAS NOT MADE ANY SUBM ISSION AS TO HOW THIS DISALLOWANCE DOES NOT SUFFICE. THE ONLY PLEA WHICH HAS BEEN RAISED IS THAT THE DISALLOWANCE ADOPTED BY THE ASSESSING OFFICER FOLLOWING RULE 8D IN SECTION 14A SHOULD BE UPHELD. SINCE THIS PROPOSITION IS NOT IN ACCORDANCE WITH THE SPECIAL BENCH DECISION A S ABOVE AND THE TOTAL DISALLOWANCE IN THIS REGARD IS SUFFICIENT, WE ARE OF THE CONSIDERED OPIN ION THAT THERE IS NO MERIT IN THIS GROUND RAISED BY THE REVENUE. HENCE, THE SAME STANDS DISMI SSED. RESPECTFULLY FOLLOWING THE ABOVE,GROUNDS NO.1 AND 2 ARE DECIDED AGAINST THE AO.WE WOULD ALSO LIKE TO MENTION THAT IN CASE OF VIREET INVESTM ENT (P) LTD. (82TAXMANN.COM415),THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT FOR COM PUTING AVERAGE VALUE OF INVESTMENT, FOR 2341/M/16 M/S. RELIANCE CAPITAL LTD. 4 THE PURPOSE OF DISALLOWANCE U/S. 14A R.W. RULE 8D O NLY THOSE INVESTMENTS COULD BE CONSIDERED WHICH WOULD YIELD EXEMPT INCOME. 3. THIRD GROUND OF APPEAL IS ABOUT DIRECTION BY THE FAA TO THE AO TO ADOPT THE DISALLOWANCE OF EXPENDITURE RELATABLE TO EXEMPT INC OME AT RS.35 LAKHS FOR WORKING OUT BOOK PROFIT U/S. 115 JB INSTEAD OF RS.22.09 CRORES.WE FI ND THAT IN THE CASE OF VIREET INVESTMENT (P) LTD.(SUPRA),IDENTICAL ISSUE HAS BEEN DECIDED AGAINS T THE REVENUE AND IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR AY.2010-11(ITA 5537/AND 5764/MUM/2013 DATED 31/08/2017). CONSIDERING THE ABOVE,WE DECIDE LAST GROUND OF APPE AL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISS ED. . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2018. 3 , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :03.01.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.