MUTHA ENGINEERING P. LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 2386/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1239 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: G P MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B, MU MBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.2386/MUM/2012 (ASSESSMENT YEAR- 2008-09) MUTHA ENGINEERING PVT. LTD. C/O G.P. MEHTA & CO., CAS, 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI-400021. PAN: AABCM 0781G VS. ACIT CIRCLE-4(2), AAYAKAR BHAVAN, 6 TH FLOOR, M.K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.P. MEHTA (AR) REVENUE BY : SHRI SUMAN KUMAR (DR) DATE OF HEARING : 17.04.2017 DATE OF PRONOUNCEMENT : 21.04.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY U/S 253 OF THE INCOME-TAX ACT (THE ACT) IS DIRECTED BY ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-8, MUMBAI DATED 25. 11.2011 FOR AY-2008-09. THOUGH THE ASSESSEE HAS RAISED AS MANY AS FIVE GROU NDS OF APPEAL. HOWEVER, AS PER OUR CONSIDERED VIEW THE ONLY SUBSTANTIAL GROUND OF APPEAL IS WHETHER THE LOWER AUTHORITIES ERRED IN MAKING THE ADDITION OF R S. 1,78,814/- U/S 14A OF THE ACT. 2. BRIEF FACTS OF THE CASE RELATED WITH THE ISSUE RAIS ED IN THE PRESENT APPEAL ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 28.09.2008 DECLARING TOTAL INCOME OF RS. 1,92,55,600/-. THE ASSESSMENT WAS COM PLETED ON 22.11.2010 U/S 143(3) OF THE ACT. THE ASSESSING OFFICER (AO) WHILE PASSING THE ASSESSMENT ORDER DISALLOWED RS. 1,78,814/- U/S 14A R.W. RULE 8D OF T HE ACT. ON APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE WAS SUSTAINED. HENCE, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT A PPEAL BEFORE US. ITA NO. 2386/M/ 2012- MUTHA ENGINEERING PVT. LTD. 2 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR REVENUE AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE ARGUED THAT A SSESSEE EARNED EXEMPT INCOME OF RS. 2,78,484/- BEING DIVIDEND INCOME DURING THE RELEVANT AY. THE AO DETERMINED THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT AT RS. 1,78,814/-. THE DISALLOWANCE CONSIST OF INTEREST EXPENSES OF RS . 1,58,596/- AND EXPENSES OF RS. 20,218/- BEING .5% OF AVERAGE VALUE OF INVESTME NT. THERE WAS NO DIRECT EXPENDITURE RELATING TO THE EXEMPT INCOME. THE LD. AR OF THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE OF INTEREST EXPENDITURE ONLY. THE LD. AR OF THE ASSESSEE SUBMIT S THAT ASSESSEE HAS OWN INTEREST FREE FUND ARE MORE THAN THE INVESTMENT MAD E DURING THE YEAR UNDER CONSIDERATION. THE LD AR OF THE ASSESSEE INVITED OU R ATTENTION TO THE CAPITAL ACCOUNT OF THE ASSESSEE AS ON 31.03.2008. THE ASSES SEE HAS SHOWN THE RESERVE AND SURPLUS FUND OF RS. 3,20,84,516/- AS ON 31.03.2008. THE ASSESSEE MADE THE INVESTMENT OF RS. 64,05,486/- ONLY. IN SUPPORT OF H IS SUBMISSION, LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HDFC BANK LTD. V/S DCIT REPORTED IN 383 ITR 529 AND PRAYED THAT THE DISALLOWANCE OF INTERES T EXPENSES MAY BE DELETED. ON THE OTHER HAND, LD. DR FOR THE REVENUE SUPPORTED TH E ORDER OF AUTHORITIES BELOW. THE LD DR ARGUED THAT THE ASSESSEE EARNED EXEMPT IN COME OF RS. 2,78,484/- AND THE DISALLOWANCES IS LESS THAN THE EXEMPT INCOME AN D REASONABLE ONE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. IN THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN THE EXEMPT INCOME OF RS. 2,78,484/- AS DIVIDEND INCOME. NO VOL UNTARY DISALLOWANCE WAS MADE BY THE ASSESSEE. THE AO ASKED THE ASSESSEE TO EXPLAIN THE EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME. IN REPLY TH E ASSESSEE CONTENDED THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN THE EXEMPT IN COME. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO HOLDING THAT CERTAI N PERCENTAGE OF EXPENSES CLAIMED BY THE ASSESSEE-COMPANY WOULD DEFINITELY BE ATTRIBUTED TO THE TAX FREE INCOME EARNED BY THE ASSESSEE. THE ASSESSEE IS HAVI NG COMMON POOL OF HUMAN AND FINANCIAL RESOURCES. THUS, THE AO INVOKED PROVI SIONS OF RULE 8D AND WORKED ITA NO. 2386/M/ 2012- MUTHA ENGINEERING PVT. LTD. 3 OUT THE DISALLOWANCE OF RS. NILL UNDER RULE 8D(I), RS. 1,58,596/- UNDER RULE 8D(II) AND RS.20,218/- UNDER RULE 8D(III). THE LD.C IT(A) CONFIRMED THE DISALLOWANCE. 5. WE HAVE SEEN THAT THE AO HAS NOT RECORDED ITS DISSA TISFACTION UNDER SECTION 14(2) BEFORE INVOKING THE PROVISIONS OF RULE 8D. FROM THE PROFIT & LOSS ACCOUNT, WE HAVE NOTICED THAT ASSESSEE WAS HAVING SUFFICIENT IN TEREST FREE FUND AVAILABLE WITH IT. AS PER THE DECISIONS OF HONBLE BOMBAY HIGH COU RT IN RELIANCE UTILITY 313 ITR 340 (BOM) AND HDFC BANK LTD. 366 ITR 505 WHEREI N IT WAS HELD THAT WHERE BOTH INTEREST FREE FUND AND INTEREST BEARING FUND A RE AVAILABLE WITH ASSESSEE AND INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENT MA DE, THE PRESUMPTION IS THAT THE INVESTMENT IN THE TAX FREE SECURITY WOULD HAVE BEEN MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THUS, RESPECTFUL LY FOLLOWING THE ORDER OF JURISDICTIONAL HIGH COURT, WE DIRECT THE AO TO DELE TE THE INTEREST DISALLOWANCE MADE UNDER RULE 8D(II). 6. WITH THESE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF APRIL 2017. SD/- SD/- (G.S. PANNU) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 21/04/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/