PIEM HOTELS LTD, MUMBAI V. DCIT RG 3(2), MUMBAI

ITA 240/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9453 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: SUNIL M LALA; VARUN SANKHESARA
• Keywords: Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

, L LL LH HH H INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. , ! , BEFORE S/SH.VIJAY PAL RAO, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.240/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2006-07 PIEM HOTELS LIMITED, TAJ PRESIDENT, 90, CUFFE PARADE, COLABA, MUMBAI-400005 PAN:AAACP8367M VS DCIT RANGE 3(2), MUMBAI. ( $% / APPELLANT) ( &'$% / RESPONDENT) /. ITA NO.241/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2007-08 PIEM HOTELS LIMITED, TAJ PRESIDENT, 90, CUFFE PARADE, COLABA, MUMBAI-400005 PAN:AAACP8367M VS DCIT RANGE 3(2), MUMBAI. ( $% / APPELLANT) ( &'$% / RESPONDENT) /. ITA NO.850/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2008-09 PIEM HOTELS LIMITED, TAJ PRESIDENT, 90, CUFFE PARADE, COLABA, MUMBAI-400005 PAN:AAACP8367M VS DCIT RANGE 3(2), MUMBAI. '() '() '() '() * * * * / ASSESSEE BY : SHRI SUNIL M. LALA & VARUN SAN KHESARA + * / REVENUE BY : SHRI PREMANAND J. ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 10-03-2015 -.# + ), / DATE OF PRONOUNCEMENT : 20-03-2015 ' ' ' '1961 1961 1961 1961 + + + + 254 254 254 254( (( (1 11 1) )) ) )7) )7) )7) )7) 8 8 8 8 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DATED 25.10.2011 OF THE CIT(A )-4,MUMBAI THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) - IV, MUMBAI [' CIT (A)'] HAS LEGALLY ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF MAKING DISALLOWANCE OF RS 6,55 ,913 UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT'). 2.THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AS MAY BE CONSIDERED NECESSAR Y EITHER AT OR BEFORE THE APPEAL HEARING. ITA/241/MUM/2012-AY.2007-08: GROUNDS OF APPEAL FOR THE AY. 2007-08 READ AS UNDER : 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) - IV, MUMBAI [' CIT (A)'] HAS LEGALLY ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF MAKING DISALLOWANCE OF RS 6,19 ,500 UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT'). 2.THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AS MAY BE CONSIDERED NECESSAR Y EITHER AT OR BEFORE THE APPEAL HEARING. 2 ITA NOS. 240, 241 & 850/M/2012 PIEM HOTELS LTD. ITA/850/MUM/2012-AY.2008-09: GROUNDS OF APPEAL FOR THE AY. 2007-08 READ AS UNDER : 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) - IV, MUMBAI [' CIT (A)'] HAS LEGALLY ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF MAKING DISALLOWANCE OF RS 5,99 ,500 UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT'). 2.THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AS MAY BE CONSIDERED NECESSAR Y EITHER AT OR BEFORE THE APPEAL HEARING. ITA/240/MUM/2012-AY.2006-07: ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF HOTEL B USINESS & CATERING SERVICES, FILED ITS RETURN OF INCOME ON 29.11.2006 DECLARING TOTAL INCO ME OF RS.68,99,23,100/-.ASSESSING OFFICER(AO)FINALISED THE ASSESSMENT U/S.143(3) OF T HE ACT,ON 31.12.2008,DETERMINING THE TOTAL INCOME AT RS.71,13,90,040/-. 2 .EFFCTIVE GROUND OF APPEAL DEALS WITH DISALLOWANCE MADE U/S.14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAD RECEIVED DIVIDEND INCOME OF RS. 69,53,984/-WHICH WAS CLAIMED EXEMPT U/S.10(33) OF T HE ACT,THAT NO DISALLOWANCE WAS OFFERED U/S.14A BY THE ASSESSEE THEREFORE,HE APPLIE D RULE 8D AND DISALLOWED RS. 6, 55,913/- U/S. 14A OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS CLAIMED THAT NO EX PENDITURE WAS ATTRIBUTABLE TO DIVIDEND INCOME,THAT NO NEW INVESTMENT HAS BEEN MADE AND NO EXPENDITURE WAS REQUIRED FOR EARNING OF DIVIDEND INCOME.IN SUPPORT OF ITS CLAIM THE ASSESSE E RELIED ON THE ORDERS OF THE FAA FOR AY.S. 2004-05 AND 2005-06. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,THE FAA HELD THAT NO DISALLOWANCE HAD BEEN MADE ON ACCOUNT OF INTEREST A ND THE ONLY DISALLOWANCE IS ON ACCOUNT OF ADMINISTRATIVE EXPENSES ALLOCABLE TO DIVIDEND INCOM E,THAT THE ASSESSEE HAD CLAIMED THAT NO NEW INVESTMENTS WERE IS MADE OR SOLD,THAT IN WHATEVER F ORM THE INVESTMENTS WERE MAINTAINED IT REQUIRED CERTAIN ADMINISTRATIVE EFFORTS,THAT EVERY INVESTOR ALWAYS LIKED TO KEEP IN TOUCH WITH THE MARKET AND TRY TO MAXIMISE ITS GAIN AT THE RIGHT OPPORTUNITY,T HAT IT WAS NOT CORRECT TO SAY THAT NO ADMINISTRATIV E EFFORTS WERE REQUIRED IN MAINTAINING THE INVESTMENT ,THAT REALIZATION OF DIVIDEND ALSO INVOLVED CERTAIN EFFORTS IN WHATEVER FORM,THAT AMOUNT OF EXPENDITURE RELATING TO DIVIDEND INCOME COULD BE MORE OR LESS BUT IT HAD TO BE ALLOCATED OUT OF THE TOTAL AD MINISTRATIVE EXPENSES.HE FURTHER HELD THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD.(328 ITR 81)HAD UPHELD RULE 8D AND HAD OBSERVED THAT IT WAS APPLICABLE FROM AY. 08 -09,WHEREAS FOR EARLIER YEARS IT HAS BEEN HELD THAT A REASONABLE DISALLOWANCE IS TO BE MADE. FINAL LY,HE HELD THAT THE DISALLOWANCE CALCULATED BY THE AO WAS THE MOST REASONABLE AND HAD TO BE CONFIRMED . 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT THE FAA HAD DELETED THE ADDITIONS MADE FOR THE AY.S.2004-05 AND 2005-06,THAT THERE WA S NO DIFFERENCE IN THE FACTS FOR THE YEAR UNDER APPEAL AND FACTS OF THE EARLIER TWO AY.S.,THA T THE ASSESSEE HAD MADE STRATEGIC INVESTMENT ONLY DURING THE YEAR UNDER CONSIDERATION,THAT FOLLO WING THE PRINCIPLE OF CONSISTENCY THE AO SHOULD NOT HAVE MADE ANY ADDITION,THAT OPENING BALA NCES AND THE CLOSING BALANCES OF THE INVESTMENT WERE SAME AS PER THE BALANCE-SHEETS CONT AINING THE DETAILS OF INVESTMENTS, THAT NO SATISFACTION WAS RECORDED BY THE AO, THAT AO HAD NO T BEEN POINTED THE EXPENDITURE INCURRED BY THE ASSESSEE.HE RELIED TO CASE OF MAGARPATTA TOWNSH IP DEVELOPMENT AND CONSTRUCTION CO.LTD. (46 TAXMANN.COM 284)WITH REGARD TO RECORDING OF SAT ISFACTION.IT WAS ALSO ARGUED THAT DISALLOWANCE U/S 14A REQUIRED A CLEAR FINDING OF IN CURRING OF EXPENDITURE,THAT IN ABSENCE OF SAME NO DISALLOWANCE COULD BE MADE,THAT AO HAD NOT REBUT TED THE SUBMISSION OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED TO EARN EXEMPT INCOME ,THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE FAA WAS NOT SUSTAINABLE.HE FURTHER RELIED ON THE CASE OF RELIANCE INDUSTRIES 3 ITA NOS. 240, 241 & 850/M/2012 PIEM HOTELS LTD. LTD.(339 ITR 632) DELIVERED BY THE HONBLE BOMBAY H IGH COURT.IT WAS ALSO ARGUED THAT IN CASE OF STRATEGIC INVESTMENT NO DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE.IN THIS REGARD THE AR RELIED UPON THE CASE OF J.M.FINANCIAL LTD. (ITA/425 1/MUM/ 2012)AND GARWARE WALL ROPES LTD. (46 TAXMANN.COM 2014) HE REFERRED TO PAGE NOS. 16 A ND 17 OF THE PAPER BOOK.ALTERNATIVELY AND WITHOUT PREJUDICE IT WAS STATED THAT DISALLOWANCE S HOULD BE RESTRICTED TO 1%. DEPARTMENTAL REPRESENTATIVE(DR)CONTESTED THAT SATIS FACTION WAS RECORDED BY THE AO, THAT HE HAD ASKED A QUESTION TO THE ASSESSEE ABOUT INVOKING OF PROVISIONS OF SECTION 14A OF THE ACT, THAT AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE HE HAD TAKEN A DECISION, THAT ASSESSEE HAD NOT PROVED THAT HOW THE INVESTMENTS MADE BY IT WERE STR ATEGIC INVESTMENTS, THAT PRINCIPALS OF RES- JUDICATE DID NOT APPLY TO THE INCOME-TAX PROCEEDING S. 5. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY.2005-06 THE FAA HAD DELETED THE ADDITION MADE BY THE AO FOLLOWING HIS ORDER FOR THE AY.2004-05,THAT THE THE N FAA HAD HELD THAT ASSESSEE WAS HOLDING STRATEGIC INVESTMENT,THAT SAME WAS INHERENT PART OF OVERALL PLANNING,THAT THERE WAS NO CHANGE IN FACTS OF THE CASE THAT YEAR AS COMPARED TO THE FACT S OF AY.2004-05. IT IS FOUND THAT ASSESSEE HAD MADE INVESTMENT IN TA J GROUP OF COMPANIES ONLY AND IT IS PART OF TAJ GROUP,THAT EXCEPT FOR ONE OR TWO COMPANIES MOST OF THE COMPANIES WHEREIN IT HAD MADE INVESTMENT ARE IN THE SAME BUSINESS OR IN THE BUSIN ESS RELATED WITH THE HOTEL INDUSTRIES.IT IS A FACT THE AO HAS NOT PINPOINTED AS TO WHAT WAS THE EXPEND ITURE THAT WAS INCURRED BY THE ASSESSEE FOR EARNING TAX FREE INCOME.INCURRING OF EXPENDITURE BY AN ASSESSEE,IS THE PRECONDITION FOR MAKING DISALLOWANCE U/S.14A OF THE ACT.THE LOGIC BEHIND IN TRODUCING THE SECTION WAS THAT THE ASSESSEE SHOULD NOT CLAIM OR GET TWO DEDUCTIONS-.I.E.OFFERIN G NO TAX EXEMPT INCOME ON ONE HAND AND CLAIMING EXPENDITURE ON OTHER HAND.INCURRING OF EXP ENDITURE FOR EARNING EXEMPT INCOME HAS TO BE PROVED AS A MATTER OF FACT.THERE CANNOT BE ANY GUES S WORK OR PRESUMPTION ABOUT INCURRING OF EXPENDITURE.IF THE ASSESSEE CLAIMS INTEREST EXPENDI TURE OR OTHER EXPENDITURE (ADMINISTRATIVE)FOR EARNING EXEMPT INCOME,DEFINITELY A DISALLOWANCE CAN BE MADE.BUT,IF NO CLAIM IS MADE THEN THE AO SHOULD NOT INVOKE THE PROVISIONS OF SECTION 14A. THE ASSESSEE MUST HAVE INCURRED SOME EXPENSE IS A VERY GENERAL AND VAGUE PHRASE AND DOES NOT INDICATE THE INCURRING OF EXPENDITURE.THE WORD MAY LEAVE THE DOOR OPEN.IN THE CASE OF J.M. FI NANCE (SUPRA),TO WHICH ONE OF US WAS THE PARTY,IT HAS BEEN HELD THAT IF NO EXPENDITURE WAS I NCURRED FOR EARNING TAX FREE INCOME NO DISALLOWANCE SHOULD BE MADE. IT IS SAID THAT FACT OF EACH CASE ARE DIFFERENT SO, WITHOUT HIGHLIGHTING THE FACTS OF THAT CASE NO ADDITION SHOULD BE MADE ON THE BASIS OF GENERAL PRE SUMPTION.THE FAA,IN THE PRESENT CASE, HAD HELD THAT THE EVERY ASSESSEE WOULD KEEP WATCH OVER THE MARKET TO MAXIMISE ITS PROFIT BUT HE HAD MISSED ONE IMPORTANT ASPECT THAT THE ASSESSEE WAS H OLDING THE SHARES OF GROUP CONCERNS FOR STRATEGIC PURPOSES AND FOR SELLING AND BUYING AND S ELLING THEM FREQUENTLY.IN ABSENCE OF THE FINDING AS TO HOW MUCH WAS THE SUM INCURRED BY THE ASSESSEE UNDER THE HEAD ADMINISTRATIVE EXPENSES,IT IS NOT POSSIBLE FOR US TO UPHOLD THE ORDER OF THE FAA FOR THE YEAR UNDER CONSIDERATION. WE FURTHER FIND THAT THE FAA HAD NOT BROUGHT ON REC ORD AS TO HOW THE FACTS OF EARLIER TWO AY.S.WERE DIFFERENT FROM THE FACTS OF THE YEAR CONS IDERATION.IN THE CASE OF ARONI COMMERCI -ALS LTD.(362ITR403)THE HONBLE BOMBAY HIGH COURT HAS HE LD AS UNDER: THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLICA BLE TO TAX MATTERS AS EACH YEAR IS SEPARATE AND DISTINCT,NEVERTHELESS WHERE FACTS ARE IDENTICAL FRO M YEAR TO YEAR,THERE HAS TO BE UNIFORMITY AND IN TREATMENT. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO PAL PUROHIT(336ITR287)HAS HELD THAT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND WHEN FACTS A ND CIRCUMSTANCES FOR DIFFERENT YEARS WERE IDENTICAL PARTICULARLY IN THE CASE OF THE SAME ASSE SSEE.ANALYSIS OF THE ABOVE TWO JUDGMENTS LAY DOWN THAT THE PRINCIPLE OF CONSISTENCY CAN BE IGNOR ED ONLY IN CERTAIN CONDITIONS AND WITHOUT PINPOINTING THE DIFFERENCE OF FACTS FOR A PARTICULA R YEAR WITH THE FACTS OF EARLIER YEAR/S CONSISTENCY SHOULD BE MAINTAINED.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE REVERSING THE ORDER OF THE FAA. EFFECTIVE GROUND OF APPEAL RAISED BY THE ASSESSEE FOR THE YEAR 4 ITA NOS. 240, 241 & 850/M/2012 PIEM HOTELS LTD. UNDER CONSIDERATION,IS ALLOWED IN ITS FAVOUR. ITA/850/MUM/2012-AY.2008-9 6 .THE FACTS OF THE CASE UNDER CONSIDERATION ARE SIMI LAR TO THE FACTS OF EARLIER YEAR-THE ONLY DIFFERENCE IS OF DISALLOWANCE MADE.THE THE AO HAD M ADE DISALLOWANCE OF RS.6.19 LAKHS FOR THE YEAR UNDER APPEAL AS AGAINST THE DISALLOWANCE OF RS .6.55 LAKHS MADE FOR THE EARLIER YEAR.FOLLOWING OUR ORDER FOR THE EARLIER YEAR,WE DECIDE THE EFFECT IVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 7 .THE EFFECTIVE GROUND FOR THE YEAR UNDER APPEAL IS IDENTICAL TO THE GROUNDS RAISED IN THE TWO EARLIER ASSESSMENT YEARS I.E. DISALLOWANCE U/S. 14A OF THE ACT. DURING THE YEAR THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 1.07 CRORES AND IT WAS CLAIMED EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSEE ITSELF OFFERED DISALLOWANCE OF RS. 1.1 8 LAKHS U/S. 14A OF THE ACT. THE DISALLOWANCE CONSISTED OF ENTIRE INTEREST EXPENDITURE AND A PORT ION OF ADMINISTRATIVE EXPENSES. APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 THE AO MADE A DISALLOWANCE OF RS. 7.16 LAKHS. DURING THE APPELLATE PROCEEDINGS, THE FAA AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE UPHELD THE ORDER OF THE AO. WE FIND THAT T HE ASSESSEE ITSELF HAD MADE DISALLOWANCE OF INTEREST EXPENDITURE AND PART OF ADMINISTRATIVE EXP ENSES FOR THE YEAR UNDER CONSIDERATION. AS THE FACTS AND CIRCUMSTANCES OF THE MATTER ARE ALMOST SI MILAR TO THE FACTS OF EARLIER TWO ASSESSMENT YEARS, THEREFORE, FOLLOWING THE SAME WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEALS FILED BY THE ASSESSEE FO R ALL THE THREE ASSESSMENT YEARS STAND ALLOWED. 9): '() ; < + 7 SA = + ) >?. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH,MARCH,2015 . 8 + -.# A B' 20 EKPZ , 201 5 . + 7 C SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER , / MUMBAI, B' /DATE: 20.03 . 2015. SK 8 8 8 8 + ++ + &) &) &) &) D #) D #) D #) D #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ E F , 4. THE CONCERNED CIT / E F 5. DR C BENCH, ITAT, MUMBAI / G7 &)' L LL LH HH H , . . . 6. GUARD FILE/ 7 9 ') ') ') ') &) &)&) &) //TRUE COPY// 8' / BY ORDER, H / > DY./ASST. REGISTRAR , /ITAT, MUMBAI