KOTAK MAHINDRA CAPITAL COMPANY LTD, MUMBAI V. DCIT RG 3(2), MUMBAI

ITA 248/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88148 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: F V IRANI
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 5748 /MUM/2012 ( / ASSESSMENT YEAR : 2008-2009 ./ I.T.A. NO. 248 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 KOTAK MAHINDRA CAPITAL COMPANY LIMITED, BAKHTAWAR IST FLOOR, 229 NARIMAN POINT, MUMBAI 400 021. / VS. THE DEPUTY COMMISSIONER OF INCOME TAX RANGE 3(2), 6 TH FLOOR, 674, AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AAACK 5577 D ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI F.V. IRANI R E SPONDENT BY : SHRI ASGHAR ZAIN / DATE OF HEARING : 3-12-2014 / DATE OF PRONOUNCEMENT :21-01-2015 [ !' / O R D E R PER R.C. SHARMA, A.M . : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS OF LD. CIT(A) 4 DATED 3-7-2012 AND 17-10-2012 FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10 IN THE MATTER OF ORDER PASSED U /S 143(3) OF THE INCOME TAX ACT, 1961. 2. THE COMMON GRIEVANCE IN BOTH THESE APPEALS RELA TE TO THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) U/ S 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. ITA 5748/M/12 & ITA 248/M/2013 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED T HE RECORDS. THE A.O. HAS MADE THE DISALLOWANCE U/S 14A R.W. RULE 8-D AT 0.5% OF ADMINISTRATIVE EXPENSES. THERE WAS NO DISALLOWANCE ON ACCOUNT OF INTEREST WHILE WORKING OUT THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. IT WAS ARGUED BY THE LEARNED A.R. THAT THE ASSESSEE HAS INVESTMENTS IN COMPANIES WHICH ARE ITS GROUP COMPANIES WHERE THE ASSESSEE HOLDS SUBSTA NTIAL STAKE. THE LD. A.R. SUBMITS THAT STRATEGIC INVESTMENTS, PER SE DO NOT R EQUIRE ANY DAY TODAY MONITORING AS THEY ARE INHERENTLY LONG TERM IN NATU RE. NO EXPENDITURE ON DAY- TO-DAY BASIS IS INCURRED FOR MANAGING THOSE INVESTM ENTS. THEREFORE, STRATEGIC INVESTMENT SHOULD BE EXCLUDED FOR ATTRIBUTING ADMIN ISTRATIVE EXPENSES FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. THE LD. A. R. HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS:- I) HSBC SECURITIES AND CAPITAL MARKETS (I) P. LTD. I TA NO. 3186/M/08 II) ZENSTAR TECHNOLOGIES LTD. ITA NO. 4538/M/05 III) SHRI BHALCHANDRA R. SULE ITA NO. 3684/M/05 IV) EIH ASSOCIATED HOTELS VS. DCIT ITA NO. 1503/MAD/1 2 V) INTERGLOBE ENTERPRISES LTD. VS. DCIT ITA NO. 1362 & 1032/DEL/13 VI) JM FINANCIAL LIMITED VS. ACIT ITA NO. 4521/M/12 VII) CIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD. ITA 605 OF 2012(HC) VIII) ACIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD. ITA NO. 4245/DEL/2011 IX) GARWARE WALL ROPES LTD. VS. ACIT ITA NO. 5408/M/2 012 IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, THE L D. A.R. PRAYED THAT THE A.O. BE DIRECTED TO EXCLUDE THE INVESTMENTS MADE IN FOREIGN SUBSIDIARIES AND INVESTMENT MADE IN COMPANIES WHICH ARE STRATEGIC IN NATURE WHILE COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF A DMINISTRATIVE EXPENSES. 4. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE OR DERS OF LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREF ULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERA TED UPON THE JUDICIAL PRONOUNCEMENTS CITED WITH REFERENCE TO THE EXCLUSIO N OF INVESTMENT MADE IN ITA 5748/M/12 & ITA 248/M/2013 3 THE COMPANIES WHICH ARE STRATEGIC IN NATURE. AS PER THE JUDICIAL PRONOUNCEMENTS CITED ABOVE, SUCH INVESTMENTS SHOULD NOT BE TAKEN INTO ACCOUNT FOR WORKING OUT THE DISALLOWANCE U/S 14A OF THE ACT. 6. IN THE CASE OF INTERGLOBE ENTERPRISES LTD. VS. D CIT, ITAT DELHI BENCH IN ITA NO. 1362 & 1032/DEL/2013 FOR A.Y. 2008-09 AND 2 009-10, VIDE ORDER DATED 4-4-2014 CONCLUDED AS UNDER:- HOWEVER, WE FIND THAT THE CALCULATION OF DISALLOWA NCE UNDER RULE 8D(III) MADE BY THE ASSESSING OFFICER AND UPHELD BY THE LD. CIT(A) IS NOT CORRECT IN VIEW OF THE FACT THAT ASSESSING OFFICER HAD INCLUDED THE VALUE OF TOTAL INVESTMENTS FOR CALCULATION OF DISALLOWANC E WHEREAS IN OUR OPINION THE VALUE OF THOSE INVESTMENTS SHOULD HAVE BEEN INCLUDED WHICH WERE MADE FOR THE PURPOSE OF EARNING EXEMPT I NCOME. THE ASSESSEE HAD MADE SIGNIFICANT INVESTMENTS IN THE SH ARES OF SUBSIDIARY COMPANIES WHICH ARE DEFINITELY NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. 7. SINCE THIS ASPECT OF STRATEGIC INVESTMENT HAS NO T EXAMINED BY LOWER AUTHORITIES, WE RESTORE THE MATTER FOR BOTH THE ASS ESSMENT YEARS BACK TO THE FILE OF THE A.O. FOR RECOMPUTING AFRESH THE DISALLO WANCES MADE U/S 14 A READ WITH RULE 8-D. NEEDLESS TO SAY THAT THE A.O. SHOUL D AFFORD SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE D ECIDING THE ISSUE AFRESH. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY, 2015. !' # $% &! ' 21-01-2015 ( ) SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 21-01-2015 [ .6../ R.K. , SR. PS ITA 5748/M/12 & ITA 248/M/2013 4 ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 7 () / THE CIT(A) 4,, MUMBAI 4. 7 / CIT 3, MUMBAI 5. :;( 66<= , <= , $ 5 / DR, ITAT, MUMBAI A BENCH 6. (?@ A / GUARD FILE. ' / BY ORDER, : 6 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 5 / ITAT, MUMBAI