KRISHNA KNITWEAR TECHNOLOGIES LTD., MUMBAI V. A.C.I.T. CENTRAL CIRCLE 37, MUMBAI

ITA 2565/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3970 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

M/S KRISHNA KNITWEAR TECHNOLOGIES LTD ITA NO. 2565/MUM/2012 ITA NO. 2889/MUM/2012 M/S KRISHNA LIFESTYLE TECHNOLOGIES LTD ITA NO. 2567/MUM/2012 ITA NO.2890/MUM/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTA NT MEMBER ITA NO. : 2565 /MUM/20 1 2 (ASSESSMENT YEAR: 200 8 - 0 9 ) M/S K RISHNA KNITWEAR TECHNOLOGIES LTD , KRISHANA HOUSE, RAGHUVANSHI MILLS COMPOUND, SENAPATI BAPAT ROAD, LOWER PAREL (W) MUMBAI - 400 013 .: PAN: AA ACK 4721 H VS DCIT - CENTRAL CIRCL E 37 , MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL KAPOOR RESPONDENT BY : AARSI PRASAD & SHRI RAJESH KUMAR ITA NO. : 2889/MUM/2012 (ASSESSMENT YEAR: 200 8 - 0 9 ) A CIT - CENTRAL CI RCLE 33 , ROOM NO. 32(2), GROUND FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 VS M/S K RISHNA KNITWEAR TECHNOLOGIES LTD, KRISHANA HOUSE, RAGHUVANSHI MILLS COMPOUND, SENAPATI BAPAT ROAD, LOWER PAREL (W) MUMBAI - 400 013 .: PAN: AAACK 4721 H (APPELLANT) (RESPONDENT) APPELLANT BY : AARSI PRASAD & SHRI RAJESH KUMAR RESPONDENT BY : SHRI SALIL KAPOOR ITA NO. : 2567/MUM/2012 (ASSESSMENT YEAR: 200 8 - 0 9 ) M/S K RISHNA LIFESTYLE TEC HNOLOGIES LTD, KRISHANA HOUSE, RAGHUVANSHI MILLS COMPOUND, SENAPATI BAPAT ROAD, LOWER PAREL (W) MUMBAI - 400 013 .: PAN: AABCS 1364 B VS ACIT - CENTRAL CIRCLE 37, MUMBAI (APPELLANT) (RESPONDENT) APPE LLANT BY : SHRI SALIL KAPOOR RESPONDENT BY : AARSI PRASAD & SHRI RAJESH KUMAR M/S KRISHNA KNITWEAR TECHNOLOGIES LTD ITA NO. 2565/MUM/2012 ITA NO. 2889/MUM/2012 M/S KRISHNA LIFESTYLE TECHNOLOGIES LTD ITA NO. 2567/MUM/2012 ITA NO.2890/MUM/2012 2 ITA NO. : 2890/MUM/2012 (ASSESSMENT YEAR: 200 8 - 0 9 ) DCIT - CENTRAL CIRCLE 37, MUMBAI VS M/S K RISHNA LIFESTYLE TECHNOLOGIES LTD, KRISHANA HOUSE, RAGHUVANSH I MILLS COMPOUND, SENAPATI BAPAT ROAD, LOWER PAREL (W) MUMBAI - 400 013 .: PAN: AABCS 1364 B (APPELLANT) (RESPONDENT) APPELLANT BY : AARSI PRASAD & SHRI RAJESH KUMAR RESPONDENT BY : SHRI SALIL KAPOOR /DATE OF HEARING : 15 - 02 - 2 01 6 / DATE OF PRONOUNCEMENT : 1 5 - 02 - 201 6 ORDER : . . : PER AMIT SHUKLA , JM : T HE AFORESAID CROSS APPEAL S HA VE BEEN FILED BY THE TWO DIFFERENT ASSESSEE S AS WELL AS BY THE REVENUE AGAINST SEPARATE IMPUGNED ORDER S OF EVEN DATE, 1 0 .0 2 .20 1 2 PASSED BY CIT(A) - 41 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2008 - 09. SINCE THE ISSUE INVOLVED IN ALL THE AFORESAID APPEALS ARE COMMON ARISING OUT OF IDENTICAL FACTS I.E. DISA LLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D , THEREFORE, THEY ARE BEING DISPOSED OFF TOGETHER. 2. IN THE CASE OF M/S KRISHNA TECHNOLOGY LTD., THE AO HAS WORKED OUT THE DISALLOWANCE OF RS. 74,44,794/ - OUT OF INTEREST EXPENDITURE AND RS. 8,52,630/ - ON ACCOU NT OF INDIRECT EXPENDITURE AFTER TAKING 0.5% OF THE AVERAGE INVESTMENT. IN THE CASE OF KRISHNA LIFESTYLE TECHNOLOGIES LTD, THE AO HAS DISALLOWED RS. 1,37,22,383/ - OUT OF INTEREST EXPENDITURE AND RS. 1,70,14,940/ - BEING 0.5% ON THE AVERAGE INVESTMENT BY INV OKING THE PROVISIONS OF M/S KRISHNA KNITWEAR TECHNOLOGIES LTD ITA NO. 2565/MUM/2012 ITA NO. 2889/MUM/2012 M/S KRISHNA LIFESTYLE TECHNOLOGIES LTD ITA NO. 2567/MUM/2012 ITA NO.2890/MUM/2012 3 SECTION 14 R.W. RULE 8D. THE LD. CIT(A) HAS DIRECTED THE AO TO EXCLUDE THE AMOUNT OF INTEREST PAID ON CASH CREDIT AMOUNT , THEN ACCORDINGLY, DIRECTED THE AO TO RECOMPUT E THE DISALLOWANCE . S O FAR AS INDIRECT EXPENDITURE IS CONCERNED W HICH WAS DISALLOWED BY ADOPTING 0.5% OF THE AVERAGE INVESTMENT UNDER RULE 8D(2)(III) , THE SAME WAS CONFIRMED. 3. BEFORE US, THE LD. COUNSEL SUBMITTED THAT, HERE IN BOTH THE CASES, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THEREFORE, THERE IS NO QUEST ION OF DISALLOWANCE UNDER SECTION 14A. THIS VIEW IS DULY SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT, REPORTED IN 37 8 ITR 33 WHEREIN, THE HONBLE HIGH COURT HELD THAT, IF THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME , THEN NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. 4. ON THE OTHER HAND, LD. DR SUBMITTED THAT THERE IS A BOARD CIRCULAR NO.5 OF 2014 DATED 11.02.2014 , WHEREIN THE BOARD HAS CLARIFIED THAT, THE EXPENSES WHICH ARE RELATABLE TO EARNING OF EXEMPT I NCOME WOULD BE CONSIDERED FOR DISALLOWANCE IRRESPECTIVE OF THE FACT THAT, WHETHER ANY INCOME HAS BEEN EARNED DURING THE FINANCIAL YEAR OR NOT. HE ALSO FILED A COPY OF DECISION OF THE ITAT DATED 31 ST JULY, 2014 IN THE CASE OF DOUBLE D OT FINANCIAL LTD. VS DC IT , REPORTED IN [2014] 40 TAXMAN.COM 291 (MUM TRIB), WHEREIN THE TRIBUNAL HAS UPHELD THE DISALLOWANCE AND STATED THAT, EVEN IF NO EXEMPT INCOME HAS RESULTED TO THE ASSESSEE , THEN ALSO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. 5. AFTER CONSIDERING THE RI VAL SUBMISSIONS AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND IT IS NOT IN DISPUTE THAT ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME OR ANY KIND OF EXEMPT INCOME FROM THE INVESTMENTS MADE. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEM I NVEST LTD ( SUPRA ) AFTER DISCUSSING THE ENTIRE LAW ON THIS POINT M/S KRISHNA KNITWEAR TECHNOLOGIES LTD ITA NO. 2565/MUM/2012 ITA NO. 2889/MUM/2012 M/S KRISHNA LIFESTYLE TECHNOLOGIES LTD ITA NO. 2567/MUM/2012 ITA NO.2890/MUM/2012 4 INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RAJENDRA PRASAD MOODY, REPORTED IN [1978] 115 ITR 519 HAS HELD AS UNDER: - THE PLAIN AND NATURA L CONSTRUCTION OF THE LANGUAGE OF SEC. 57(II I) OF THE INCOME TAX ACT 1961 IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESU LT OF THE EXPENDITURE. WHAT SEC. 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABIL ITY OF SEC.57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. SEC. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF A NY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF SEC. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH EXPENDITURE IS MADE S HOULD FRUCTIFY INTO ANY BENEFIT 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SU PREME COURT IN RAJENDRA PRASAD MOODY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME . SECTION 14A OF THE ACT ON THE OTHER HAN D CONTAINS THE EXPRESSION IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . THE DECISION IN RAJENDRA PRASAD MOODY (SUPRA) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT. 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO THE DECISION IN MAXOPP INVESTMENT LTD. (SUPRA) AND REMANDED THE MATTER TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH. THE ISSUE IN MAXOPP INVESTMENT LTD. (SU PRA) WAS WHETHER THE EXPENDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMENT IN SHARES OF OPERATING COMPANIES FOR ACQUIRING AND RETAINING A CONTROLLING INTEREST THEREIN WAS DISALLOWABLE UNDER SECTION 14 A OF THE ACT. IN THE SAID CASE AD MITTEDLY THERE WAS DIVIDEND EARNED ON SUCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS THE PRESENT, WHERE NO EXEMPT INCOME WAS EARNED IN THE YEAR IN QUESTION. CONSEQUENTLY, THE SAID DECISION WAS NOT RELEVANT AND DID NOT APPLY IN THE CONTEXT OF THE IS SUE PROJECTED IN THE PRESENT CASE . THUS, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD ( SUPRA ), WE HOLD M/S KRISHNA KNITWEAR TECHNOLOGIES LTD ITA NO. 2565/MUM/2012 ITA NO. 2889/MUM/2012 M/S KRISHNA LIFESTYLE TECHNOLOGIES LTD ITA NO. 2567/MUM/2012 ITA NO.2890/MUM/2012 5 THAT, NO DISALLOWANCE U/S 14A IS CALLED FOR, ONCE THERE IS NO EXEMPT INCOME RECEIVED OR REC EIVABLE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 7. SIMILARLY, IN ITA NO. 2567/MUM/2012 IN CASE OF M / S KRISHNA LIFESTYLE TECHNOLOGIES LTD., BEING IDENTICAL TO IT A NO. 2565/MUM/2012 , WE TREAT THIS APPEAL AS ALLOWED . IN VIEW OF OUR ABOVE FINDING THE REVENUES APPEAL WILL ALSO BE DISMISSED. ACCORDINGLY, REVENUES APPEAL IN M/S KRISHNA KNITWEAR TECHNOLOGIES LTD. (ITA NO. 2889/MUM/2012) AND M/S KRISHNA LIFESTYL E TECHNOLOGIES LTD. (ITA NO. 2890/MUM/2012) BOTH FOR ASSESSMENT YEAR 2008 - 0 9 ARE TREATED AS DISMISSED . TO SUM - UP: BOTH THE APPEALS OF THE ASSESSEE STANDS ALLOWED AND BOTH THE APPEALS OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY , 2016 . SD/ - SD/ - ( ) ( ) ( RAJESH KUMAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 15 TH FEBRUARY , 2016 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 3 9 , MUMBAI . 4 ) THE COMMISSIONER OF INCOM E TAX - CENTRAL II , MUMBAI . 5 ) , , / THE D.R. A BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. M/S KRISHNA KNITWEAR TECHNOLOGIES LTD ITA NO. 2565/MUM/2012 ITA NO. 2889/MUM/2012 M/S KRISHNA LIFESTYLE TECHNOLOGIES LTD ITA NO. 2567/MUM/2012 ITA NO.2890/MUM/2012 6 / BY ORDER / / TRUE CO PY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBA I * . . *CHAVAN, SR.PS