PRAHAM INDIA LLP, MUMBAI V. ITO 8(2)(4), MUMBAI

ITA 2738/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2768 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2014
• Court: TRIBUNAL
• Department Lawyers: RADHA KATYAL NARAN G
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, LH LHLH LH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH , IOU FLAG IOU FLAG IOU FLAG IOU FLAG BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SINGH,JUDICIAL MEMBER /.ITA NO.2738/MUM/2014, /ASSESSMENT YEAR-2009-10 PRAHAM INDIA LLP (SUCCESSOR OF PRAHAM INDIA PVT. LTD.), PATEL ESTATE, OFF S. V. ROAD, JOGESHWARI (W), MUMBAI-400102. PAN:AAACP2054Q VS ITO-8(2)(4), 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI MAYUR KISNADWALA (AR ) / REVENUE BY : MS. RADHA KATYAL NARANG (DR) ' / DATE OF HEARING : 28 - 06 -2016 / DATE OF PRONOUNCEMENT : 23 -09-2016 ORDER/ % & IOU FLAG IOU FLAG IOU FLAG IOU FLAG PER PAWAN SINGH, JM 1. THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-17, MUMBAI DATED 20.02.2014 FOR ASSESSMENT YEAR (AY)-2009-10. THE AS SESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE U/S 14A AMOUNTING TO RS. 63,22,771/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN UPHOLDING THE AOS ACTION OF NOT ALLOWING DEDUCTION OF RS. 16,14,616/- BEING REVERSAL/ WRITE OFF OF INTEREST ACCOUNTS TWICE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 30.09.2009. THE RETURN OF INCOME WAS SELECTED FOR S CRUTINY. DURING THE ASSESSMENT PROCEEDING, THE AO OBSERVED THAT ASSESSEE DID NOT C ARRY OUT ANY BUSINESS ACTIVITY OF WHICH REVENUE WAS RECOGNIZED. FROM THE BALANCE-SHEE T, IT IS EVIDENT THAT THE ASSESSEE UTILIZED THE MONEY FROM CAPITAL, RESERVE & SURPLUS AND UNSECURED LOAN FOR INVESTMENT IN SHARES AND ADVANCEMENT OF LOAN FOR INVESTMENT IN CA PITAL WORK-IN-PROGRESS. IN THE PROFIT & LOSS A/C, THE ASSESSEE CLAIMED INTEREST EXPENDITU RE OF RS. 49,64,100/-. THESE FACTS SHOW THAT INTEREST BEARING FUNDS WERE UTILIZED FOR INVESTMENT IN SHARES OR ADVANCING LOAN FOR INVESTMENT IN CAPITAL WORK-IN-PROGRESS. THE ASS ESSEE WAS ASKED TO JUSTIFY THE CLAIM OF INTEREST EXPENDITURE BY ESTABLISHING DIRECT NEXUS O F UTILIZATION OF INTEREST BEARING BORROWED CAPITAL FOR BUSINESS ACTIVITIES AND TO FIL E THE FUND FLOW STATEMENT. THE ASSESSEE CONTENDED THAT HE HAS MADE INVESTMENT IN SHARES OF RS. 11,11,28,494/-, FOR INVESTMENT, IT ITA NO.2738/MUM// 2014- PRAHAM INDIA LLP. 2 HAD UTILIZED ITS OWN FUND WHICH COULD BE VERIFIED F ROM BALANCE-SHEET. DURING THE YEAR, THE ASSESSEE RECEIVED BACK A SUM OF RS. 17,06,98,69 3/- ADVANCED EARLIER. THIS AMOUNT WITH THE AVAILABLE BANK BALANCES HAD BEEN UTILIZED FOR THE INVESTMENT MADE IN SHARE AND PLACED INTER-CORPORATE DEPOSIT. THUS ALL INVESTMENT S WERE MADE FROM HIS OWN FUNDS AND NO BORROWED MONEY WAS INVESTED. THEREFORE, NO DISAL LOWANCE OF INTEREST IS CALLED FOR. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASONS THAT ASSESSEE DID NOT FILE FUND FLOW STATEMENT TO ESTABLISH THE UTILI ZATION OF INTEREST BEARING FUND AND, DISALLOWED RS. 4,96,410/- ON ACCOUNT OF INTEREST EX PENSES. THE AO FURTHER OBSERVED THAT ASSESSEE ITSELF DISALLOWED INTEREST TO THE EXTENT O F RS. 25,36,157/- U/S 14A OF THE ACT AND CONCLUDED THAT ASSESSEE CLAIMED THAT ENTIRE INVEST MENT TO THE SHARE WERE OUT OF THE COMPANYS OWN FUNDS BUT IT WAS SELF-CONTRARY FROM T HE BALANCE-SHEET, THAT IF, SUCH FUND WAS NOT UTILIZED FOR SHARE IN INVESTMENT, THEN THE SAME WAS UTILIZED FOR ADVANCING LOAN OR INVESTED IN CAPITAL WORK-IN-PROGRESS, THAT THE TOTA L INTEREST CREDITED TO PROFIT & LOSS A/C IS RS. 18,60,554/- WHILE THE ASSESSEE PAID INTEREST OF RS. 49,64,100/-. THE AO FURTHER OBSERVED THAT THE TOTAL INVESTMENT AT THE START AND CLOSE OF THE PREVIOUS YEAR WAS SHOWN AT RS. 21,61,69,928/- AND RS. 32,72,98,422/-, THAT THE AVERAGE OF WOULD RS. 27,17,34,175/- AND ONE HALF PERCENT OF THE AVERAGE INVESTMENT WOUL D BE RS. 13,58,679/-. TOTAL DISALLOWANCE U/S 14A R.W.R. 8D OF THE ACT (2)(I)(II I) WAS WORKED OUT AT RS. 63,22,771/-. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED AP PEAL CIT(A). DURING THE APPELLATE PROCEEDING, THE CIT(A) OBSERVED THAT THE ASSESSEE S UO-MOTO DISALLOWED INTEREST EXPENDITURE UNDER SECTION 14 A OF THE ACT TO THE E XTENT OF RS. 25,36,157/-, THAT THE ASSESSEE HAD DIVIDEND INCOME AND HAD MADE INVESTME NT, THAT IT BE A GROUND FOR DISALLOWING THE INTEREST EXPENDITURE FOR THE PURPOS E OF ASSESSEES BUSINESS. IT WAS FURTHER OBSERVED THAT THE AO HAD WORKED OUT A TOTAL DISALLO WANCE UNDER SECTION 14 A BY INCLUDING THE ENTIRE AMOUNT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE AT RS. 49,64,100/-. THE RECORD OF THE INVESTMENT SHOWED T HAT PREVIOUS YEAR INVESTMENT WAS AT RS. 21,61,69,928/-AND AT THE END OF THE YEAR IT STA ND AT RS. 32,72,98,422/-. THERE WAS HARDLY ANY INCREASE IN THE WORK IN PROGRESS OF THE ASSESSEE. THE ASSESSEE INVESTED MAJOR AMOUNT IN ITS INVESTMENT, AND IT COULD BE INFERRED THAT MAJOR AMOUNT FROM BORROWED FUNDS HAD GONE IN THE INVESTMENT. DIVIDEND INCOME BY THE ASSESSEE DOES NOT, COMMENSURATE WITH THE INVESTMENT AND THE ADDITION/DISALLOWANCE W AS CONFIRMED. FURTHER AGGRIEVED BY THE ORDER OF CIT (A) THE PRESENT APPEAL IS FILED B EFORE US. 3. FIRST GROUND FOR OUR CONSIDERATION IS DISALLOWANCE U/S 14A OF THE ACT. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE AND DEPARTMENTAL REPRESENTATIVE (DR) ITA NO.2738/MUM// 2014- PRAHAM INDIA LLP. 3 FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. LD. AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE HAS SUO-MOTO DISALLOWED RS. 38,94 ,0174/-AND SECTION 14A READ WITH RULE 8D. THE AO NOT RECORDED HIS DISSATISFACTION BEFORE CALCULATING THE DISALLOWANCE. THE ASSESSEE HAS UTILIZED ITS OWN FUND AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABLE WITH HIM. THE ASSESSEE HAS MADE STRATEGIC INVESTMENT. NO FURTHER DISALLOWANCE OF INTEREST WAS CALLED FOR. THE LEARNED DR FOR REVE NUE SUPPORTED THE ORDER ORDERS OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE AO, WHILE FRAMING THE ASSESS MENT, OBSERVED THAT THE ASSESSEE CLAIMED EXEMPT INCOME OF RS. 1,36,24,168/-. THE ASS ESSEE VOLUNTARY DISALLOWED RS. 38,94,828/- U/S 14A R.W.R. 8D OF THE ACT. THE SUBMI SSION OF ASSESSEE THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 14 A PURELY ON THE AD HOC BASIS WAS DISCARDED THAT THE ASSESSEE ITSELF MADE THE DISALLOWANCE ON T HE SAME BASIS AND CONFIRMED THE ADDITION. THE BASIC CONTENTION OF THE LD AR OF THE ASSESS EE IS THAT ASSESSEE HAD MADE STRATEGIC INVESTMENT. NEITHER THE AO NOR THE LEARNE D CIT (A) GAVE ANY FINDING OR RECORDED THEIR OBSERVATION ABOUT THE STRATEGIC INVE STMENT OF THE ASSESSEE. HENCE WE DEEM IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO FIND OUT AND VERIFY IF THE ASSESSEE MADE STRATEGIC INVESTMENT FOR EARNING EXEMPT INCOME, AND PASS NECESSARY ORDER IN ACCORDANCE WITH LAW. FIRST GROUND OF APPEA L IS ALLOWED FOR STATISTICAL PURPOSES. 5. THE SECOND GROUNDS OF APPEAL IS WITH REGARD TO NOT ALLOWING DEDUCTION OF RS. 16,14,616/-. LD AR OF THE ASSESSEE ARGUED THAT THE AO DISALLOWED THE WRITE OFF OF INTEREST TWICE. LD AR FURTHER ARGUED THAT A DIRECTION BE GIVEN TO THE AO TO VERIFY THE DEDUCTION. LD DR FOR REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES. WE DEEM IT APPROPRIATE TO RESTORE THIS GROUND OF APPEAL AS WELL TO THE FILE OF AO TO VERIFY IF THERE IS REVERSAL OF THE WRITE OFF OF INTEREST ACCOUNTS TWICE AND PASS THE ORDER IN AC CORDANCE WITH LAW. SECOND GROUND OF APPEAL IS ALSO ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. $%& ' ( )* +, - ./. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPT,2016. 2 3 +4 5$, 23 FLRACJ FLRACJ FLRACJ FLRACJ ,20 16 )* SD/- SD/- ( /RAJENDRA) ( IOU FLAG IOU FLAG IOU FLAG IOU FLAG / PAWAN SINGH) & / ACCOUNTANT MEMBER / JUDICIAL MEMBER ITA NO.2738/MUM// 2014- PRAHAM INDIA LLP. 4 + 3 ,* /MUMBAI, 5$, /DATE: 23.09.2016 SK ' '() *) / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ ,'% 3 ; , 4. THE CONCERNED CIT / ,'% 3 ; 5. DR C BENCH, ITAT, MUMBAI / <) $>% , LH LHLH LH , , . . . + 3 ,* 6. GUARD FILE/ ) * < //TRUE COPY// 2$ 3 / BY ORDER, / . , DY./ASST. REGISTRAR >% , + 3 ,* /ITAT, MUMBAI.