ROHA DYECHEM PVT. LTD., MUMBAI V. DCIT Central Range - 7(4), MUMBAI

ITA 2744/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4936 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 02-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Question of law; Rule 8D
• Section: 142(1); 14A; 115JB; 143(2); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR , A M AND SHRI AMARJIT SINGH, J M / I.T.A. NO. 2744 /MUM/201 9 ( / ASSESSMENT YEARS: 20 1 5 - 1 6 ) M/S. ROHA DYECHEM PVT. LTD. A44/45, ROAD NO.2, MIDC, ANDHERI (E), MUMBAI - 400093 . / VS. DCIT, CENTRAL RANGE - 7(4) AAYKAR BHAVAN, MAHARSHI KARVE ROAD, CHURCHGATE - 400020. ./ ./ PAN/GIR NO. : AAACR4974P ( / APPELLANT ) .. ( / RESPONDENT ) / DAT E OF HEARING: 05 / 01 / 20 2 1 /DATE OF PRONOUNCEMENT: 01 /04 / 2021 / O R D E R PER AMARJI T SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 04 . 02 .201 9 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 49 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 15 - 1 6 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE COMMISSIONER OF INCOME TAX APPEALS(CIT(A) ERRED IN CONFIRMING THE ADDITIONAL DISALLOWANCE OF RS.44,13,583/ - U/S 14A R.W.S. 8D UNDER NORMAL PROVISIONS AS WELL AS U/S 115JB OF THE INCOME TAX ACT. 2. THE APPELLANT PRA YS THAT THE DISALLOWANCE OF RS.44,13,583/ - SHOULD BE DELETED. WITHOUT PREJUDICE, THE DISALLOWANCE BE APPROPRIATELY REDUCED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND/OR ALTER THE ABOVE GROUNDS OF APPEAL . 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE FILED ITS RETURN OF INCOME ON 03.12.2015 DECLARING TOTAL INCOME TO THE TUNE OF RS. NIL AND BOOK PROFIT U/S 115JB AT RS.37,24,48,436/ - . THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UP ON THE ASSESSEE. ON ASSE SSEE BY: SHRI SNEHAL SHAH REVENUE BY : SHRI BHARAT ANDHALE ( SR. A R) ITA NO. 2744 /M/201 9 A. Y. 2 0 15 - 16 2 VERIFICATION, IT WAS FOUND THAT THE ASSESSEE RECEIVED EXEMPT INCOME IN SUM OF RS.1,89,68,683/ - AND SUO - MOTO DISALLOWANCE EXPENSES IN SUM OF RS.6,86,460/ - U/S 14A R.W.R. 8D FROM THE BUSINESS INCOME. NOTICE GIVEN AND AFTER THE REPLY OF TH E NOTICE, THE AO ASSESSED THE EXPENSES TO EARN THE EXEMPT INCOME IN SUM OF RS.51,00,043/ - . AFTER THE DISALLOWANCE OF SELF - ASSESSED EXPENSES IN SUM OF RS.6,86,460/ - , T HE EXPENSES IN SUM OF RS.44,13,583/ - WAS ADDED TO THE INCOME OF THE ASSESSEE. AFTER THE SO ME MORE DISALLOWANCE U/S 36(1)(VA), THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED IN SUM OF RS.90,28,74,017/ - AND BOOK PROFIT IN SUM OF RS.37,68,62,019/ - . F EELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO DISMISSED THE APPEAL OF THE ASS ESSEE, THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO S . 1 & 2 4 . BOTH THE ISSUES ARE IN CONNECTION WITH THE DISALLOWANCE OF RS. 44,13,583/ - U/S 14A R.W. RULE 8D UNDER THE NORMAL PROVISIONS U/S 115JB OF THE ACT. AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ISSUE HAS DULY BEEN COVERED BY THE ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11. THE RELEVANT FINDING HAS BEEN GIVEN IN PARA NO. 2.5 WHICH IS HEREBY REPRODUCED AS UNDER.: - 2.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND FROM THE BALANCE SHEET OF THE ASSESSEECOMPANY AS AT 31ST MARCH 2010 THAT ITS OWN FUNDS WAS RS.2,894,197,392/ - . THE INVESTMENT AS AT 31ST MARCH 2010 WAS RS.868,635,071/ - IN HDFC BANK LTD. VS . DCIT [2016] 67 TAXMANN.COM 42 (BOM), THE HON'BLE BOMBAY HIGH COURT REFERRING TO THE DECISION IN CIT VS. HDFC BANK LTD. [2014] 366 ITR 505 (BOM) AND CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM) HELD AS UNDER : 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CASE OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES & POWER LTD. (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIES COMING OUT OF ASSESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON INTEREST) APPLIES, ITA NO. 2744 /M/201 9 A. Y. 2 0 15 - 16 3 WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) FOR THE FIRST TIME ON 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOULD APPLY WHILE CONS IDERING THE APPLICATION OF SECTION 14A OF THE ACT. THE AFORESAID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE IN AS MUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COURT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN VIZ. BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISSUE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES & POWER LTD. (SUPRA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. IN VIEW O F THE ABOVE, WE DELETE THE DISALLOWANCE OF RS.8,67,592/ - MADE BY THE AO UNDER RULE 8D (2)(II). 5 . THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ACIT (LTU) 1 VS. ADITYA BIRLA NUVO LTD. (ITA. NO.4220/M/2015) FO R THE A.Y.2010 - 11. THE RELEVANT FINDING HAS BEEN GIVEN IN PARA NO. 5.2 WHICH IS REPRODUCED AS UNDER.: - 5.2 THE SECOND CONTENTION OF THE ASSESSEE IS THAT NO DISALLOWANCE U/R.8D(2)(II) IS WARRANTED AS THE ASSESSEE IS HAVING OWN INTEREST FREE FUNDS IN THE SH APE OF SHARE CAPITAL, RESERVES & SURPLUS AND PROFITS MORE THAN THE INVESTMENTS MADE. HENCE, THERE IS NO INTEREST EXPENDITURE. THE ASSESSEE BY WAY OF ADDITIONAL GROUND OF APPEAL IS SEEKING RELIEF IN RESPECT OF DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II). THE ASSESSEE SUO MOTU DISALLOWED RS.91.32 CRORES UNDER RULE 8D(2)(II). THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD.(SUPRA) HAS HELD THAT WHERE THE ASSESSEE IS HAVING BORROWE D FUNDS AND OWN INTEREST FREE FUNDS, PRESUMPTION IS THAT THE INVESTMENTS ARE MADE BY UTILIZING OWN INTEREST FREE FUNDS. THE SAME VIEW HAS BEEN REITERATED BY THE HONBLE HIGH COURT IN THE CASE OF HDFC VS. DCIT(SUPRA) AND PCIT VS. SHRENO LTD.(SUPRA). THUS, I N PRINCIPLE WE HOLD THAT NO DISALLOWANCE UNDER ITA NO. 2744 /M/201 9 A. Y. 2 0 15 - 16 4 SECTION 14A R.W.R. 8D(2)(II) IS WARRANTED IF, THE ASSESSEE IS HAVING SUFFICIENT OWN INTEREST FREE FUNDS TO COVER THE INVESTMENTS MADE. HOWEVER, FOR THE PURPOSE OF VERIFICATION OF THIS FACT, WE DEEM IT APPROPRI ATE TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER AFTER EXAMINING THE FINANCIAL STATEMENTS OF THE ASSESSEE, IF SATISFIED, THAT OWN INTEREST FREE FUNDS OF THE ASSESSEE ARE MORE THAN THE INVESTMENTS MADE , SHALL MAKE NO DI SALLOWANCE U/S .8D(2)(II). 6. THE ASSESSEE HAS ALSO RELIANCE UPON THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. M/S. BENGAL FINANCE & INVESTMENTS PVT. LTD. (ITA. NO. 337 OF 2013) IN WHICH THE RELEVANT FINDING IS HEREBY REPRODUCED AS UNDER.: - 3. SO FAR AS QUESTION (A) IS CONCERNED, WE FIND THAT THE TRIBUNAL HAS MERELY FOLLOWED THE DECISION OF THIS COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT 328 ITR 81, DIRECTING THE AO TO WORK OUT THE DISALLOWANCE ON A REASONABLE BASIS AND NOT UNDER RULE 8D UNDER THE INCOME TAX RULES FOR THE ASSESSMENT YEAR 2007 - 08. THE TRIBUNAL HAS MERELY FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH COURT AND NO FAULT CAN BE FOUND WITH THE SAME. ACCORDINGLY, NO SUBSTANTIAL QUESTION OF LAW ARISES IN QUE STION (A). HENCE DISMISSED. 4. SO FAR AS QUESTION (B) IS CONCERNED, THE IMPUGNED ORDER OF THE TRIBUNAL FOLLOWED ITS DECISION IN M/S. ESSAR TELEHOLDINGS LTD. V/S. DCIT IN ITA NO. 3850/MUM/2010 TO HELD THAT AN AMOUNT DISALLOWED UNDER SECTION 14A OF THE ACT C ANNOT BE ADDED TO ARRIVE AT BOOK PROFIT FOR PURPOSES OF SECTION 115JB OF THE ACT. THE REVENUES APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN M/S. ESSAR TELEHOLDINGS (SUPRA) WAS DISMISSED BY THIS COURT IN INCOME TAX APPEAL NO.438 OF 2012 RENDERED ON 7TH AUGU ST, 2014. IN VIEW OF THE ABOVE, QUESTION (B) DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 5. ACCORDINGLY, APPEAL DISMISSED. NO ORDER AS TO COSTS. ITA NO. 2744 /M/201 9 A. Y. 2 0 15 - 16 5 7. THE ASSESSEE HAS ALSO GIVEN THE STATEMENT OF OWN FUND S, BORROWED FUNDS AND INVESTMENTS AT PAGE NO. 65 OF THE PAPER BOOK WHICH IS HEREBY REPRODUCED AS UNDER.: - STATEMENT OF OWN FUNDS, BORROWED FUNDS AND INVESTMENTS OWN FUNDS 3,45,00,000 SHARE CAPITAL 5,38,28,20 ,679 RESERVES & SURPLUS 5,41,73,20,679 BORROWED FUNDS SECURED LOANS (TERMS LOANS) 22,97,98,369 UNSECURED LOANS (LOAN FROM DIRECTORS, SHAREHOLDERS 73,71,85,727 AND DEFERR ED SALES TAX TERMS LOAN) 96,69,84,096 TAX FREE INVESTMENTS 1,53,00,000 EQUITY SHARES 15,18,00,0 00 PREFERENCE SHARE CAPITAL 16,71,00,000 8. UNDISPUTEDLY INVESTMENT IS LESS THAN ASSESSEES OWN FUNDS. ACCORDINGLY, ON THE BASIS OF THE DECISION MENTIONED ABOVE, THERE IS NO APPLICABILITY OF THE PROVISIO NS U/S 14A R.W. RULE 8D, THEREFORE, WE RESTRICT THE EXPENSES TO THE EXTENT OF ASSESSEES DECLARATION IN SUM OF RS. 6,86,460/ - AND DELETE THE REMAINING ADDITION/DISALLOWANCE. ACCORDINGLY, WE PARTLY ALLOWED THE CLAIM OF THE ASSESSEE. 9 . IN THE RESULT, THE APP EA L OF THE ASSESSEE IS HEREBY PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 01 /04 /202 1 SD/ - SD/ - ( RAJESH KUMAR ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 01 / 0 4 /202 1 VIJAY PAL SINGH/SR. PS ITA NO. 2744 /M/201 9 A. Y. 2 0 15 - 16 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPE LLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, // TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI