PHL FINVEST P. LTD, MUMBAI V. DCIT 7(3)(2), MUMBAI

ITA 280/MUM/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8481 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 11-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANPREET S DUGGLE
• Keywords: Earning of tax free income; Revenue expenditure; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

, , ! !.#$%,( ) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN , ACCOUNTANT MEMBER . 280 / /201 8 (. .2013-14 ) ITA NO.280/MUM/2018(A.Y.2013-14) M/S. PHL FININVEST PVT. LTD. 4 TH FLOOR, PIRAMAL TOWER, GANPATRAO KADAM MARG, LOWER PAREL ,MUMBAI 400 013. PAN: AAACN-5024-A ...... 0 / APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, RANGE 7(3)(2) ROOM NO.623, 6 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ..... 12 / RESPONDENT ASSESSEE BY : SHRI RONAK DOSHI REVENUE BY : SHRI MANPREET S.DUG GLE & SHRI SUSHIL KUMAR MISHRA 32 / DATE OF HEARING : 28/05/2021 456 32 / DATE OF PRONOUNCEMENT : 20/08/2021 / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) FOR ASSESSMENT YEAR 2013-14. 2 ITA NO.280/MUM/2018 (A.Y.2013-14) 2. THE ASSESSEE IN APPAL INITIALLY RAISED FOUR GROU NDS OF APPEAL. THEREAFTER, THE ASSESSEE FILED FOUR ADDITIONAL GROUNDS OF APPEAL ON 10/07/2019. ON THE SAME DATE THE ASSESSEE FILED COMBINED GROUNDS OF APPEAL I.E. ORIGINAL GROUNDS + ADDITIONAL GROUNDS. SOME OF THE ADDITIONAL GROUNDS RAISED WERE ALTERNATE GROUNDS TO THE ORIGINAL GROUNDS. 3. SHRI RONAK DOSHI APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED AT THE OUTSET THAT HE IS NOT PRESSING ADDITIONAL GROUNDS NO.I, II & III. THUS, THE EFFECTIVE GROUNDS OF APPEAL FOR ADJUDICATION ARE AS UNDER: GROUND I: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. AO ERRED IN MAKING A DISALLOWANCE AMOUNTING TO RS. 67,59,6307- U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ('THE RULES'). THE APPELLANT PRAYS THAT THE DISALLOWANCE MADE U/S 14A R.W.R 8D OF THE RULES AMOUNTING TO RS. 67,59,630/-, INCLUDING THE SUO-MOTO DISALLOW ANCE MADE BY THE APPELLANT, BE DELETED. GROUND II: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. AO ERRED IN MAKING A DISALLOWANCE OF INTEREST OF RS. 4,50,000/- ON THE A LLEGED GROUND THAT THE LOAN TAKEN BY THE APPELLANT WAS SHARE APPLICATION MONEY RECEIVED BY IT AND THEREBY HOLDING THAT NO INTEREST SHOULD HAVE BEEN PAID ON THE ALLEGED SHARE APPLICATION MONEY. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF INTERE ST OF RS. 4,50,0007- BY TREATING LOAN TAKEN AS SHARE APPLICATION MONEY BE DELETED GROUND III: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. AO ERRED IN ADDING THE DISALLOWANCE MADE U/S 14A OF THE ACT R.W.R 8D OF TH E RULES AMOUNTING TO RS. 3,08,290/- WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. GROUND IV: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. AO ERRED IN ERRONEOUSLY CALCULATING BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB OF THE ACT WITHOUT TAKING INTO CONSIDERATION THE ADJUSTMENTS MADE BY THE APPELLANT IN THE COMPUTATION OF INCOME. ADDITIONAL GROUND IV: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE AO ERRED IN NOT GRANTING RELIEF QUA THE SUO MOTO DISALLOWANCE U/S 14A OF THE ACT MA DE BY THE APPELLANT WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT THEREFORE, THE APPELLANT PRAYS THAT THE SUO MOTO DI SALLOWANCE MADE BY THE APPELLANT BE DELETED WHILE COMPUTING BOOK PROFIT U/S. 115JB OF T HE ACT. 3 ITA NO.280/MUM/2018 (A.Y.2013-14) 4. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN GROUND NO. I, III, IV AND ADDITIONAL GROUND NO. IV OF APPE AL, THE ASSESSEE HAS ASSAILED DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. T HE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS EARN ED DIVIDEND INCOME OF RS.81,66,391/-. THE ASSESSEE SUO-MOTU MADE DISALLO WANCE OF RS.64,51,340/- UNDER SECTION 14A OF THE ACT IN RESPECT OF EXEMPT INCOME. THE SAID DISALLOWANCE IS PRIMARILY TOWARDS INTEREST EXPENDITURE. THE ASSESSI NG OFFICER WHILE PASSING DRAFT ASSESSMENT ORDER RECOMPUTED DISALLOWANCE UNDER SECT ION 14A R.W.R 8D TO RS.4,52,60,284/-. THE ASSESSEE FILED OBJECTIONS BE FORE THE DRP AGAINST DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE DRP RESTRICTED D ISALLOWANCE U/S 14A OF THE ACT TO RS.67,59,630/- INCLUDING SUO-MOTU DISALLOWANCE MADE BY THE ASSESSEE. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT A PERUSAL OF COMPUTATION OF INCOME AT PAGE - 26 OF THE PAPER BOOK WOULD SHO W THAT APART FROM SUO MOTO DISALLOWANCE OF RS.64,51,340/- ON INTEREST EXPENDIT URE U/S 14A OF THE ACT, THE ASSESSEE HAS DISALLOWED DIRECT EXPENDITURE ON STAMP DUTY CHARGES RS.45,000/- AND FILING FEE RS.3,20,060/-. THE LD. AUTHORIZED REPRES ENTATIVE OF THE ASSESSEE FURTHER REFERRED TO BALANCE SHEET AS ON 31/03/2013 AT PAGE -6 OF THE PAPER BOOK TO SHOW THAT OWN FUNDS COMPRISING OF SHARE CAPITAL AND RESE RVE & SURPLUS ARE SUFFICIENT TO COVER THE INVESTMENTS MADE. THE LD. AUTHORIZED REPR ESENTATIVE OF THE ASSESSEE PLACED RELIANCE ON FOLLOWING DECISIONS TO CONTEND T HAT NO DISALLOWANCE CAN BE MADE U/S.14A, WHERE OWN INTEREST FREE FUNDS ARE MORE THA N THE INVESTMENTS MADE: (I) CIT VS.HDFC BANK LTD., 366 ITR 505(BOM); (II) HDFC BANK LTD. VS. DCIT, 383 ITR 529(BOM); (III) DCIT VS. ASHOK APPARELS, 106 TAXMANN.COM 63 (BOM); AND (IV) DCIT VS. PREMIER FINANCE & TRADING CO. LTD. 2 62 TAXMAN 341(BOM) THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE S UBMITTED THAT DIRECT EXPENSES FOR EARNING TAX FREE INCOME IS MERELY RS.3 ,65,000/- HENCE, THE SAME CAN BE DISALLOWED UNDER RULE 8D2(I). 4 ITA NO.280/MUM/2018 (A.Y.2013-14) 4.1. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESS EE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS ERRED IN INVOKING PROVISIONS OF SECTION 14A R.W.R. 8D UNDER MAT PROVISIONS. THE LD.AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE SUBMITTED THAT THE ISSUE IS NOW SETTLED BY THE SPECIAL BENCH OF THE TR IBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT. LTD., 82 TAXAMANN.COM 415. THE LD .AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHER SUBMITTED THAT THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BENGAL FINANCE & INVESTMENTS PVT. LTD. I N INCOME TAX APPEAL NO.337 OF 2013 DECIDED ON 10/02/2015 HAS UPHELD THE DECISION OF TRIBUNAL, WHEREIN IT WAS HELD THAT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115J B OF THE ACT NO DISALLOWANCE UNDER SECTION 14A CAN BE ADDED. 5. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSE E SUBMITTED THAT IN GROUND NO.2 OF APPEAL, THE ASSESSEE HAS ASSAILED DISALLOWA NCE OF INTEREST EXPENDITURE OF RS.4,50,000/- ON SHARE APPLICATION MONEY. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD TAKEN LOA N OF RS.4.50 CRORES FROM ITS HOLDING COMPANY M/S. PIRAMAL ENTERPRISES LTD. THE ASSESSEE PAID INTEREST TO HOLDING COMPANY ON THE LOAN AMOUNT. THE ASSESSING OFFICER H AS ERRED IN TREATING LOAN AS SHARE APPLICATION MONEY. THE BOARD OF DIRECTORS OF ASSESSEE/APPELLANT VIDE RESOLUTION DATED 21/12/2012 CONVERTED SAID LOAN FRO M HOLDING COMPANY INTO EQUITY SHARE CAPITAL. THE DISPUTE IS ONLY WITH REGARD TO CHARGING OF INTEREST FOR A PERIOD OF ONE MONTH. THE RATE OF INTEREST IS NOT UNDER DISPU TE. THE DRP OBSERVED THAT INTEREST SHOULD BE CHARGED UPTO THE DATE OF APPLICATION FOR ALLOTMENT OF SHARES, WHEREAS, THE ASSESSEE HAS CHARGED INTEREST UPTO THE DATE OF ALLO TMENT OF SHARES. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE PLACED RE LIANCE ON THE DECISION RENDERED IN THE CASE OF S.R. THORAT MILK PRODUCTS PVT. LTD. VS. ACIT, 159 ITD 255 (PUNE-TRIB) TO CONTEND THAT INTEREST PAID ON SHARE APPLICATION MON EY PENDING ALLOTMENT OF SHARES WOULD BE ALLOWABLE AS REVENUE EXPENDITURE. 5 ITA NO.280/MUM/2018 (A.Y.2013-14) 6. PER CONTRA, SH. SUSHIL KUMAR MISHRA REPRESENTIN G THE DEPARTMENT VEHEMENTLY DEFENDED THE ASSESSMENT ORDER AND PRAYED FOR DISMIS SING APPEAL OF THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DRP HAS RECOMPUTED DISALLOWANCE UNDER RULE 8D AND RESTRICTED THE DISAL LOWANCE TO RS.3,08,000/- ONLY IN ADDITION TO SUO-MOTU DISALLOWANCE MADE BY THE ASSES SEE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IF CONTENTION OF THE ASSESSEE IS TO BE ADMITTED THEN THE ASSESSED INCOME WOULD BE LESS THAN THE RETURNED INCOME. IN RESPECT OF ASSESSEES CLAIM OF INTEREST INCOME ON SHARE APPLIC ATION MONEY THE LD.DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DRP REJECTED ASSE SSEES CLAIM AS THE ASSESSEE FAILED TO FURNISH NECESSARY DOCUMENTS. 7. BOTH SIDES HEARD, ORDERS OF AUTHORITIES BELOW E XAMINED. IN RESPECT OF DISALLOWANCE U/S. 14A R.W.R. 8D THE CONTENT OF THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE IS THAT NO DISALLOWANCE IN RESPECT OF INTEREST EXPENDITURE SHOULD BE MADE AS THE ASSESSEE HAS SUFFICIENT OWN INTEREST FR EE FUNDS FOR MAKING THE INVESTMENT, INTEREST BEARING FUNDS WERE NOT UTILIZE D FOR THE PURPOSE OF INVESTMENTS. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.81,66 ,391/- DURING THE RELEVANT PERIOD. FOR EARNING TAX FREE INCOME, THE ASSESSEE M ADE SUO-MOTU DISALLOWANCE OF RS.64.51 LAKHS. DURING THE PERIOD RELEVANT TO THE A SSESSMENT YEAR UNDER APPEAL NO NEW INVESTMENTS WERE MADE. THE LD. AUTHORISED REPR ESENTATIVE OF THE ASSESSEE REFERRED TO BALANCE SHEET AT PAGE 6 OF THE PAPER BO OK TO SHOW THAT OWN FUNDS OF THE ASSESSEE ARE MUCH MORE THAN THE INVESTMENTS MADE. SINCE, THIS ARGUMENT HAS BEEN MADE FOR THE FIRST TIME AT SECOND APPELLATE STAGE, WE DEEM IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO EXAM INE AVAILABILITY OF OWN FUNDS OF THE ASSESSEE FOR INVESTMENT. IF OWN FUNDS OF THE ASSESS EE ARE SUFFICIENT TO MEET THE INVESTMENTS, NO DISALLOWANCE UNDER RULE 8D(2)(II) I S WARRANTED. THE GROUND NO. I OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 6 ITA NO.280/MUM/2018 (A.Y.2013-14) 8. IN GROUND NO. II OF APPEAL, THE ASSESSEE HAS ASS AILED DISALLOWANCE OF INTEREST EXPENSES RS.4,50,000/- ON LOAN CONVERTED INTO SHARE APPLICATION MONEY. THE ASSESSEE HAD TAKEN UNSECURED LOAN FROM ITS HOLDING COMPANY. SUBSEQUENTLY, THE LOAN WAS CONVERTED INTO SHARE APPLICATION MONEY. T HE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE BOARD RESOLUTION D ATED 21/12/2012 AT PAGE 98 OF THE PAPER BOOK. A PERUSAL OF BOARD RESOLUTION SHOWS THAT 45,00,000 EQUITY SHARES OF RS.10/- EACH WERE ALLOTTED TO M/S. PIRAMAL ENTERPRI SES LTD. FOR CASH AT PAR. THE SHARES WERE ALLOTTED TO M/S. PIRAMAL ENTERPRISES LT D. ON THE SAME DATE. THIS FACT IS EVIDENT FROM THE RETURN OF ALLOTMENT FURNISHED BY T HE ASSESSEE IN PRESCRIBED FORM BEFORE THE REGISTRAR OF COMPANIES (AT PAGE 99 TO 10 3 OF THE PAPER BOOK). NOW, THE SHORT DISPUTE IS WHETHER INTEREST ON LOAN AMOUNT SH OULD BE ALLOWED AS EXPENDITURE UPTO THE DATE OF APPLICATION FOR ALLOTMENT OF SHARE S OR THE DATE OF ALLOTMENT OF SHARES. SIMILAR ISSUE HAD COME UP BEFORE THE PUNE BENCH OF TRIBUNAL IN THE CASE OF S.R. THORAT MILK PRODUCTS PVT. LTD. VS. ACIT (SUPRA ). AFTER CONSIDERING THE DECISION RENDERED IN THE CASE OF ACIT VS. ROHIT EXHAUST SYST EMS (P) LTD. IN ITA NO. 686 OF 2011 DECIDED ON 05/10/2012, THE TRIBUNAL CONCLUDED AS UN DER: 10. IN THE LIGHT OF THE DECISION OF THE CO-ORDINAT E BENCH OF ITAT, WE FIND CONSIDERABLE MERITS IN THE ARGUMENT OF THE ASSESSEE. WE ALSO FIN D SUBSTANCE IN THE VARIOUS CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE. WE ARE OF THE VIEW THAT THE SHARE APPLICATION MONEY PER SE CANNOT BE CHARACTERIZED AN D EQUATED WITH SHARE CAPITAL. THE OBLIGATION TO RETURN THE MONEY IS ALWAYS IMPLICIT I N THE EVENT OF NON-ALLOTMENT OF SHARES IN LIEU OF THE SHARE APPLICATION MONEY RECEI VED. ALLOTMENT OF SHARE ARE SUBJECT TO CERTAIN REGULATIONS AND RESTRICTIONS AS PROVIDED UNDER THE COMPANIES ACT. THEREFORE, RECEIPT BY WAY OF SHARE APPLICATION MONEY IS NOT RE CEIPT HELD TOWARDS SHARE CAPITAL BEFORE ITS CONVERSION. THEREFORE, PAYMENT OF INTERE ST OF SHARE APPLICATION MONEY CANNOT BE TREATED DIFFERENTLY IN THE INCOME-TAX ACT . ONCE THE CONTENTION OF THE ASSESSEE THAT THE MONEY HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS REMAINS UN-CONVERTED, THERE IS NO JUSTIFICATION TO HOLD THE ISSUE AGAINST THE AS SESSEE. ACCORDINGLY, THE CLAIM OF INTEREST EXPENDITURE ON SHARE APPLICATION MONEY AS REVENUE EXPENDITURE DESERVES TO BE ALLOWED. THE ASSESSING OFFICER IS THUS DIRECTED TO DELETE TH E ADDITION ON MERITS. IN THE RESULT, THE ASSESSEE SUCCEEDS ON THIS ISSUE. [EMPHASISED BY US] 7 ITA NO.280/MUM/2018 (A.Y.2013-14) THUS, IN VIEW OF THE FACTS OF CASE AND THE ABOVE RE FERRED DECISION, WE HOLD THAT INTEREST PAID UPTO THE DATE OF ALLOTMENT OF SHARES I.E. 21/12/2012 IS ALLOWABLE AS REVENUE EXPENDITURE. THE SHORT ISSUE RAISED IN GROU ND OF APPEAL NO. II IS ALLOWED IN FAVOUR OF THE ASSESSEE. 9. IN GROUND NO. III, IV AND ADDITIONAL GROUND NO. IV OF APPEAL, THE ASSESSEE HAS ASSAILED INCLUSION OF DISALLOWANCE MADE UNDER SECTI ON 14A R.W. RULE 8D WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE AC T. THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT. LTD .(SUPRA) HAS HELD THAT WHILE DETERMINING BOOK PROFIT UNDER SECTION 115JB OF THE ACT THE PROVISION OF SECTION 14A R.W. RULE 8D ARE NOT TO BE INVOKED. THUS, IN LIGHT OF THE DECISION RENDERED BY SPECIAL BENCH, THE ASSESSEE SUCCEEDS ON GROUND NO. III, IV AND ADDITIONAL GROUND NO. IV RAISED IN THE APPEAL. 10. THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESS EE HAS MADE STATEMENT AT THE BAR THAT HE IS NOT PRESSING ADDITIONAL GROUNDS OF A PPEAL NO. I, II AND III, HENCE, THE SAID GROUNDS ARE DISMISSED AS NOT PRESSED. 11. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY THE 20 TH DAY OF AUGUST, 2021. SD./- SD./- ( S.RIFAUR RAHMAN ) (VIKAS AWASTHY) ( / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 8 '/ DATED: 20/08/2021 VM , SR. PS(O/S) 8 ITA NO.280/MUM/2018 (A.Y.2013-14) COPY OF THE ORDER FORWARDED TO : 1. 0 / THE APPELLANT , 2. 12 / THE RESPONDENT. 3. 92 ( )/ THE CIT(A)- 4. 92 CIT 5. :;12' , . . . , / DR, ITAT, MUMBAI 6. ;<=$> / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED/DIRECTLY TYPED ON COMPUTER ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER