ACIT- 3(1)(1), MUMBAI V. DSP BLACKAROCK INVESTMENT MANAGERS PVT. LTD., MUMBAI

ITA 2995/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9543 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 25-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD , JUDICIAL MEMBER ITA NO. 2995/MUM/2016 : A.Y : 2010 - 11 ACIT - 3(1)(1), MUMBAI (APPELLANT) VS. M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD., TULSIAN CHAMBERS, WEST WING, 11 TH FLOOR, NARIMAN POINT, MUMBAI 400 021 (RESPONDENT) PAN : AAACD3069K APPELLANT BY : SHRI V. JUSTIN RESPONDENT BY : SHRI NITESH JOSHI DATE OF HEARING : 04/07/2017 DATE OF PRONOUNCEMENT : 15 /09/2017 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 8 , MUMBAI DATED 25.01.2016 , PERTAINING TO THE ASSESSMENT YEAR 2010 - 11 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER, MUMBAI DATED 07.03.2014 UNDER SECTION 143(3) R.W.S 92CA(4) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO. 2995/MUM/2016 M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD. 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE U/S 14A READ WITH RULE 8D(2) OF THE IT ACT AT RS. 57,74,966/ - MADE BY THE AO? 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE AO HAD CATEGORICALLY HELD THAT THE SUO MOTO DISALLOWANCE U/S 14 A OF RS 8,49,117/ - MADE BY THE ASSESSEE WAS NOT AS PER THE PROVISIONS OF SECTION 14A(2) OF I.T. ACT AND THE ASSESSEE HAS NEITHER ESTABLISHED THAT NO PART OF INTEREST - BEARING FUND AS WELL AS EXPENSES SO CLAIMED HAS FOUND ITS WAY INTO THE INVESTMENTS IN MUTUAL FUNDS/ SHARES NOR ADDUCED ANY DOCUMENTARY EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE AO? 3. ON FACT AN D CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT ONCE THE ASSESSEE ITSELF ADMITTED THAT THE DISALLOWANCE HAD TO BE MADE WITH REGARD TO EXPENDITURE FOR EARNING OF INCOME WHICH WAS EXEMPTED FROM TAXATION UNDER THE ACT, SUCH EXPENDITURE HAD TO BE COMPUTED NOT ON ADHOC BASIS BY ESTIMATING SAME BUT AS PER METHOD PRESCRIBED IN THE RULE 8D(2)? 4. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED.' 3 . AS THE GROUNDS OF APPEAL REVEAL, THE SOLITARY DISPUTE IN THIS APPEAL ARISES FROM THE ACTION OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE U/S 14A OF THE ACT TO RS.8,49,117/ - SUO MOTO WORKED OUT BY THE ASSESSEE AS AGAINST AN AMOUNT OF RS.66,24,083/ - WORKE D OUT BY THE ASSESSING OFFICER. 3 ITA NO. 2995/MUM/2016 M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD. 4. IN THE ABOVE BACKGROUND, THE RIVAL COUNSELS HAVE BEEN HEARD AND THE RELEVANT MATERIAL PERUSED. THE RESPONDENT - ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER - ALIA , ENGAGE D IN THE ACTIVITY OF ACTING AS AN INVESTMENT MANAGER TO THE MUTUAL FUND SCHEMES OF DSP BLACKROCK MUTUAL FUND IN ACCORDANCE WITH THE TERMS OF THE INVESTMENT MANAGEMENT AGREEMENT, TRUST DEED AS WELL AS SEBI REGULATIONS. FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION, IT FILED A RETURN OF INCOME DECLARING AN INCOME OF RS.72,51,87,608/ - , WHICH WAS SUBSEQUENTLY REVISED TO RS.72,53,32,927/ - . IN THE RETURN OF INCOME FILED, ASSESSEE HAD SUO MOTO DISALLOWED AN AMOUNT OF RS.8,49,117/ - U/S 14A OF THE ACT IN VIEW OF IT HAVING EARNED DIVIDEND INCOME OF RS.3,58,92,238/ - , WHICH WAS EXEMPT IN TERMS OF SEC.10(35) OF THE ACT. THE ONLY ADDITION MADE BY THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS WAS ON ACCOUNT OF SEC. 14A OF THE ACT. THE ASSESSING OFFICER APPLIED THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) IN ORDER TO WORK OUT THE DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSING OFFICER DETERMINED THE DISALLOWANCE AT RS.66,24,083/ - COMPRISING OF RS.8,92,478/ - OUT OF INTEREST EXPENDITURE IN TERMS OF RULE 8D(2)(II) OF THE RULES AND BALANCE RS.57,31,605/ - AS PER RULE 8D(2)(III) OF THE RULES OUT OF THE OVERHEAD EXPENDITURE . SINCE THE ASSESSEE HAD MADE SUO MOTO DISALLOWANCE OF RS. 8,49,117/ - IN THE RETURN OF INCOME, THE BALANCE OF RS.57,74,966/ - WAS ADDED TO THE RETURNED INCO ME. 5. BEFORE THE CIT(A), ASSESSEE MADE VARIED SUBMISSIONS, BUT A PERTINENT PLEA WAS RAISED THAT SIMILAR DISALLOWANCE MADE IN THE PAS T YEARS HAS BEEN DELETED BY THE TRIBUNAL. THE CIT(A) REFERRED TO THE 4 ITA NO. 2995/MUM/2016 M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD. DECISION OF THE TRIBUNAL FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 AND DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO RS.8,49,117/ - BEING THE AMOUNT SUO MOTO DETERMINED BY THE ASSESSEE AND DELETED THE BALANCE. AGAINST SUCH A DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 6. IN THE ABOVE BACKGROUND, WE HAVE EXAMINED THE MANNER IN WHICH THE DISALLOWANCE U/S 14A OF THE ACT HAS BEEN WORKED OUT BY THE ASSESSEE AS WELL AS THE ASSESSING OFFICER. INSOFAR AS THE SUO MOTO DETERMINATION OF THE DISALLOWANCE AT RS.8,49,117/ - BY THE ASSESSEE IS CONCERNED, THE RELEVANT WORKING HAS BEEN MADE A PART OF THE STATEMENT OF F ACT S FILED BEFORE THE CIT(A). THE SAID WORKING BRINGS OUT T HE METHODOLOGY ADOPTED, NAMELY THE COST OF THE NUMBER OF MAN - HOURS ESTIMATED TO CARRY OUT THE INVESTMENT TRANSACTION S OF PURCHASE, REDEMPTION, DIVIDEND, ETC. IT HAS ALSO BEEN POINTED OUT BEFORE US THAT A SIMILAR METHODOLOGY WAS ADOPTED BY THE ASSESSEE IN ASSESSMENT YEAR 2008 - 09 ALSO, WHICH HAS BEEN APPROVED BY THE TRIBUNAL IN ITS ORDER IN ITA NO. 1129/MUM/2013 DATED 24.04.2015. IN ITS ORDER DATED 24.04.2015 (SUPRA) FOR ASSESSMENT YEAR 2008 - 09, THE TRIBUNAL IN PARA 6 HAS CONSIDERED THE MANNER IN WHICH ASSESSEE DETERMINED THE EXPENDITURE DISALLOWABLE U/S 14A OF THE ACT. THE TRIBUNAL DISCUSSED THE METHOD ADOPTED BY THE ASSESSEE TO DETERMINE SUCH EXPENDITURE AND NOTED THAT IN THE FACE OF THE ASSESSING OFFICER NOT HAVING FOUN D ANY DEFECT IN THE WORKING OF THE ASSESSEE, THE SAME COULD NOT BE DIS REGARDED . THUS, THE TRIBUNAL NEGATED THE ACTION OF THE ASSESSING OFFICER IN COMPUTING THE DISALLOWANCE BY APPLYING RULE 8D OF THE RULES. WE FIND THAT SO FAR AS THE WORKING OF OVERHEAD EXPENSES RELATABLE TO 5 ITA NO. 2995/MUM/2016 M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD. THE EARNING OF EXEMPT INCOME IS CONCERNED, THE METHOD ADOPTED BY THE ASSESSEE IN THE INSTANT YEAR IS SIMILAR TO THAT NOTED BY THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09. IN THE IMPUGNED ASSESSMENT ORDER ALSO , WE FIND NO JUSTIFIABLE REAS ON ADVANCED BY THE ASSESSING OFFICER TO DISAGREE WITH THE WORKING OF THE ASSESSEE. IN THE ABSENCE OF ANY DISSATISFACTION WITH REGARD TO THE CLAIM OF THE ASSESSEE, IN OUR VIEW, THE MECHANI C S OF SEC. 14A(2) OF THE ACT ARE NOT SATISFIED AND, THEREFORE, THE A SSESSING OFFICER WAS PRECLUDED FROM APPLYING RULE 8D(2)(III) OF THE RULES TO DETERMINE THE INDIRECT EXPENSES DISALLOWABLE U/S 14A OF THE ACT. THEREFORE, CONSIDERING THE PARITY OF REASONING LAID DOWN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2008 - 09 (SUPRA), WHICH IS ALSO APPLICABLE IN THE INSTANT YEAR, WE FIND THAT THE CIT(A) MADE NO MISTAKE IN DISAGREEING WITH THE WORKING OF THE ASSESSING OFFICER UNDER RULE 8D(2)(III) OF THE RULES. 7. NOW, WE MAY EXAMINE THE DISALLOWANCE OF RS.8,92,478/ - WORKED OUT BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE AS PER RULE 8D(2)(II) OF THE RULES . THE SAID DISALLOWANCE HAS BEEN DELETED BY THE CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE STATEMENT OF F ACT S BEFORE THE CIT(A), WHICH AVERS THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED TO EARN TAX - FREE INCOME. IT IS FURTHER STATED THEREIN THAT THE ONLY INTEREST COST INCURRED BY THE ASSESSEE IS TOWARDS THE LOAN FROM BANK FOR HIRE - PURCHASE OF VEHICLES AND, THEREFORE, THE SAME IS NOT FOR ANY FUNDS USED FOR THE PURPOSES OF INVESTMENT IN MUTUAL FUNDS. THE STATEMENT OF F ACTS BEFORE THE CIT(A) ALSO MAKE A REFERENCE TO THE AVAILABLE FUND POSITION WHEREBY 6 ITA NO. 2995/MUM/2016 M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD. IT IS CANVASSED THAT THE TOTAL INVESTMENT IN DEBT SCHEMES IS RS.141.62 CRORES AND THE BORROWED FUNDS WERE ONLY TO THE TUNE OF RS.0.62 CRORES AND THE SHARE CAPITAL AND RESERVES WERE RS.169.04 CRORES. IT WAS, THEREFORE, CONTENDED THAT THE NON - INTEREST BEARING FUNDS, NAMELY , SHARE CAPITAL AND RESERVES WAS ENOUGH TO COVER THE INVESTMENTS AND THE BORROWED FUNDS BEING LOAN OUTSTANDING TOWARDS PURCHASE OF VEHICLES, NO INTEREST CAN BE SAID TO BE ATTRIBUTABLE TO THE IMPUGNED INVESTMENTS FOLLOWING THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM). THOUGH THE AFORESAID ASSERTIONS OF THE ASSESSEE WERE VERY MUCH BEFO RE THE CIT(A), SO HOWEVER, WE FIND THAT THE CIT(A) HAS ADJUDICATED THE ISSUE BY MERELY REFERRING TO THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). OSTENSIBLY, AND AS FAIRLY CONCEDED BY THE LEARNED REP RESENTATIVE AT THE TIME OF HEARING, IN ASSESSMENT YEAR 2008 - 09 THERE WAS NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IN TERMS OF RULE 8D(2)(II) OF THE RULES AND, THEREFORE, STRICTLY SPEAKING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008 - 09 WOULD NOT G OVERN THE ISSUE RELATING TO THE DISALLOWANCE OF RS.8,92,478/ - OUT OF INTEREST EXPENDITURE AS PER RULE 8D(2)(II) OF THE RULES. IN THIS BACKGROUND, THE LEARNED REPRESENTATIVE WHILE REFERRING TO THE FACT - SITUATIO N ASSERTED IN THE STATEMENT OF F ACTS FILED BEF ORE THE CIT(A) , CONTENDED THAT ASSESSEE WOULD HAVE NO OBJECTION IF THE MATTER IS VERIFIED BY THE ASSESSING OFFICER AND DECIDED ACCORDINGLY. IN THIS VIEW OF THE MATTER, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE TO THE EFF ECT THAT THE INTEREST EXPENDITURE OUGHT NOT TO BE CONSIDERED WHILE WORKING OUT THE DISALLOWANCE AS PER RULE 8D OF THE RULES AFRESH AS PER LAW. NEEDLESS TO MENTION , THE 7 ITA NO. 2995/MUM/2016 M/S. DSP BLACKROCK INVESTMENT MANAGERS PVT. LTD. ASSESSING OFFICER SHALL CONSIDER THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGMENTS O F THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) AND HDFC BANK LTD., 366 ITR 505 (BOM) AND ANY SUBMISSION THAT MAY BE CANVASSED BY THE ASSESSEE BEFORE HIM AND ONLY THEREAFTER HE SHALL PASS AN ORDER ON THE AFORESAID LIMITED ASPECT, AS PER LAW. 8. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 5 T H SEPTEMBER, 2017. SD/ - SD/ - ( RAVISH SOOD ) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 1 5 T H SEPTEMBER , 201 7 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, A BENCH, MUMBAI 6) GUARD FILE BY ORDER ASSTT. REGISTRAR /SR. PRIVATE SECRETARY I.T.A.T, MUMBAI