JCIT (OSD)Rg. - 3(3), MUMBAI V. M/s. RELIANCE CAPITAL LTD., MUMBAI

ITA 3036/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4037 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 05-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SENITH KUMAR
• Assessee Lawyers: ARVIND SONDE
• Keywords: Reopening of assessment; Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NOS.2090, 3034, 3035 & 3036/MUM/2008 ASST.YEARS 2002-2003, 2002-2003, 2003-2004 & 2004- 2005 THE JOINT COMMISSIONER OF INCOME TAX RANGE 3(3) MUMBAI. VS. M/S.RELIANCE CAPITAL LIMITED FOSBERRY ROAD, OFF. REAY ROAD STATION (E) MUMBAI 400 033. PA NO.AAACR5054J. (APPELLANT) (RESPONDENT) ITA NOS.1411, 2152, 2153 & 2154/MUM/2008 ASST.YEARS 2002-2003, 2002-2003, 2003-2004 & 2004- 2005 M/S.RELIANCE CAPITAL LIMITED FOSBERRY ROAD, OFF. REAY ROAD STATION (E), MUMBAI 400 033. VS. THE JOINT COMMISSIONER OF INCOME TAX RANGE 3(3) MUMBAI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B.SENITH KUMAR ASSESSEE BY : SHRI ARVIND SONDE O R D E R PER BENCH : THIS BATCH OF EIGHT APPEALS HAS FOUR APPEALS FOR AS SESSMENT YEAR 2002-2003 AND TWO EACH FOR ASSESSMENT YEARS 2003-2004 AND 200 4-2005. SINCE SOME COMMON ISSUES HAVE BEEN RAISED IN THESE APPEALS, WE ARE, T HEREFORE, PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASST. YEAR 2002-2003: ITA NOS. 2090 & 1411/MUM/2008 2. THESE ARE THE APPEALS AGAINST THE ORDER PASSED B Y THE LEARNED CIT(A) ON 17.01.2008 PURSUANT TO THE ORIGINAL ASSESSMENT MADE U/S.143(3). FILTERING OUT UNNECESSARY DETAILS IT IS SEEN THAT THE ASSESSING O FFICER MADE ADDITION U/S.14A IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES. TH E LEARNED CIT(A) GRANTED RELIEF OF RS.30.47 CRORES OUT OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.33.39 CRORES. AT ITA NO.2090/MUM/2008 & ORS. M/S.RELIANCE CAPITAL LIMITED. 2 THE SAME TIME HE CONFIRMED THE DISALLOWANCE OF ADMI NISTRATIVE EXPENSES AMOUNTING TO RS.2.91 CRORES. BOTH THE SIDES ARE IN APPEAL AGA INST THEIR RESPECTIVE STANDS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DIS ALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT DATED 12.08.2010 OF THE HONBLE BOMBAY HIGH COURT IN GODREJ& BOYCE LIMITED VS. ACIT HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN CIRCUMSTANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME `REASONABLE BASIS AND NOT RULE 8D. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE Q UANTUM OF DISALLOWANCE AS PER THE AFORE NOTED JUDGMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ASST. YEAR 2002-2003: ITA NOS. 2152 & 3034/MUM/2008 5. THESE CROSS APPEALS ARISE OUT OF THE ORDER OF TH E CIT(A) ON 19.02.2008 AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSIN G OFFICER U/S.143(3) R.W.S. 147. THE LEARNED A.R. DID NOT PRESS GROUND NO.1 CHALLENG ING THE REOPENING OF ASSESSMENT. THE SAME IS, THEREFORE, DISMISSED. 6. GROUND NOS.2 AND 3 ARE AGAINST THE CONFIRMATION OF DISALLOWANCE U/S.14A. THE DEPARTMENT IS ALSO IN APPEAL AGAINST THE DIRECT ION OF THE LEARNED CIT(A) THAT THE AMOUNT OF RS.96 CRORES AND NOT RS.800 CRORES BE TAKEN INTO ACCOUNT WHILE CONSIDERING THE DISALLOWANCE U/S.14A. INSOFAR AS TH E ASSESSEES APPEAL IS CONCERNED, THE GRIEVANCE IS AGAINST THE CONFIRMATIO N OF DISALLOWANCE OF RS.23,75,000 AS INTEREST ATTRIBUTABLE TO THE BORROW ED FUNDS UTILIZED IN INVESTMENT OF RS.800 CRORES U/S.14A IN THE BONDS OF RELIANCE INFO COMM LIMITED AND AGAINST ITA NO.2090/MUM/2008 & ORS. M/S.RELIANCE CAPITAL LIMITED. 3 CONFIRMATION OF DISALLOWANCE OF RS.2,48,82,480 U/S. 14A CONSIDERING PREMIUM ON REDEMPTION OF NON-CONVERTIBLE DEBENTURES PAID DURIN G THE YEAR AS PART OF FINANCE COST. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACT S AND CIRCUMSTANCES OF THE ASSESSEES APPEAL NEED FRESH DECISION BY THE A.O. I N THE LIGHT OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN GODREJ& BOYCE LIMITED (SUPRA) . WE ORDER ACCORDINGLY. INSOFAR AS THE REVENUES GROUND IS CON CERNED, THE LEARNED A.R. POINTED OUT THAT THE A.O. HAS RECORDED A FINDING TH AT ONLY INTEREST BEARING FUNDS USED FOR ICD RPL AMOUNTING TO RS.96.43 LAKHS WHIC H WERE REPAID ON 12.10.2001 AND HENCE INTEREST TO BE CONSIDERED FOR THE PERIOD 3.10.2001 TO 12.10.2001 WOULD WORK OUT TO RS.23,75,000 BEING THE INTEREST PAYABLE / PAID ON ICD OR RPL AND THEREAFTER ADDITIONAL DISALLOWANCE U/S.14A WAS MADE FOR RS.23.75 LAKHS WHICH FACT HAS BEEN APPROVED BY THE LEARNED CIT(A) VIDE PARA 8 OF HIS ORDER THAT ONLY QUANTUM OF RS.96 CRORES WOULD BE CONSIDERED AND NOT THE ENTIRE AMOUNT OF RS.800 CRORES. IN THIS VIEW OF THE MATTER IT WAS CONTENDED THAT NO RELIEF WAS GIVEN BY THE LEARNED CIT(A) ON THIS ISSUE WHICH FACT WAS CANDIDL Y ADMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL. IN THE LIGHT O F THE RIVAL BUT COMMON SUBMISSIONS, IT IS APPARENT THAT THE GRIEVANCE IN THE DEPARTMENTAL APPEAL DOES NOT ARISE OUT OF THE IMPUGNED ORDER. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS DISMISSED. ASST. YEAR 2003-2004 : ITA NOS. 2153 & 3035/MUM/200 8 8. THESE APPEALS ARISE OUT OF THE ORDER PASSED BY T HE CIT(A) ON 26.2.2008 IN RESPECT OF THE CAPTIONED YEAR. THE ONLY ISSUE RAISE D IN THE DEPARTMENTAL APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF RS.37.66 CR ORES MADE BY THE A.O. U/S.14A OF THE ACT. THE ASSESSEE IN ITS CROSS APPEAL VIDE G ROUND NO.1 HAS CHALLENGED THE SUSTENANCE OF DISALLOWANCE OF RS.6.01 CRORES U/S.14 A. IT IS THE COMMON SUBMISSION ITA NO.2090/MUM/2008 & ORS. M/S.RELIANCE CAPITAL LIMITED. 4 BY BOTH THE SIDES THAT THESE GROUNDS NEED TO BE REC ONSIDERED BY THE A.O. FOR TAKING A FINAL DECISION IN ACCORDANCE WITH THE JUDGEMENT O F THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ& BOYCE LIMITED (SUPRA). WE ORDER ACCORDINGLY. 9. GROUND NO.2 OF THE ASSESSEES APPEAL ABOUT THE C ONFIRMATION OF ADDITION OF RS.6.01 CRORES TO THE BOOK PROFIT COMPUTED U/S.115J B BEING EXPENSES DISALLOWED U/S.14A WAS NOT PRESSED BY THE LEARNED A.R., AS HAV ING BECOME ACADEMIC. THIS GROUND IS DISMISSED. 10. LAST GROUND OF THE ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.2,76,98,548 BEING INTEREST ON INCOME-TAX REFU ND FOR ASSESSMENT YEAR 2001- 2002 GRANTED VIDE INTIMATION U/S.143(1) OF THE ACT TO THE ASSESSEE IN THIS YEAR. THE LEARNED A.R. FAIRLY CONCEDED THAT THE ISSUE IN THIS GROUND IS COVERED BY THE SPECIAL BENCH ORDER IN AVADA TRADING CO. PVT. LTD. VS. ACIT [(2006) 100 ITD 131 (MUM.) (SB)]. THE LEARNED DEPARTMENTAL REPRESENTATI VE RELIED ON THE IMPUGNED ORDER. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD WE OBSERVE THAT THE SPECIAL BENCH IN THE AFO RENOTED CASE HAS HELD THAT INTEREST ON REFUND GRANTED TO THE ASSESSEE IN PROCE EDINGS U/S.143(1)(A) WOULD BE ASSESSABLE IN THE YEAR IN WHICH IT IS GRANTED AND N OT IN THE YEAR IN WHICH THE PROCEEDINGS U/S.143(1)(A) HAS ATTAINED FINALITY. TH E APPREHENSION OF THE ASSESSEE THAT IT WOULD BE WITHOUT REMEDY IF THE INTEREST WAS REDUCED BY VIRTUE OF ASSESSMENT U/S.143(3) WAS ALSO DEALT WITH BY THE SPECIAL BENCH BY HOLDING THAT IF ON ACCOUNT OF ASSESSMENT U/S.143(3) THE INTEREST GRANTED IN EA RLIER YEARS IS REDUCED, THE FIGURE OF SUCH INTEREST GRANTED SHALL GET SUBSTITUTED AND IT WOULD BE THE REDUCED AMOUNT OF INTEREST THAT WOULD FORM PART OF INCOME OF THAT YEA R AS IT WOULD BE MISTAKE RECTIFIABLE U/S.154 OF THE ACT. IN PRINCIPLE WE HOL D THAT THE INTEREST ON REFUND RECEIVED BY THE ASSESSEE U/S.143(1)(A) IN RELATION TO ASSESSMENT YEAR 2001-2002 IS ITA NO.2090/MUM/2008 & ORS. M/S.RELIANCE CAPITAL LIMITED. 5 TAXABLE IN THIS YEAR AS IT WAS GRANTED IN THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IT IS HOWEVER MADE CLEAR THAT IF THE ASSESSMENT HAS BEEN FINALIZED U/S.143(3) AND SUCH INTEREST ON REFUND HA S BEEN REDUCED TO SOME EXTENT THEN SUCH REDUCED PORTION OF INTEREST ON INCOME-TAX REFUND BE CHARGED TO TAX IN THIS YEAR INSTEAD OF GOING THROUGH THE RITUAL OF FIRSTLY INCLUDING THE ENTIRE AMOUNT OF RS.2.76 CRORES IN THE INCOME FOR THIS YEAR AND THER EAFTER ALLOWING RECTIFICATION U/S.154 TO THE EXTENT OF REDUCTION IN SUCH INTEREST DUE TO ASSESSMENT U/S.143(3). 12. IN THE RESULT, THE APPEAL OF THE REVENUE IN FUL L AND THAT OF THE ASSESSEE IN PART ARE ALLOWED FOR STATISTICAL PURPOSES. ASST. YEAR 2004-2005 : ITA NOS. 2154 & 3036/MUM/200 8 13. FIRST GROUND OF THE DEPARTMENTAL APPEAL IS AGAI NST THE DELETION OF ADDITION OF RS.45.55 CRORES MADE BY THE A.O. U/S.14 OF THE ACT. THE ASSESSEE VIDE ITS FIRST GROUND IS AGGRIEVED AGAINST THE CONFIRMATION OF DIS ALLOWANCE OF ADMINISTRATIVE EXPENSES U/S.14A AMOUNTING TO RS.3.75 CRORES. BOTH THE SIDES ARE IN AGREEMENT THAT THIS ISSUE NOW NEEDS RECONSIDERATION AT THE END OF THE ASSESSING OFFICER IN VIEW OF THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH CO URT IN GODREJ& BOYCE LIMITED (SUPRA). WE ORDER ACCORDINGLY. 14. GROUND NO.2 OF THE ASSESSEES APPEAL ABOUT THE CONFIRMATION OF ADDITION OF RS.3.75 CRORES TO THE BOOK PROFIT COMPUTED U/S.115J B BEING EXPENSES DISALLOWED U/S.14A, WAS NOT PRESSED BY THE LEARNED A.R. AS IT BECAME ACADEMIC IN HIS VIEW. THIS GROUND IS DISMISSED. 15. THE ONLY OTHER GROUND IN THE REVENUES APPEAL I S AGAINST THE DELETION OF DISALLOWANCE OF RS.13,78,800 OUT OF INTEREST EXPEND ITURE IN RESPECT OF INTEREST FREE ADVANCE TO SUBSIDIARY COMPANY. BRIEFLY STATED THE F ACTS OF THIS GROUND ARE THAT THE ASSESSEE ADVANCED A SUM OF RS.2.07 CRORES TO M/S.RE LIANCE LIFE INSURANCE CO. LTD. ITA NO.2090/MUM/2008 & ORS. M/S.RELIANCE CAPITAL LIMITED. 6 WHICH IS A SUBSIDIARY COMPANY OF THE ASSESSEE. NO I NTEREST WAS CHARGED ON THIS LOAN. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE INTEREST BE NOT DISALLOWED, THE ASSESSEE STATED THAT THE AMOUNT WAS ADVANCED TO SUB SIDIARY COMPANY NOT OUT OF ANY SPECIFIC BORROWINGS BUT OUT OF OWN FUNDS. IN THE AB SENCE OF ANY EVIDENCE TO ESPOUSE THE ASSESSEES SUBMISSION, THE ASSESSING OF FICER HELD THAT THE DISALLOWANCE WAS CALLED FOR. HE, THEREFORE, MADE AN ADDITION OF RS.13,67,800 TOWARDS INTEREST AS RELATABLE TO THE INTEREST FREE LOAN ADVANCED TO SUB SIDIARY COMPANY. THE LEARNED CIT(A) HOWEVER ORDERED FOR THE DELETION OF ADDITION . 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE MADE INTEREST FREE ADVANCE TO ITS SUBSIDIARY COMPANY WHICH WAS INCORPORATED FOR DOING LIFE INSUR ANCE BUSINESS. THE ASSESSEES GROUP IS CARRYING GENERAL INSURANCE BUSINESS AND TH E MAIN ACTIVITY OF THE ASSESSEE IS THAT OF FINANCING. THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS LTD. VS. CIT [(2007) 288 ITR 1 (SC)] HAS HELD THAT WHEREIN I NTEREST BEARING FUNDS ARE LENT TO THE SISTER CONCERN WITHOUT INTEREST, THE A.O. N EEDS TO EXAMINE THE PURPOSE OF LOAN. IF THE LOAN IS ADVANCED FOR COMMERCIAL EXPEDI ENCY AND NOT UTILIZED BY THE DIRECTORS OF THE SISTER CONCERN FOR THEIR PERSONAL BENEFIT, THEN THE DEDUCTION OF INTEREST HAS TO BE ALLOWED. IN OUR CONSIDERED OPINI ON, THE LEARNED CIT(A) HAS RIGHTLY RELIED ON THIS JUDGEMENT IN DELETING THIS A DDITION. WE, THEREFORE, UPHOLD THE ORDER ON THIS SCORE. 17. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF OCTOBER, 2010. SD/- SD/- ( VIJAY PAL RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 27 TH OCTOBER, 2010. DEVDAS* ITA NO.2090/MUM/2008 & ORS. M/S.RELIANCE CAPITAL LIMITED. 7 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - III, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.