DCIT 12 (2)(2), Mumbai V. M/S INDIA INFOLINE FINANCE LIMITED, Mumbai

ITA 3055/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3703 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 09-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 142(1); 14A; 143(1); 250; 201; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI M BALAGANESH, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NOS. 3055, 3056, 3057 & 3058/MUM/2019 (A.YS: 2010-11, 2011-12, 2013-14 & 2014-15) DCIT 12(2)(2 ) AAYAKAR BHAVAN, MK ROAD, CHURCHGATE 400020. VS. M/S. INDIA INFOLINE FINANCE LTD., 8 TH FLOOR, HUBTOWN, SALARIS, ANDHERI, MUMBAI - 400093 PAN/GIR NO. : AA BC12915C APPELLANT .. RESPONDENT APPELLANT BY : MS. SHREEKALA PARDESHI, DR RESPONDENT BY : NONE DATE OF HEARING 02 .0 6 .2021 DATE OF PRONOUNCEMENT 04 .0 6 .2021 / O R D E R PER BENCH: THESE FOUR APPEALS ARE FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME T AX (APPEALS) -20 MUMBAI, PASSED U/S. 143(3) R.W.S 254 AND 250 OF THE INCOME TAX ACT, 1961 FOR THE A.Y 2010-11 & 2011-12 AND AGAINST THE ORDER OF CIT(A)-20 PASSED U /S 143(3) AND 250 OF THE ACT FOR THE A.Y 2013-14 & 201 4-15. M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 2 - SINCE THE ISSUES INVOLVED IN ALL THESE FOUR APPEALS ARE SIMILAR AND IDENTICAL, HENCE THEY ARE CLUBBED, HEAR D AND CONSOLIDATED ORDER IS PASSED. FOR THESAKE OF CONVENIENCE, WE SHALL TAKE UP ITA NO . 3055/MUM/2019 A.Y 2010-11 AS LEAD CASE AND FACTS NARRATED THEREIN. THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING RELIEF OF RS. 1,64,77,989/- BY CONCLUDING THAT WHERE THE FUNDS OF THE COMPANY WERE SUFFICIENTLY MORE THAN THE INVESTMENT MADE IN A YEAR, THE PROVISIONS OF SEC. 14A RED WITH RULE 8D(2 )(II) OF THE ACT ARE INAPPLICABLE WITHOUT ANALYZING THE DECISION OF APEX COURT IN THE CASE OF M/S MAXOPP INVESTMENT LTD VS. CIT, NEW DELHI IN CIVIL APPEAL NO. 104-109 OF 2015? 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF LENDING AND INVESTMENT ACTIVITIES AND FILED THE RETURN OF INCOM E FOR THE A.Y 2010-11 ON 25.09.2010 WITH TOTAL INCOME OF RS. 57,07,47,290/- AND THE RETURN OF INCOME WAS PROCESS ED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) AND 142 (1) OF THE ACT WAS ISSUED AND ASSESSMENT WAS COMPLETED UND ER 143(3) OF THE ACT AND DETERMINED THE TOTAL INCOME O F RS. 62,86,99,000/- ON 11.03.2013 WITH A DISALLOWANCE U/ S 14A OF THE ACT AMOUNTING TO RS. 5,76,76,010/-. THE A.O M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 3 - FOUND THAT IN THIS YEAR THE ASSESSEE HAS RECEIVED D IVIDEND INCOME OF RS. 11,84,62,251/- AND CLAIMED EXEMPT AND HENCE MADE DISALLOWANCE U/S 14A OF THE ACT. AGAINST THE ORDER OF THE AO, THE ASSESSEE HAS FILED AN APPEAL W ITH CIT(A),WHEREAS THE CIT(A) HAS CONFIRMED THE DISALLO WANCE U/S 14A OF THE ACT. AGAINST THE CIT(A) ORDER, THE A SSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. THE HONBLE TRIBUNAL HAS SET ASIDE THE ISSUE OF DISALLOWANCE U/ S 14A OF THE ACT TO THE FILE OF THE A.O BY ORDER DATED 25 .07.2014 RELYING ON THE JUDICIAL DECISIONS AND ISSUED DIRECT IONS. AS PER THE DIRECTIONS OF THE ITAT, THE A.O HAS ISS UED NOTICE U/S 142(1) OF THE ACT. IN COMPLIANCE, THE A SSESSEE HAS SUBMITTED THE DETAILS AND CONTENDED THAT NO DISALLOWANCE U/S 14A OF THE ACT IS WARRANTED. THE ASSESSEE HAS FILED THE EXPLANATIONS REFERRED AT PAR A -7 TO 10 OF THE ORDER AS UNDER: 7. THE ASSESSEE SUBMITS THAT IT HAS MINIMAL ACTIVI TIES RELATING TO EXEMPT INCOME. IT IS NEITHER AN INVESTO R NOR A TRADER IN SHARES. IT HAS MADE INVESTMENTS IN THE SUBSIDIAR Y COMPANIES TO RETAIN MANAGEMENT AND CONTROL OF SUCH COMPANIES AND NOT TO EARN INCOME. THE SAID INVESTME NTS WERE MADE OUT OF PROPRIETARY FUNDS AND NOT OUT OF BORROW ED FUNDS. IN THIS REGARD, THE ASSESSEE HAS RELIED ON THE DECI SION OF THE ITAT MUMBAI IN THE CASE OF GARWARE WALL ROPES LIMIT ED V ADDITIONAL CIT(ITA NO 5408/MUM/2012 AND ITA NO.4957/MUM/2012). TO THIS EFFECT, THE ITAT HAS ALS O DIRECTED THE UNDERSIGNED TO RECONSIDER THE ISSUE IN LIGHT OF SUCH DECISION, AS SUCH, DURING THE COMPUTATION OF M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 4 - DISALLOWANCE UNDER RULE 8D, THE INVESTMENT IN SUBSI DIARIES IS NOT BEING CONSIDERED. 8. ON THE ISSUE OF BORROWINGS BEING SHORT-TERM, THE ASSESSEE HAS SUBMITTED THAT THE MONIES HAVE BEEN BO RROWED THROUGH COMMERCIAL PAPER OF SHORT- TERM NATURE AND THROUGH DEBENTURES, AND SUCH SHORT TERM BORROWINGS CANNOT B E USED FOR MAKING LONG-TERM INVESTMENTS. 8.1 THIS PLEA OF THE ASSESSEE CANNOT BE ACCEPTED. T HE ASSESSEE MIGHT HAVE OBTAINED SHORT-TERM BORROWINGS, BUT NOT ALL OF THE TAX-FREE INVESTMENTS OF THE ASSESSEE ARE LONG-TERM INVESTMENTS. THE BREAK-UP OF TAX-FEE INVESTMENTS OF THE ASSESSEE IS AS FOLLOWS: LONG TERM INVESTMENTS - 224,70,55,000 CURRENT INVESTMENTS - 93,46,93,400/- 8.2 THUS, ROUGHLY 29% OF THE INVESTMENTS OF THE ASS ESSEE ARE IN THE FORM OF CURRENT, SHORT-TERM IN NATURE. FURTH ER, SINCE THE INVESTMENTS IN SUBSIDIARIES, WHICH WERE THE ONLY LO NG-TERM INVESTMENTS MADE BY THE ASSESSEE, ARE NOW BEING EXC LUDED FROM THE COMPUTATION, THIS PLEA OF THE ASSESSEE BEC OMES ACADEMIC IN NATURE. 9. THE ASSESSEE ALSO SUBMITS THAT IT HAS NOT INCURR ED ANY EXPENSE IN ORDER TO EARN EXEMPT INCOME IN THE FORM OF DIVIDEND. IT HAS INVESTED SHORT TERM SURPLUS FUNDS IN LIQUID SCHEMES OF MUTUAL FUNDS. SINCE THE INVESTMENTS IN M UTUAL FUNDS WERE MADE ON SHORT TERM BASIS IN LIQUID MUTUA L FUNDS, NO EXPENSE HAS BEEN INCURRED FOR MAKING SUCH INVEST MENTS. ALL INVESTMENTS IN SUCH MUTUAL FUNDS HAVE BEEN MADE OUT OF OWN FUNDS ONLY AND BORROWED FUNDS HAVE NOT BEEN USED TO MAKE ANY SUCH INVESTMENTS. 10. IT IS WORTHWHILE HERE TO REFER TO SECTION 14A(3 ) OF THE ACT WHICH CALLS FOR THE APPLICATION OF RULE 8D EVEN IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE H AS BEEN M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 5 - INCURRED BY HIM IN RELATION TO EXEMPT INCOME. AS DI SCUSSED IN THE FOREGOING PARAGRAPHS ALSO, THE INVESTMENTS INTO SUBSIDIARIES AS WELL AS MUTUAL FUNDS WOULD REQUIRE SOME EXPENSES, THE QUANTIFICATION OF WHICH WOULD BE DONE AS PER RULE 8D, IN FACT, THE ITAT MUMBAI HAS ALSO NOTED IN ITS ORDER THE FACT THAT EXPENSES COULD BE ATTRIBUTED FOR EARN ING DIVIDEND INCOME (PARA 5 OF SUCH ORDER) 3. WHEREAS, THE A.O HAS CONSIDERED THE FACTS REFERR ED AT PARA 11.2 AND CALCULATED DISALLOWANCE U/R 8D(II) OF THE IT RULES OF RS. 1,64,77,689/- AND UNDER RULE 8D(III) O F RS. 82,89,921/- AND TOTAL AGGREGATE DISALLOWANCE U/S 1 4A R.W.R 8D WORKED OUT TO RS.2,47,67,610/- AND ASSESSE D THE TOTAL INCOME OF RS. 59,57,70,604/- AND PASSED T HE ORDER U/S 143(3) R.W.S 254 OF THE ACT ON 11.09.2013 . 4. BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL B EFORE THE CIT(A). THE LD. CIT(A) HAS CONSIDERED THE GROU NDS OF APPEAL, FACTS OF THE CASE, FINDINGS OF THE A.O AND SUBMISSIONS OF THE ASSESSEE AND HAS DEALT EXCLUSIVE LY ON THE DISALLOWANCE U/S 14A R.W.R 8D(2) AND RELIED ON THE DECISIONS OF THE HONBLE HIGH COURT AND HONBLE TRIB UNAL. THE CIT(A) HAS OBSERVED THAT THE ASSESSEE COMPANY H AS MADE THE INVESTMENTS OUT OF ITS OWN FUNDS NOT BORR OWED FUNDS, WHEREAS THE BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE OF BUSINESS AND THE INVESTMENTS HAS BEEN MA DE TO CONTROL THE MANAGEMENT OF SUBSIDIARIES. THE LONG TERM BORROWINGS AND SHORT TERM BORROWING CANNOT BE USED FOR M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 6 - LONG TERM INVESTMENTS AND THEREFORE NO DISALLOWANC E U/S14A R.W.R 8D(2)(II) IS WARRANTED. WHEREAS THE L D. AR SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND THE RESERVES AND SURPLUS AND SHARE CAPITA L IS RS. 1,231.5 CRORES AND THE INTEREST FREE FUNDS WERE USED FOR INVESTMENTS. FURTHER, THE INTEREST FREE FUNDS A VAILABLE TO THE ASSESSEE ARE MORE THAN THE INVESTMENTS MADE DURING THE YEAR AND RELIED ON THE JUDICIAL DECISION S. THE CIT(A) HAS DEALT ON THE FINANCIAL ASPECTS AND CONSI DERED THE FACTS THAT THE ASSESSEE COMPANY INVESTMENTS ARE OUT OF THE INTEREST FREE FUNDS AND THEREFORE DISALLOWAN CE U/S 14A R.W.R 8D(2)(II) IS NOT SUSTAINABLE AND DIRECTED THE A.O TO DELETE THE ADDITION. WHEREAS, IN RESPECT OF DISA LLOWANCE U/S 14A R.W.R 8D(2)(III) THE CIT(A) HAS UPHELD THE ACTION OF THE A.O AND PARTLY ALLOWED THE APPEAL OF THE ASS ESSEE. AGGRIEVED BY THE CIT(A)ORDER, THE REVENUE HAS FILED AN APPEAL BEFORE THE HONBLE TRIBUNAL. 5. AT THE TIME OF HEARING, LD.DR SUBMITTED THAT THE CIT(A) HAS ERRED IN DIRECTING THE A.O TO DELETE THE ADDITI ON AS THE EXEMPT INCOME IS RECEIVED BY THE ASSESSEE FROM INVESTMENTS AND RELIED ON THE ORDER OF THE A.O. NO NE APPEARED ON BEHALF OF THE ASSESSEE. 4. WE HEARD THE LD.DR AND PERUSED THE MATERIAL ON RECORD. PRIMA-FACIE, THE SOLE DISPUTED ISSUE ENVIS AGED BY M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 7 - THE LD.DR THAT THE CIT(A) HAS ERRED IN DIRECTING TH E A.O TO DELETE THE ADDITION U/S 14A R.W.R 8D(2)(II) OF THE IT RULES. WE FIND THAT THE CIT(A) HAS RELIED ON THE F ACTS AND THE FINANCIAL STATEMENTS AND THE SUBMISSIONS OF THE ASSESSEE, WHEREAS THE ASSESSEE HAS MADE INVESTMENTS OUT OF THE SURPLUS FUNDS AND NO BORROWED FUNDS ARE UTILIZED FOR INVESTMENTS AND SUCH INVESTMENTS HAVE BEEN MADE IN SUBSIDIARIES TO HAVE CONTROL ON THE MANAGEM ENT OF THE SUBSIDIARIES AND NOT TO EARN ANY INCOME. FU RTHER, THE BORROWED FUNDS WERE UTILIZED ONLY FOR THE PURPO SE OF NORMAL COURSE OF BUSINESS. WE FIND THAT THE CIT(A) CONSIDERED THE FACTS, PROVISIONS OF LAW, JUDICIAL D ECISIONS AND FINANCIAL STATEMENTS AND ALSO THE INVESTMENTS A RE MADE OUT OF THE INTEREST FREE FUNDS. WE CONSIDERED IT APPROPRIATE TO REFER TO THE OBSERVATIONS OF THE CIT (A) AT PAGE 6 TO 7 PARA 4.4 TO 4.4.3 OF THE ORDER WHICH I S READ AS UNDER: 4.4 DECISION ON GROUND NOS. 1 TO 4: 4.4.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. IN ITS ORDER THE HON'BLE ITAT HAD DIRECTED THE AO TO E XAMINE WHETHER ANY PART OF THE FUND BORROWED HAD BEEN USED FOR MAKING INVESTMENT INCOME FROM WHICH DOES NOT OR SHA LL NOT FORM PART OF APPELLANT'S TOTAL INCOME. THE HON'BLE ITAT ALSO OBSERVED THAT PRIMA FACIE, THE APPELLANT HAD SUFFIC IENT FUNDS OF ITS OWN FOR MAKING THE INVESTMENTS. IN ITS ORDER , THE HON'BLE ITAT HAD MENTIONED THE FACTS AND ASPECTS TO BE CONS IDERED BY THE AO WHILE DECIDING THE ISSUE. THE HON'BLE ITAT A LSO M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 8 - DIRECTED THE AO TO DECIDE THE ISSUE IN LIGHT OF THE DECISION OF ITAT, MUMBAI IN THE CASE OF GARWARE WALL ROPES LTD. , (SUPRA). BARRING THAT, THE HON'BLE ITAT DID NOT GIVE ANY DIR ECTION AS TO HOW THE DISALLOWANCE UNDER RULE 8D(2) WAS TO BE COM PUTED. 4.4.2 1 HAVE EXAMINED THE APPELLANT'S CLAIM THAT IT HAD SUFFICIENT INTEREST FREE FUND OF ITS OWN WITH REFERENCE TO APP ELLANT'S BALANCE SHEETS AND FOUND THAT THE CLAIM IS CORRECT. THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R LTD. (SUPRA) HELD AS UNDER: 'THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN , THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS.' 4.4.3 I FIND THAT IN THE IMPUGNED ORDER THE AO DID NOT REBUT THE PRESUMPTION WITH ANY SPECIFIC FINDING. THE AO ARGUE D THAT SINCE ROUGHLY 29% OF APPELLANT'S INVESTMENTS WERE SHORT-T ERM INVESTMENTS, THOSE INVESTMENTS COULD HAVE BEEN OUT OF SHORT-TERM BORROWINGS. THE AO, HOWEVER, DID NOT REBUT THE PRES UMPTION THAT THE INVESTMENTS RELATABLE TO THE EXEMPT INCOME WERE OUT OF APPELLANT'S INTEREST FREE FUNDS WITH ANY SPECIFIC F INDING. I, THEREFORE, HOLD THAT THE DISALLOWANCE MADE BY INVOK ING THE PROVISIONS OF SECTION 14A R.W.R 8D(2)(II) IS NOT SU STAINABLE. THEREFORE, I DIRECT THE AO TO DELETE THE ADDITION O F RS. 1,64,77,689/- ON THIS COUNT. IN THE RESULT, GROUNDS NO. 1 TO 4 ARE ALLOWED. 5.ON PERUSAL OF THE CIT(A)ORDER, WE FIND THAT THE A SSESSEE COULD ABLE TO SUBSTANTIATE BEFORE THE LOWER AUTHORI TIES ON THE SURPLUS FUNDS INCLUDING RESERVES AND SURPLUS AN D IN THIS ASSESSMENT YEAR, THE ASSESSEE HAS RESERVES& SHARE CAPITAL TO THE EXTENT OF RS. 1,231.5 CRORES, WHEREA S THE M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 9 - INVESTMENTS ARE MUCH LESS THAN THE AVAILABLE SURPL US BALANCES. THE CIT(A) HAS RELIED ON THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF R ELIANCE UTILITIES AND POWER LTD. (313 ITR 340) AND HDFC BAN K LTD (383 ITR 529) AND HONBLE TRIBUNAL DECISIONS. FURTH ER, THE REVENUE HAS FILED THE SLP BEFORE THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. AND IT WAS DISMISSED. WE FIND THAT THE ASSESSEE HAS SU FFICIENT FUNDS FOR MAKING INVESTMENTS AND THE A.O HAS NOT DOUBTED THE AVAILABILITY OF THE FUNDS BUT MADE DISALLOWANCE INVOKING THE PROVISIONS OF SEC.14A R.W .R 8D(2)(II).THE LD. DR COULD NOT SUBSTANTIATE OR CON TROVERT THE FINDINGS OF THE CIT(A) WITH ANY NEW COGENT MATE RIAL OR INFORMATION BUT RELIED ONLY ON THE ORDER OF THE A.O . ACCORDINGLY, WE DO NOT FIND ANY MERITS IN THE SUBMI SSIONS OF THE REVENUE AND THE CIT(A) CONSIDERED THE FACTS AND RELIED ON THE JUDICIAL DECISIONS AND HAS PASSED A R EASONED ORDER. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT( A) ON THIS GROUND AND DISMISS THE GROUNDS OF APPEAL OF TH E REVENUE. M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 10 - ITA.NO..3056&3057&3058/MUM/2019,A.Y2011- 12,/2013-14/2014-15. 6. AS THE FACTS AND CIRCUMSTANCES IN THESE APPEALS ARE IDENTICAL TO ITA NO3055/MUM/2019 FOR THE A.Y.2010-11.THE DECISION RENDERED IN ABOVE PARAGRAPHS WOULD APPLY MUTATIS MUTANDIS FOR THESE THREE APPEALS ALSO. ACCORDINGLY, GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED 7. IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.06.2021 SD/- SD/- ( M BALAGANESH ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 04.06.2021 KRK, PS M/S. INDIA INFOLINE INVESTMENT SERVICES LIMITED, MU MBAI ITA NO3055/ 3056/3057/3058/M/2019. - 11 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. ( ) / CONCERNED CIT 5. !!' , $ % , / DR, ITAT, MUMBAI 6. () * + / GUARD FILE. / BY ORDER, ! //TRUE COPY// 1. ( ASST. REGISTRAR) ITAT, MUMBA I