RUCHI GLOBAL LTD, MUMBAI V. DCIT CEN CIR 40, MUMBAI

ITA 3104/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8616 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Corroborative evidences
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K. PRAD H AN, ACCOUNTANT MEMBER ITA NO.3104/MUM./2014 ( ASSESSMENT YEAR : 2009 10 ) RUCHI GLOBAL LTD. 611 TULSIANI CHAMBERS, NARIMAN POINT MUMBAI 400 021 PAN AAACR7202A . APPELLANT V/S DCIT CEN CIR 40 MUMBAI 400 002 PAN AAAFR5747B . RESPONDENT ASSESSEE BY : SHRI BHUPENDRA SHAH REVENUE BY : SHRI PURUSHOTTAM KUMAR DATE OF HEARING 01.02.2017 DATE OF ORDER 10.02.20107 O R D E R PER: SAKTIJIT DEY. THIS IS AN APPEAL BY THE ASSESSEE AGAINST ORDER DATED 27 - 2 - 2014 OF LD. CIT (A) 38/MUMBAI FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE SOLITARY ISSUE IN DISPUTE RELATES TO DISALLOWANCE OF AN AMOUNT OF RS. 18,64 , 095 / - U/S 14A READ WITH RULE 8D. 2 RUCHI GLOBAL LTD. ITA NO. 3014/MUM/2014 3. BRIEFLY THE FACTS ARE , IN COURSE OF ASSESSMENT PROCEEDING THE ASSESSING OFFICER NOTICING THAT ASSESSE HAD RECEIVED EXEMPT INCOME BY WAY OF DIVI DEND AMOUNTING OF RS. 41,32,659 / - , WHEREAS , IT HAS DISALLOWED AN AMOUNT OF RS. 33,670 / - U/S 14A CALLED UPON THE ASSESSE TO EXPLAIN W HY DISALLOWANCE U/S 14A SHOULD NOT BE MADE BY APPLY ING THE PROVISION OF RULE 8 D. T HOUGH , ASSESSE OBJECTED TO THE DISALLOWANC E PROPOSED BY THE AO , H OWEVER, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY DISALLOWING A FURTHER AMOUNT OF RS. 18,64,095 / - U/S 14A READ WITH RULE 8D. ASSESS E E CHALLENGED THE DISALLOWANCE BEFORE THE CIT (A). H OW EVER, LD. CIT (A) ULTIMATELY UP HELD THE DISALLOWANCE MADE BY THE AO. 4. THE LD. AR SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSE ES OWN CASE IN ASSE SS MENT YEAR 2010 - 11 AND THE T RIBUNAL AFTER CONSIDERING T HE SUBMISSIONS OF THE ASESSEE HAS RESTORED THE ISSUE BA CK TO THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. HE SUBMITTED , SIMILAR DIRECTION MAY ALSO BE ISSUED FOR THE IMPUGNED ASSESSMENT YEAR. 5. THE LD. DR WHILE AGREEING THAT SIMIL AR ISSUE WAS DEALT WITH BY THE T RIBUNAL IN ASSESSEES OWN CASE FOR THE SUBSEQUENT ASSESSMENT YEAR , SUBMITTED THAT MATTER CAN BE REMITTED BACK TO THE ASSESSING OFFICER FOR RECONSIDERATION. 3 RUCHI GLOBAL LTD. ITA NO. 3014/MUM/2014 6. WE HAVE HEARD THE PARTIES AND PERUSED MATERIAL ON RECORD . A S COULD BE S EEN BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSE E CONTESTED DISALLOWANCE OF INTEREST EXPENDITURE BY CONFID ING THAT IT HAD SUFFICIENT INTEREST FREE FUND AVAILABLE TO MAKE INVESTMENTS IN SHARES AND SECURITIES. THE AFORESAID CONTENTION HAS NOT BEEN EXAMINED BY THE CIT (A) IN THE LIGHT OF THE RATIO LAID DOWN IN THE DECISI ONS OF THE HONOURABLE JURISDICTIONAL HIGH COURT. WE HAVE ALSO NOTED CONSIDERING THE AFORESAID FACT WHILE DECIDING ASSESSE ES APPEAL FOR ASSESSMENT 2010 - 11 IN ITA NO. 616 4/MUM/2013 DATED 13/05/2016 THE T RIBUNAL HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATIO N WITH THE FOLLOWING OBSERVATIONS. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE DECISIONS RELIED UPON. AS FAR AS THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II), IT I S THE CONTENTION OF THE ASSESSEE IT HAS SUFFICIENT SURPLUS INTEREST FREE FUND AVAILABLE TO MAKE THE INVESTMENT. HOWEVER, THE AFORESAID CONTENTION OF THE ASSESSEE HAS BEEN BRUSHED ASIDE BY THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WITHOU T PROPER VERIFICATION. IN CASE, THE ASSESSEEHAS MIXED FUNDS BOTH BORROWED AND OWN INTEREST FREE FUNDS,AS PER THE RATIO LAID DOWN IN THE DECISIONS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE, THE PRESUMPTION WOULD BE THE INVESTMENT HAVE BEEN MADE O UT OF INTEREST FREE SURPLUS FUNDS. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT ESTABLISHED A DIRECT NEXUS BETWEEN THE BORROWAL MADE BY THE ASSESSEE AND THE INVESTMENT IN SHARES. UNLESS, A DIRECT ONE TO ONE RELATIONSHIP IS ESTABLISHED BETWEEN THE BOR ROWED FUNDS AND THE INVESTMENT MADE IN EXEMPT INCOME YIELDING ASSETS NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. AS THIS ASPECT HAS NOT BEEN EXAMINED BY THE DEPARTMENTAL AUTHORITIES, WE ARE INCLINED TO RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY 4 RUCHI GLOBAL LTD. ITA NO. 3014/MUM/2014 VERIFICATION. IF ON VERIFICATION, IT IS FOUND THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE SURPLUS FUND AVAILABLE WITH IT DURING THE RELEVANT PREVIOUS YEAR, WHICH CAN TAKE CARE OF THE INVESTMENT IN SHARES, NO DISALLOWANCE OF THE IN TEREST EXPENDITURE UNDER SECTION 14A R/W RULE 8D CAN BE MADE IN TERMS OF THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE REFERRED TO ABOVE. AS FAR AS THE DISALLOWANCE OF INDIRECT / ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III) I S CONCERNED, IT IS NOTICED, THE ASSESSEE ITSELF HAS DISALLOWED THE AMOUNT OF 9,024 UNDER SECTION 14A. HOWEVER, THE BASIS FOR SUCH DISALLOWANCE HAS NOT BEEN PROVIDED IN THE COURSE OF HEARING BEFORE US. IT HAS BEEN SUBMITTED BY THE LEARNED AUTHORISED REPRESE NTATIVE THAT THE ASSESSEE HAS NOT INCURRED ANY ADMINISTRATIVE OR INDIRECT EXPENDITURE IN RELATION TO EXEMPT INCOME, HENCE, NO DISALLOWANCE SHOULD BE MADE. HOWEVER, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE ON MERE FACE VALUE. THE ASSESSEE THRO UGH SUPPORTING EVIDENCE HAS TO ESTABLISH THAT IT HAS NOT MADE ANY ADMINISTRATIVE EXPENDITURE FOR EARNING EXEMPT INCOME. MORE SO, WHEN THE ASSESSEE ITSELF HAS MADE DISALLOWANCE UNDER SECTION 14A. AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, [2010], 328 ITR 081 (BOM.). AFTER COMING INTO EFFECT OF RULE 8D FROM THE ASSESSMENT YEAR 2008 09, DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE IN TERMS OF RULE 8D. A REFERENCE TO SECTION14A(3) ALSO MAKES IT CLEAR THAT EVEN IN A CASE WHERE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO EXEMPT INCOME, DISALLOWANCE IN TERMS OF RULE 8D(2)(III) HAS TO BE MADE, OF COURSE, ONLY AFTER THE ASSESSING OFFICER RECORDS HIS SATISFACTION THAT THE DISALLOWANCE MAD E BY THE ASSESSEE IS NOT CORRECT WITH REFERENCE TO THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. SINCE THESE FACTUAL VERIFICATIONS ARE VERY MUCH ESSENTIAL BEFORE MAKING DISALLOWANCE UNDER RULE 8D(2)(III), WE RESTORE THE MATTER BACK TO THE FILE OF THE AS SESSING OFFICER TO DECIDE AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. FACTS BEING MATERIA LLY SAME IN THE IMPUGNED ASSESSMENT YEAR WE SET ASIDE THE IMPUGNED ORDER OF CIT (A) AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER TO DECIDE THE ISSUE A FRESH 5 RUCHI GLOBAL LTD. ITA NO. 3014/MUM/2014 KEEPING IN VIEW THE DIRECTION OF THE TRIBUNAL REPRODUCED HERE IN ABOVE. THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. IN THE RESULT ASSESSE ES APPEAL IS ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10.02.2017 SD/ - N.K. PRAD H AN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 10.02.2017 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER NISHANT VERMA SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI 6 RUCHI GLOBAL LTD. ITA NO. 3014/MUM/2014 DATE INITIAL 1. DRAFT DICTATED ON 01.02 .2017 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 03.02.2017 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 07.02.2017 SR.PS 6. DATE OF PRONOUNCEMENT 10.02.2017 SR.PS 7. FILE SENT TO THE BENCH CLERK 10.02.2017 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER