JT. CIT (OSD),CIRCLE- 7(2)(1), MUMBAI V. MAHINDRA CIE AUTOMOTIVE LTD., MUMBAI

ITA 3121/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1691 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H P MAHAJANI
• Keywords: Rule 8D
• Section: 13

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BE NCH, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER / I .TA NO.3121/MUM/2018 ( / / / / ASSESSMENT YEAR:2014-15 JOINT C.I.T(OSD), CIRCLE-7(2)(1), MUMBAI / VS. M/S.MAHINDRA CIE AUTOMOTIVE LTD., P.K.KURNE CHOWK,WORLI, MUMBAI 400 018. ./ ./ PAN/GIR NO. AABCM 6632 J ( / // / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI RAHUL RAMAN CIT DR / RESPONDENT BY: SHRI H P MAHAJANI / / / / DATE OF HEARING : 13.11.2019 / DATE OF PRONOUNCEMENT : 21.11.2019 / O R D E R PER RAJESH KUMAR ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE LD. CIT(A)-13, MUMBAI DATED 28.02.2018 PERTAINING TO AS SESSMENT YEAR 2014- 15 IN DELETING THE DISALLOWANCES MADE BY THE AO U/S .36(1)(III) AND U/S.14A OF THE ACT. ITA NO.3121/MUM/2018 2. THE REVENUE HAS RAISED TEN GROUNDS OF APPEAL IN THE MEMORANDUM OF APPEAL HOWEVER, THERE ARE ONLY TWO EFFECTIVE ISSUE S IN ALL THE GROUNDS OF APPEAL. THE FIRST ISSUE RAISED BY THE REVENUE IS A GAINST THE ORDER OF THE LD.CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO U/S.36(1)(III) OF THE ACT BY RELYING ON THE DECISION OF THE HON'BLE MUMBA I HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD WITHOUT APPRECI ATING THE FACTS THAT THE FACTS OF THE ASSESSEES CASE WERE DISTINGUISHABLE. 3. THE FACTS IN BRIEF ARE THAT CERTAIN ENTITIES WE RE AMALGAMATED WITH THE ASSESSEE WITH THE APPOINTED DATE AS ON 01.10.2013. THE APPROVAL WAS GRANTED BY HON'BLE HIGH COURT ON 31.10.2014. IN THE MEANTIME, THE INDIVIDUAL ENTITIES HAD PREPARED THE RESPECTIVE STA NDALONE FINANCIAL STATEMENTS AND FILED THEIR RETURN FOR FINANCIAL YEA R. SUBSEQUENTLY, THE REVISED FINANCIAL STATEMENT OF THE APPELLANT AFTER INCORPORATING THE TRANSACTIONS OF MERGED ENTITIES WERE PREPARED, POST RECEIPT OF APPROVAL FROM HIGH COURT. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO OBSERVED THAT WORK IN PROGRESS WAS RS.20.35 CRORES AND ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN WHETHER CORRESPONDING INTEREST WAS CAPITALIZED OR NOT, WHICH WAS REPLIED BY THE ASSESS EE VIDE LETTER DATED 28.12.2016 WHEREIN THE ASSESSEE SUBMITTED THAT IT H AD NOT TAKEN ANY LOAN FOR THE ACQUISITION OF ASSET AND THUS, NO QUESTION ARISES AS TO CAPITALIZATION OF INTEREST IN WIP. THEREAFTER THE AO ASKED THE AS SESSEE TO PRODUCE THE ITA NO.3121/MUM/2018 BANK STATEMENT TO VERIFY THE UTILISATION OF SECURED AND UNSECURED LOANS. THE AO FOUND THAT THERE WAS ALWAYS NEGATIVE BALANCE IN THE BANK STATEMENT WHICH PROVED THAT THE ASSESSEE HAS WITH DRAWN THE FUNDS FROM THE BANK AND MADE ADDITION IN WIP. THE AO ALSO NO TED THAT THE ASSESSEE HAS ACQUIRED SOME ASSETS APPEARING IN CWIP IN THE E ARLIER YEARS, WHICH WERE NOT PUT USED TILL 31.3.2014 AND ACCORDINGLY, C AME TO A CONCLUSION THAT INTEREST ON LOANS WHICH WERE UTILISED TO ACQUIRE TH E SAID ASSETS IN THE EARLIER YEARS AND NOT PUT TO USE, WAS REQUIRED TO BE CAPITALIZE TO THE CLOSING CWIP AND THUS HELD THAT INTEREST CANNOT BE ALLOWED U/S.36(1)(III) OF THE ACT AND CONSEQUENTLY DISALLOWED A SUM OF RS.1.77 CRORE S AND ADDED THE SAME TO THE CWIP. 4. IN THE APPELLATE PROCEEDINGS, LD.CIT(A) ALLOWED THIS ISSUE AFTER TAKING INTO CONSIDERATION OF SUBMISSIONS AND CONTENTIONS AS RAISED DURING THE COURSE OF APPELLATE PROCEEDINGS BY OBSERVING AND HO LDING AS UNDER:- 4.2 I HAVE EXAMINED THE SUBMISSION MADE BY THE APP ELLANT AND THE REASONS RECORDED BY THE AO. I AM IN AGREEMENT WITH THE SUBMI SSION OF THE APPELLANT THAT THE AO SHOULD HAVE EXAMINED THE STANDALONE ACCOUNTS OF THE MERGED ENTITIES BEFORE DRAWING ANY ADVERSE INFERENCE. IF WE EXAMINE THE ST ANDALONE ACCOUNTS WE FIND THAT CAPITAL WORK IN PROGRESS OF MCIE IS RS.11,79,64,135 A ND OWN FUNDS OF THIS ENTITY IN FORM OF SHARE CAPITAL AND RESERVE ARE RS.931,51,30,00 0. SIMILARLY, CAPITAL WORK IN PROGRESS OF MCL IS RS.91,95,418 AND OWN FUNDS OF THIS EN TITY IN FORM OF SHARE CAPITAL AND RESERVES ARE RS.15,42,05,700. CAPITAL WORK IN PRO GRESS OF MHIL IS RS.1,20,36,692 AND OWN FUNDS OF THIS ENTITY IN FORM OF SHARE CAPITA L AND RESERVES ARE RS.154,20,10,000 AND CAPITAL WORK IN PROGRESS OF MU SCO IS RS.6,42,23,223 AND OWN FUNDS OF THIS ENTITY IN FORM OF SHARE CAPITAL AND RESE RVES ARE RS.357,65,00,000. MUSCO ITA NO.3121/MUM/2018 HAS NO BORROWED FUNDS. THUS, IT CAN BE SEEN THAT INT EREST-FREE FUNDS ARE AVAILABLE WITH THESE COMPANIES IN FORM OF SHARE CAPIT AL AND RESERVES ARE MUCH MORE THAN THE CAPITAL WORK IN PROGRESS. LOOKING TO THIS FA CT AND THE FACT THAT FUNDS FOR CAPITAL WORK IN PROGRESS HAVE BEEN PAID OUT OF A CO MMON ACCOUNT IN WHICH ALL RECEIPTS ARE ALSO CREDITED, I AM OF THE OPINION THAT NO PART OF INTEREST CAN BE DISALLOWED. ACCORDINGLY, DISALLOWANCE OF INTEREST AM OUNTING TO RS.1,77,00,000 AND ADDITION OF THE SAME TO THE WORK IN PROGRESS IS DIRECT ED TO BE DELETED. RELIANCE IN THIS REGARD IS PLACED ON THE DECISIONS OF THE HON'BLE JURIS DICTIONAL HIGH COURT IN CIT VS. RELIANCE UTILITIES & POWER LTD (2009) 313 ITR 340 (B OM) AND IN THE CASE OF CIT VS.HDFC BANK LTD (IT APPEAL NO.330 OF 2012) AND ALSO HON'BLE SUPREME COURT DECISION IN THE CASE OF MUNJAL SALES CORPORATION VS. AN OTHER (2008) 298 ITR 298(SC), ITAT MUMBAI IN THE CASE OF SHRENUJ & CO. LTD A.Y. 20 06-07 (IN ITA NO.8189/MUM/2010 AND A.Y. 2007-08 (IN ITA NO.7948/M UM/2011) AND ITAT, DELHI IN THE CASE OF LAKHANI INIDA LTD., A.Y. 2006-07 (ITA NO.2057/DELHI/2011) 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE OBSERVE THAT THE ASSESSEE H AS SUFFICIENT FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES. LD.CIT( A) NOTED THAT IN THE CASE OF MCIE , CWIP WAS RS.11,79,64,135 AND OWN FUNDS OF THIS ENTITY IN FORM OF SHARE CAPITAL AND RESERVES WERE RS.931,5 1,30,000. IN MCL, CWIP WAS RS.91,95,418 AND OWN FUNDS OF THIS ENTITY IN FORM OF SHARE CAPITAL AND RESERVES WERE RS.15,42,05,700. SIMILARL Y, CWIP IN MHIL WAS RS.1,20,36,692 AND OWN FUNDS OF THIS ENTITY IN FORM OF SHARE CAPITAL AND RESERVES WERE RS.154,20,10,000. WE FIN D THAT CLEAR CUT FINDINGS HAVE BEEN RECORDED BY THE LD.CIT(A) AND CA ME TO A CONCLUSION THAT NO INTEREST DISALLOWANCE CAN BE MADE AS THE FU NDS USED FOR WORK IN PROGRESS HAS BEEN PAID OUT OF OWN SOURCES . LD.C IT(A) WHILE DELETING THE ADDITION RELIED ON THE DECISIONS OF HON'BLE JUR ISDICTIONAL HIGH COURT ITA NO.3121/MUM/2018 IN CIT VS. RELIANCE UTILITIES & POWER LTD (2009) 3 13 ITR 340 (BOM) AND IN THE CASE OF CIT VS. HDFC BANK LTD (IT APPEAL NO.330 OF 2012) AND ALSO HON'BLE SUPREME COURT DECISION IN THE CASE OF MUNJAL SALES CORPORATION VS. ANOTHER (2008) 298 ITR 298(SC) AND OTHER VARIOUS ITAT DECISIONS. WE FIND THAT THE LD.CIT(A) HAS PASS ED A SPEAKING AND REASONABLE ORDER WHILE RELYING ON THE VARIOUS DECIS IONS AS CITED SUPRA AND ACCORDINGLY, WE ARE INCLINED TO UPHOLD THE SAME BY DISMISSING THE GROUNDS OF THE REVENUE RELATING TO DELETION OF DIS ALLOWANCE U/S.36(1)(III) OF THE ACT. 6. THE SECOND ISSUE RAISED BY THE REVENUE IS AGAI NST THE ORDER OF THE LD.CIT(A) DELETING THE DISALLOWANCE MADE BY TH E AO U/S.14A OF THE ACT. READ WITH RULE 8D OF INCOME TAX RULES, 1962. 7. THE FACTS IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT NOTED THAT THE ASSESSEE WAS HAVING INVESTMENTS OF RS.6265.10 LAKHS AND ACCORDINGLY CALLED UPON THE ASSESSEE TO SHOW CAUSE WHY THE DISALLOWANCE U/S.14A OF THE ACT SHOULD NOT BE MADE, WHICH WAS RE PLIED BY ASSESSEE BY SUBMITTING THAT IT IS NOT INCURRED ANY EXPENSES IN RELATION TO INCOME EARNED WHICH DOES NOT FORM OF TOTAL INCOME. BESIDES, THE ASSESSEE SUBMITTED THAT THE INCOME EARNED FROM THE SALE OF MUTUAL FUND, WHI CH WAS OFFERED FOR TAX. THE AO HOWEVER NOT FINDING THE REPLY OF ASSESSEE AS TENABLE AND CALCULATED ITA NO.3121/MUM/2018 DISALLOWANCE AT RS.1168.40 LACS COMPRISING OF RS. 5 86.43 LACS UNDER RULE 8D(2)(II) AND RS.581.97 UNDER RULE 8D(2)(III). 8. IN THE APPELLATE PROCEEDINGS, LD.CIT(A) ALLOWED THE APPEAL OF ASSESSEE BY HOLDING THAT NO DISALLOWANCE U/S.14A OF THE ACT WAS CALLED FOR BY OBSERVING AND HOLDING AS UNDER:- 7.2 I HAVE CONIDERED THE SUBMISSION MADE BY THE AP PELLANT AND THE REASONS RECORDED BY THE AO. I AM IN AGREEMENT WITH THE SUBMI SSION OF THE APPELLANT THAT NO DISALLOWANCE U/S.14A WAS CALLED FOR IN RESPECT OF IN VESTMENT OF RS.25,500 IN THE SHARES OF THE SARASWAT CO-OP. BANK LTD., INVESTMENT OF RS.14 ,56,81,52,195 IN THE SHARES OF FOREIGN COMPANIES BECAUSE INCOME FROM THESE SHARES IS NOT EXEMPT AS PER THE PROVISIONS OF THE ACT. SIMILARLY, NO DISALLOWANCE IS CALLED FOR IN RESPECT OF INVESTMENT IN THE SHARES OF WARDHA POWER COMPANY LTD. BECAUSE THE I NVESTMENT IS FOR THE PURPOSE OF OBTAINING POWER AT SUBSIDISED RATE AND THESE SHARES ARE NOT ENTITLED FOR ANY DIVIDEND. IN FACT, THIS INVESTMENT IS BEING WRITTEN O FF BY THE APPELLANT OVER A PERIOD OF 25 YEARS. THOUGH I AM NOT IN AGREEMENT WITH THE CLAI M OF THE APPELLANT THAT DISALLOWANCE SHOULD NOT BE MADE U/S.14A OF THE IT ACT IN RESPECT OF INVESTMENT OF RS.79,36,65,729 IN THE SHARES OF MAHINDRA GEARS & TRAN SMISSIONS PVT LTD., BECAUSE IT IS A STRATEGIC INVESTMENT BUT I AM IN AGREEMENT WITH TH E CLAIM OF THE APPELLANT THAT NO DISALLOWANCE SHOULD BE MADE U/S.14A OF THE IT ACT IN RESPECT OF THIS INVESTMENT BECAUSE NO DIVIDEND HAS BEEN EARNED FROM THE SAME DUR ING THE YEAR. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS:- SPECIAL BENCH ITAT(DELHI) DECISION IN CASE OF ACIT VS. VIREET INVESTMENT (P) LTD 188 TTJ(DELHI)(SB) CIT VS.HOLCIM INDIA (P) LTD (2014) 272 CTR (DEL.) 2 82 CIT VS. CORRTECH ENERGY P LTD 223 TAXMANN 130(GUJ) HON'BLEALLAHABAD DECISION IN ITA NO.88 OF 2014 IN THECASE OF CIT VS.SHIVAM MOTORS P LTD ITAT CHENNAI DECISION IN THE CASE OF ACIT VS.BHASKARAN IN ITA NO.1717/MDS/2013 FOR A.Y. 2009-10. SARABHAI HOLDINGS (P) LTD ITA NO.2328/AHD/2012 ITA NO.3121/MUM/2018 THUS, DISALLOWANCE U/S.14A OF THE IT ACT CAN ONLY BE MADE OUT OF INVESTMENT IN DEBT ORIENTED MUTUAL FUNDS. FROM THE DETAILS SUBMITTED BY THE APPELLANT IT IS SEEN THAT THIS INVESTMENT HAS BEEN MADE BY ONLY TWO ENTITIES MCIE AND MUSCO, BOTH OF WHICH HAVE SUFFICIENT INTEREST-FREE LOAN FUNDS, AS MENTIONED IN T HE PRECEDING PARAS, TO MAKE INVESTMENT OF RS.39,08,34,000 AMD 7,00,00,000 RESPECT IVELY. IN VIEW OF THESE FACTS, I AM IN AGREEMENT WITH THE CONTENTION OF THE APPELLANT T HAT NO DISALLOWANCE WAS CALLED FOR UNDER RULE 8D(II) BECAUSE IT HAD SUFFICIENT INTEREST- FREE OWN FUNDS IN FORM OF CAPITAL AND RESERVED. AS PER THE SUBMISSION OF THE APPELLANT, DISALLOWANCE UN DER RULE 8D(2)(III) IN RESPECT OF THIS INVESTMENT WORKS OUT TO RS.25,43,361. THE AO IS D IRECTED TO VERIFY THE COMPUTATION MADE BY THE APPELLANT AND RESTRICT THE D ISALLOWANCE TO THIS AMOUNT, IF THE COMPUTATION MADE BY THE APPELLANT IS FOUND TO BE CO RRECT. THIS GROUND OF APPEAL IS ACCORDINGLY, PARTLY ALLOWED. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE OBSERVE THAT THE LD.CIT(A) HAS GIVEN A C LEAR CUT FINDING AS TO HOW NO DISALLOWANCE IS REQUIRED TO BE MADE U/S.14A OF T HE ACT IN RESPECT OF INVESTMENTS IN SHARES OF THE SARASWAT CO-OP. BANK L TD AND SHARES OF FOREIGN COMPANIES. LD.CIT(A) HAS RIGHTLY OBSERVED T HAT INCOME FROM THESE SHARES IS NOT EXEMPT AND ACCORDINGLY NO DISALLOWANC E IS CALLED FOR. SIMILARLY, IN RESPECT OF INVESTMENT IN SHARES OF WA RDHA POWER COMPANY, LD.CIT(A) NOTED THAT ASSESSEE IS NOT ENTITLED TO AN Y DIVIDEND AND AS SUCH HAS NOT RECEIVED ANY DIVIDEND. CONSIDERING THE FACTS ON RECORD AND THE ORDER OF THE LD.CIT(A), WE ARE OF THE VIEW THAT NO INTERFERE NCE IS CALLED FOR IN THE APPELLATE ORDER PASSED BY LD CIT(A). ACCORDINGLY, W E UPHOLD THE ORDER OF THE LD.CIT(A) BY DISMISSING THE GROUNDS RAISED BY T HE REVENUE. ITA NO.3121/MUM/2018 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2019. SD/- SD/- (AMARJIT SINGH) (RAJESH KUMAR) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21 ST NOVEMBER, 2019 KSS , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / // / (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI