JAYANT FINVEST LTD, MUMBAI V. CIT 8, MUMBAI

ITA 3128/MUM/2013

• Counselvise Citation: 312819914 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 29-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEERA SINGH
• Keywords: Revision of order; Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.3128/MUM/2013 ASSESSMENT YEAR: 2009-10 JAYANT FINVEST LTD., AKANDANAND 38 MAROL CO. OP. INDL. ESTATE OFF. M. V. ROAD, SAKINAKA, ANDHERI (E) MUMBAI-400059 / VS. CIT-8 R.NO.259 AAYAKAR BHAVAN, MUMBAI-400020 ( !'# /ASSESSEE) ( / REVENUE) P.A. NO.AAACJ0231F !'# / ASSESSEE BY SHRI MADHU R AGARWAL (AR) / REVENUE BY MRS. NEERA SINGH PANDAY( DR ) $ % & ' / DATE OF HEARING : 24/08/2015 ! & ' / DATE OF ORDER: 09 /09/2015 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST ORDER DATED 22.02.2013, PASSED U/S 263 BY THE LD. COMMISSIONER OF INCOME TAX-8, MUMBAI FOR THE ASSESS MENT JAYANT FINVEST LTD 2 YEAR 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GRO UNDS OF APPEAL:- 1.A. THE ORDER U/S. 263 OF THE INCOME TAX ACT, 196 1 PASSED COMMISSIONER OF INCOME TAX IS VOID AND BAD AB INITI O, AS THE ORDER OF ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. B. THE LEARNED CIT GROSSLY ERRED IN REVIEWING THE O RDER PASSED BY ASSESSING OFFICER WHICH WAS CLEARLY BEYOND HER P OWERS U/S. 263 OF THE INCOME TAX ACT, 1961. C. THE LEARNED COMMISSIONER OF INCOME-TAX HAS PASSE D THE ORDER IGNORING THE FACT THAT THE POINTS RAISED IN H IS NOTICE HAVE DULY BEEN EXAMINED BY THE LEARNED ASSESSING OFFICER DURING THE COURSE ASSESSMENT PROCEEDINGS. D. THE LEARNED COMMISSIONER OF INCOME-TAX HAS PASSE D THE ORDER IGNORING THE FACT THAT THE POINTS RAISED IN H IS NOTICE HAVE DULY BEEN EXAMINED BY THE LEARNED ASSESSING OFFICER DURING THE COURSE ASSESSMENT PROCEEDINGS. WITHOUT PREJUDICE TO THE FOREGOING AND ON THE FACTS OF THE CASE 2. THE LEARNED COMMISSIONER OF INCOME TAX GROSSLY E RRED IN HOLDING THAT THE ORDER PASSED BY ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E FOR THE REASON THAT: I. ASSESSING OFFICER OUGHT TO HAVE EXAMINED THE ALL OWABILITY OF INTEREST EXPENDITURE U/S. 36(1 )(III) OF THE INCOME TAX ACT, 1961 WHEN INTEREST FREE FUNDS WERE ADVANCED BY APPELLANT WITHOUT APPRECIATING THAT FULL DETAILS OF INTEREST FREE ADV ANCES WERE CALLED FOR BY THE ASSESSING OFFICER AND EXAMINED BY HIM WHILE ALLOWING INTEREST EXPENDITURE TO THE APPELLANT. II. ASSESSING OFFICER OUGHT TO HAVE CONSIDERED THE INTEREST EXPENDITURE DIRECTLY ATTRIBUTABLE TO TAXABLE BUSINE SS INCOME FOR DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D( 2)(II) EVEN WHEN THE ASSESSING OFFICER FORMED HIS VIEW TO NOT I NCLUDE THE SAME WHILE CALCULATING DISALLOWANCE U/S. 14A R.W.R 8D. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE REFERRED GROUND OF APPEAL. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY FI LED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 29.09.2009. TH EREAFTER, JAYANT FINVEST LTD 3 THE AO PASSED ASSESSMENT ORDER U/S 143(3) ORDER DAT ED 16.09.2011. SUBSEQUENTLY, THE LD. CIT ISSUED SHOW C AUSE NOTICE U/S 263 ON 25.05.2012 TO THE ASSESSEE PROPOS ING FOR REVISION OF THE AFORESAID ASSESSMENT ORDER, U/S 263 OF THE ACT, ON THE GROUND THAT IT WAS OBSERVED BY THE LD. CIT O N THE PERUSAL OF RECORDS, THAT BALANCE SHEET OF THE ASSE SSEE COMPANY REVEALED THAT THE ASSESSEE HAS ADVANCED INT EREST FREE LOANS AND ADVANCE FOR AGGREGATE AMOUNT OF RS.15.79 CRORES, WHEREAS THE ASSESSE HAD NOT OFFERED ANY INTEREST IN COME IN RESPECT OF LOANS AND ADVANCES GIVEN BY IT. THE LD. CIT GAVE FURTHER SHOW CAUSE NOTICE, ASKING THE ASSESSEE TO F URNISH DOCUMENTARY EVIDENCES TO SHOW THAT ADVANCES WERE MA DE OUT OF OWN FUNDS AND TO SHOW BUSINESS EXIGENCY FOR GIVI NG SUCH INTEREST FREE LOANS. LD. CIT GAVE FURTHER NOTICE TO THE ASSESSEE DATED 14.12.2012 ON THE GROUND THAT THE DISALLOWANC E MADE BY THE AO IN THE AFORESAID ASSESSMENT ORDER UNDER R ULE 14A R.W. RULE 8D IS NOT SUFFICIENT, AS PERUSAL OF PARA 4.5 OF THE ASSESSMENT ORDER REVEALED THAT AO HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT NO INTEREST EXPENDI TURE WAS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME, T HEREBY HOLDING THAT CLAUSE 2(II) OF RULE 8D IS NOT APPLICA BLE TO THE INTEREST EXPENDITURE OF RS.2,76,52,729/-; WHEREAS I T WAS EVIDENT FROM THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D GIVEN IN PARA 4.5 OF THE ASSESSMENT ORDER THAT INTE REST EXPENDITURE OF RS.2,76,52,729/- HAS BEEN INCURRED B Y THE ASSESSEE WHICH WOULD BE HIT BY RULE 8D. JAYANT FINVEST LTD 4 3. THE LD. CIT WAS NOT SATISFIED WITH THE RESPONSE GIV EN BY THE ASSESEE AND THEREFORE REVISION ORDER U/S 263 WA S PASSED BY THE LD. CIT, HOLDING THAT AO OUGHT TO HAVE INCLU DED THE IMPUGNED INTEREST EXPENDITURE OF RS.2,76,45,849/- A S PER SUB-CLAUSE (II) OF RULE 8D(2) FOR THE PURPOSE OF DI SALLOWANCE U/S 14A READ WITH RULE 8D. IT WAS FURTHER HELD BY T HE LD. CIT THAT THE AO OUGHT TO HAVE EXAMINED THE ALLOWABILITY OF THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE IN TER MS OF SECTION 36(1)(III) OF THE ACT AS FUNDS WERE ADVANCE D BY THE ASSESSEE WITHOUT CHARGING INTEREST, WHEREAS INTERES T BEARING FUNDS WERE BORROWED AND UTILIZED FOR THE PURPOSE OF BUSINESS. IT WAS FURTHER HELD BY THE LD. CIT THAT THE AO SHOU LD HAVE CONSIDERED THE INTEREST EXPENDITURE FOR DISALLOWANC E U/S 14A OF THE ACT, RULE 8D(2)(II). FINALLY, TO THIS EXTENT , THE ASSESSMENT ORDER DATED 16.09.2011 U/S 143(3) OF THE ACT WAS HELD TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE AND CONSEQUENTLY SAME WAS SET ASIDE AND AO WAS DIRECTED TO EXAMINE THE ABOVE ISSUES ON THE LINES A S DETAILED BY THE LD. CIT IN THE IMPUGNED ORDER. 4. DURING THE HEARING BEFORE US, LD. COUNSEL OF THE ASSESSEE MADE DETAILED SUBMISSIONS. FIRST SUBMISSI ON OF LD. COUNSEL WAS THAT LD. CIT HAS FELL INTO GRAVE ERROR BY NOT APPRECIATING THE FACTS CORRECTLY AND COMMITTED A MI STAKE BY NOT APPRECIATING THE FUNDAMENTAL FACTS THAT OWN FUN DS OF THE ASSESSEE WERE FAR IN EXCESS OF AMOUNT OF ADVANCE GIVEN, AND IN THE GIVEN FACTS NO DISALLOWANCE WAS CALLED FOR E ITHER U/S 14A OR ANY OTHER PROVISION MORE SO, IN VIEW OF THE JUDGMENT OF JAYANT FINVEST LTD 5 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LIMITED 313 ITR 340 (BOM) . IT WAS SUBMITTED THAT ASSESSMENT ORDER PASSED BY THE AO WAS VERY MUC H IN ACCORDANCE WITH LAW, AS EXPLAINED BY HONBLE JURISD ICTIONAL HIGH COURT. IT WAS FURTHER SUBMITTED BY THE LD. COU NSEL THAT DETAILED EXAMINATION HAS ALREADY BEEN DONE BY THE A O IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3), WHEREI N THIS ASPECT HAS BEEN EXAMINED AND DISCUSSED BY THE AO IN THE ASSESSMENT ORDER PASSED. FEW OTHER SUBMISSIONS WERE ALSO MADE BY THE LD. COUNSEL TO ASSAIL THE ORDER OF LD. CIT. IN NUTSHELL, IT WAS ARGUED BY THE LD. COUNSEL THAT THE ASSESSMENT ORDER PASSED U/S 143(3) WAS FACTUALLY CO RRECT AND NEITHER IT WAS ERRONEOUS NOR PREJUDICIAL TO THE INT EREST OF THE REVENUE, AND MORE SO, WHEN ONE OF THE POSSIBLE VIEW S WAS TAKEN BY THE AO AFTER MAKING DETAILED EXAMINATION, THE JURISDICTION OF THE LD. CIT TO PASS AN ORDER U/S 26 3 WAS OUSTED AND THEREFORE, THE IMPUGNED ORDER PASSED U/S 263 IS NOT ONLY FACTUALLY INCORRECT BUT BEYOND JURISDICTIO N AS WELL. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDE R OF THE LD CIT. IN RESPONSE TO OUR SPECIFIC QUERY TO LD. DR WITH RESPECT TO WHETHER THERE WAS ANY MISTAKE IN FACTUAL SUBMISSIONS MADE BY THE LD. COUNSEL OF THE ASSESSEE , NOTHING WAS SUBMITTED BY THE LD. DR TO CONTROVERT THE FACTS NARRATED BY THE LD. COUNSEL SUPPORTED WITH DETAILED WORKING SHEETS ENCLOSED IN THE PAPER BOOK. 6. WE HAVE HEARD BOTH THE PARTIES VERY CAREFULLY AN D WE HAVE GONE THROUGH ORIGINAL ASSESSMENT ORDER PASSED U/S JAYANT FINVEST LTD 6 143(3) AS WELL AS THE IMPUGNED ORDER PASSED U/S 263 BY THE LD. CIT. IT IS NOTED BY US THAT IN THE ORIGINAL ASS ESSMENT PROCEEDINGS U/S 143(3), THE AO HAD MADE DETAILED IN QUIRIES WITH RESPECT TO THE ISSUE RAISED BY THE LD. CIT IN THE ORDER PASSED U/S 263. IT IS SEEN BY US THAT VIDE QUESTION NAIRE DATED 8 TH JUNE 2011, THE AO ASKED THE ASSESSEE TO FURNISH T HE DETAILS WITH REGARD TO LOANS, RATE OF INTEREST, THE IR CONFIRMATION, THEIR UTILIZATION, DISALLOWANCE TO BE MADE U/S 14A ETC. IN RESPONSE TO THE SAME, THE ASSESSEE HAD FILED DETAILED REPLY VIDE ITS LETTER DATED 15 TH JULY 2011 IN WHICH THE ASSESSEE SUBMITTED DETAILS WITH REGARD TO DISALLOWA NCE U/S 14A AND FOR ALLOWABILITY OF INTEREST EXPENSES. THE ASSESSEE ALSO SUBMITTED COPY OF LOANS AGREEMENT WITH HDFC BA NK AND OTHER EXHAUSTIVE DETAILS WERE FILED BY THE ASSESSEE BEFORE AO. AFTER CONSIDERING ALL THESE REPLIES AND EVIDENCES O F THE ASSESSEE, THE AO HAD PASSED DETAILED ORDER U/S 143( 3). IT IS NOTED BY US THAT IN THE ASSESSMENT ORDER PASSED U/S 143(3), THE AO HAD MADE DETAILED DISCUSSION IN THE ASSESSME NT ORDER FOR MAKING DISALLOWANCE U/S14A FOR AN APPROPRIATE A MOUNT. THE AO HAS SPECIFICALLY MENTIONED IN THE TABLE REPR ODUCED AT PAGE 4 OF THE ASSESSMENT ORDER THAT EXPENDITURE BY WAY OF INTEREST WAS ALLOWABLE. THUS, IN OUR CONSIDERED VIE W, THE AO HAS TAKEN THE VIEW AFTER CONSIDERING ALL THE FACTUA L SUBMISSIONS AND REPLIES AND EVIDENCES FILED BY THE ASSESSEE AND AFTER CONSIDERING THE JUDGMENT OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF G ODREJ BOYCE MANUFACTURING CO. LTD. VS. CIT 234 CTR 1, AND JUDGMENT OF SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF CHEMINVEST LTD VS. ITO [ 317 ITR (AT) JAYANT FINVEST LTD 7 86. AFTER CONSIDERING ALL THESE JUDGMENTS AND FACTS & CIRCUMSTANCES OF THE CASE, THE AO MADE DISALLOWANCE OF AN AGGREGATE AMOUNT OF RS.4,49,516/- U/S 14A R.W.R 8D. LD CIT DR COULD NOT POINT OUT ANYTHING WRONG IN APPRECIATI ON OF THE FACTS BY THE AO. THUS, IN OUR CONSIDERED OPINION, V IEW TAKEN BY THE AO WAS ONE OF THE POSSIBLE VIEWS AS PER LAW AND FACTS AND THEREFORE, LD. CIT COULD NOT HAVE EXERCISED JU RISDICTION U/S 263 TO SET ASIDE THE ASSESSMENT ORDER PASSED U/ S 143(3). WE DERIVE SUPPORT FROM THE JUDGMENT OF HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT V. GABRIEL INDIA LTD. 203 ITR 108 (BOM) AND SUNBEAM AUTO LTD. 332 ITR 167 ( DELHI ). 7. IN ADDITION TO THIS, IT IS FURTHER NOTED BY US T HAT ON FACTS ALSO LD. CIT HAS COMMITTED AN ERROR. IT HAS BEEN SH OWN BY LD. COUNSEL, ON THE BASIS OF MATERIAL ON RECORD, THAT L OAN FROM HDFC BANK WAS SPECIFICALLY TAKEN BY THE ASSESSEE FO R THE PURPOSE OF PROCURING RAW MATERIAL I.E. CASTOR SEEDS . THIS FACT IS CROSS VERIFIED WITH THE HELP OF SANCTION LETTER OF THE SAID BANK ENCLOSED AT PAGE 54 OF THE PAPER BOOK. THIS VI TAL FACT HAS BEEN ACCEPTED BY THE LD. CIT AT PAGE 9 OF THE IMPUG NED ORDER PASSED U/S 263 OF THE ACT. ONCE THIS FACT IS ON REC ORD AND STANDS UNCONTROVERTED TILL DATE, THEN IT CAN BE SAF ELY SAID THAT THE LOAN HAS BEEN UTILIZED FOR THE PURPOSE OF THE B USINESS OF THE ASSESSEE AND CONSEQUENTLY THE DEDUCTION OF INTE REST WILL BE ALLOWABLE U/S 36(2)(III) OF THE ACT AND THEREFOR E, QUESTION OF APPLICABILITY OF SECTION 14A WOULD NOT ARISE. THE A SSESSEE HAS BEEN SUBMITTING SINCE THE TIME OF ORIGINAL ASSESSME NT PROCEEDINGS THAT THE BORROWED FUNDS HAVE NOT BEEN U SED FOR JAYANT FINVEST LTD 8 GIVING INTEREST FREE LOANS OR FOR MAKING THE TAX FR EE INVESTMENTS. THIS FACT IS FURTHER VERIFIED FROM THE PERUSAL OF THE BALANCE SHEET WHICH IS ENCLOSED AT PAGE NO.6 OF THE PAPER BOOK SHOWING THAT AS ON 31.03.2009, THE BALANCE OF BORROWING (SECURED LOANS) BECOMES NIL, WHEREAS THE AMOUNT OF INTEREST FREE ADVANCE AND INVESTMENTS CONTINUES TO EXIST. TH US, IMPLIEDLY, THESE FACTS AND FIGURES RECONFIRM STAND OF THE ASSESSEE THAT BORROWED FUNDS WERE NOT USED FOR GIVI NG INTEREST FREE ADVANCES AND FOR MAKING TAX FREE INVESTMENTS. THESE FACTS AND FIGURES REMAIN UNCONTROVERTED BY THE LD. CIT, DR. IN ANY CASE, IT IS FURTHER NOTED BY US THAT HONBLE JU RISDICTIONAL HIGH COURT IN THE CASES OF CIT. VS. RELIANCE UTILITI ES & POWER LIMITED (SUPRA) AND CIT VS. HDFC BANK LTD. ( 2014) 366 ITR 505 (BOM.) HAS HELD THAT IF INTEREST FREE FUNDS AV AILABLE WITH THE ASSESSEE ARE SUFFICIENT TO MEET THE TAX FREE IN VESTMENTS AND AT THE SAME TIME IF THE ASSESSEE HAS RAISED INT EREST BEARING LOANS, THEN IN SUCH CIRCUMSTANCES, IT SHOUL D BE PRESUMED THAT THE TAX FREE INVESTMENTS WERE MADE BY THE ASSESSEE FROM ITS INTEREST FREE FUNDS. DURING THE C OURSE OF HEARING, LD. COUNSEL HAS SHOWN US ON THE BASIS OF T HE PAPER BOOK THAT THE ASSESSEE COMPANY HAD SUFFICIENT INTER EST FREE FUNDS TO MAKE INVESTMENT AND GRANT INTEREST FREE LO ANS. THIS FACTUAL POSITION REMAINS UNCONTROVERTED. THUS, VIEW ED FROM THIS ANGLE ALSO WE CAN SAFELY HOLD THAT IMPUGNED AM OUNT OF INTEREST IS ALLOWABLE AS DEDUCTION. 8. FURTHER, AT THE COST OF REPETITION, AS ALSO DISC USSED IN EARLIER PARAS ABOVE, CERTAINLY, IT IS A CASE WHERE ONE OF THE JAYANT FINVEST LTD 9 POSSIBLE VIEWS WAS TAKEN BY THE AO IN THE ASSESSMEN T ORDER PASSED U/S 143(3) AND THUS ASSESSMENT ORDER WAS BEY OND PERVIEW, OF SECTION 263 ON THE FACTS OF THE CASE. W E DERIVE FURTHER SUPPORT FROM THE LAND MARK JUDGMENTS OF HON BLE SUPREME COURT IN THE CASE OF CIT V. MAX INDIA LTD. (2007) 295 ITR 282(SC) AND MALABAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83(SC), WHEREIN IT WAS HELD THAT WHERE TWO VIEWS WE RE POSSIBLE AND AO HAD TAKEN ONE OF THE POSSIBLE VIEWS THEN THE ASSESSMENT ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 9. IN VIEW OF THE AFORESAID DISCUSSION, WE FIND THA T THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) DATED 16.09.2011 IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE, LD. CIT COULD NOT HAVE I NVOKED THE PROVISIONS OF SECTION 263 TO SET ASIDE THE SAME AND ACCORDINGLY WE QUASH THE IMPUGNED ORDER PASSED U/S 263 BY THE LD. CIT. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER $ (% MUMBAI; ) DATED : 09/09/2015 CTX? P.S/. . . JAYANT FINVEST LTD 10 ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 $ 1 ( + ) / THE CIT, MUMBAI. 4. 0 0 $ 1 / CIT(A)- , MUMBAI 5. 34 .! , 0 +' ! 5 , $ (% / DR, ITAT, MUMBAI 6. 6' 7% / GUARD FILE. ! / BY ORDER, /3+ . //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , $ (% / ITAT, MUMBAI