DCIT 1(1)(2), MUMBAI V. HDFC ASSET MANAGEMENT CO. LTD, MUMBAI

ITA 3223/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7729 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Department
• Bench Allotted: J
• Next Hearing Date: 13-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-05-2015
• Court: TRIBUNAL
• Department Lawyers: PRAKASH KOTADIA
• Assessee Lawyers: ARJU GORADIA
• Keywords: Capital asset; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J , MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER ITA NO. 3057 /MUM/20 1 5 : (A.Y : 20 1 0 - 11 ) ITA NO. 3 0 58 /MUM/20 15 : (A.Y : 20 11 - 12 ) M/S HDFC ASSET MANAGEMENT CO. LTD. HDFC HOUSE, 2 ND FLOOR H.T. PAREKH MARG, 165 - 166 BACKBAY RECLAMATION CHURCHGATE , MUMBAI 400 0 20 PAN : AA A CH7614L VS. DCIT RG.1(1) AAYAKAR BHAVAN M.K.MARG MUMBAI 400 02 0 ITA NO. 3223 / MUM/ 2015 : (A.Y : 20 10 - 11 ) ITA NO. 3224/MUM/2015 : (A.Y : 20 11 - 12 ) DCIT RG.1(1)(2) 579, AAYAKAR BHAVAN M.K.MARG MUMBAI 400 020 ( / APPELLANT) VS. M/S HDFC ASSET MANAGEMENT CO. LTD. HDFC HOUSE, 2 ND FLOOR H.T. PAREKH MARG, 165 - 166 BACKBAY RECLAMATION CHURCHGATE MUMBAI 400 020 PAN : AA A CH7614L ( / RESPONDENT) / A SSESSEE BY : SHRI ARJU GORADIA RE VENUE BY : SHRI PRAKASH KOTADIA / DATE OF HEARING : 29 / 0 3 /201 7 DATE OF PRONOUNCEMENT : 29 / 0 3 / 2017 2 M /S HDFC ASSET MANAGEMENT CO. LTD. ITA NO S . 3057, 3058, 32 23 &32 24 /MUM/20 15 A.Y S .20 10 - 11 AND 2011 - 12 / O R D E R PER BENCH : TH E S E APPEAL S ARE FILED BY THE ASSESSEE AND THE REVENUE AGAINST ORDER S OF THE LD. CIT (APPEALS) FOR THE ASSESSMENT YEAR S 20 10 - 11 AND 20 11 - 12 RESPECTIVELY AND THE ONLY ISSUE IN BOTH THESE APPEALS OF THE ASSESSEE AND THE REVENUE IS IN RESPECT OF DISALLOWANCE MADE U/S 14A REA D WITH RULE 8D(2)(III) I.E INDIRECT EXPENDITURE FOR EARNING EXEMPT INCOME. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT ALL INVESTMENTS INCOME FROM WHICH IS EXEMPT WERE MADE IN THE SCHEMES OF HDFC MUTUAL FUND WHICH ARE USUALLY MADE OUT OF BUSINESS POLICY AND DOES NOT REQUIRE COMPLEX ANALYSIS BY TECHNICAL EXPERTS. THE LD.COUNSEL SUBMITS THAT THIS CAN BE SEEN FROM THE INVESTMENT SCHEDULE FURNISHED IN THE BALANCE SHEET. T HEREFORE, IT IS SUBMITTED THAT SINCE THE ASSESSEE HAS NOT INCURRED EXPENDITURE , THESE INVESTMENTS SHOULD NOT BE CONSIDERED FOR WORKING OUT R ULE 8(D) (III) DISALLOWANCE. THE LD. COUNSEL FURTHER SUBMITS THAT THE ASSESSEE HAS RECEIVED DIVIDENDS FROM 91 TRANSA CTIONS ALL IN THE FORM OF REINVESTMENT OF DIVIDEND I.E. , THE DIVIDEND AMOUNT WAS REINVESTED AND WAS NOT PHYSICALLY RECEIVED. THE LD. COUNSEL SUBMITS THAT THE DETAILS FURNISHED IN EXHIBIT 2 SHOWS THE TABLE OF DETAILS OF DIVIDEND RECEIPTS. THEREFORE, IT IS SUBMITTED THAT AS IT IS SEEN FROM THE TABLE THE TRANSACTIONS RELATING TO EARNING DIVIDEND INCOME ARE LIMITED , T HEREFORE , NO ADMINISTRATIVE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE FOR EARNING SUCH EXEMPT INCOME. THE LD. COUNSEL FURTHER SUBMITS THAT ON IDENTICAL 3 M /S HDFC ASSET MANAGEMENT CO. LTD. ITA NO S . 3057, 3058, 32 23 &32 24 /MUM/20 15 A.Y S .20 10 - 11 AND 2011 - 12 FACTS, THE CO - ORDINATE BENCH OF THE TRIBUNAL FOR THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2009 - 10 IN ITA NO.754/MUM/2013 HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND RESTORED FOR FRESH CONSIDERATION. A COPY OF THE ORDER IS PLACED O N RECORD. 3. THE LD. COUNSEL FURTHER SUBMITS THAT THE LD. CIT (APPEALS) SUSTAINED THE DISALLOWANCE TO THE EXPENDITURE OF RS.21, 82,475/ - FOR THE ASSESSMENT YEAR 2010 - 11 AND RS.35,18,492/ - FOR THE ASSESSMENT YEAR 2011 - 12 BEING THE EXPENDITURE WITH RESPECT TO INVESTMENTS MADE IN HDFC ( DIVIDEND PLAN ) . THE LD. COUNSEL FURTHER SUBMITS THAT THE LD. CIT (APPEALS) DELETED THE DISALLOWANCE IN RESPECT OF THE EXPENDITURE INCURRED ON INVESTMENTS MADE IN HDFC IN DEBT ORIENTED MUTUAL FUNDS ( GROWTH PLAN ) . HE FURTHER SUBMITS THAT THE REVENUE IS IN APPEAL IN RESPECT OF THE DISALLOWANCE DELETED BY THE LD. CIT (APPEALS) ON THE INVESTMENTS MADE IN H DFC MUTUAL FUND ( GROWTH PLAN ) AND INVESTMENT IN FOREIGN SUBSIDY COMPANY. 4. THE LD. DR SUPPORTS THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAW RELIED ON. WE FIND T HAT FOR THE ASSESSMENT YEAR 2009 - 10 IDENTICAL ISSUES AROSE IN ASSESSEES CASE AND THE CO - ORDINATE BENCH DECIDED THE ISSUE OF DISALLOWANCE MADE UNDER 8D(2)(III) OBSERVING AS UNDER : 4. ON THE OTHER HAND THE LD. A.R. BROUGHT TO OUR NOTICE DISTINGUISHING FEA TURE TO THE EFFECT THAT STRATEGIC INVESTMENT WAS MADE BY THE ASSESSEE DURING THE YEAR WHICH SHOULD NOT BE TAKEN INTO ACCOUNT WHILE COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III). IT WAS SUBMITTED BY THE LD. A.R. THAT ALL THE INVESTMENTS, 4 M /S HDFC ASSET MANAGEMENT CO. LTD. ITA NO S . 3057, 3058, 32 23 &32 24 /MUM/20 15 A.Y S .20 10 - 11 AND 2011 - 12 INCOME FROM WHICH I S EXEMPT, MADE BY THE ASSESSEE COMPANY ARE IN THE SCHEMES OF HDFC MUTUAL FUND. THESE INVESTMENTS MADE IN THE VARIOUS SCHEMES OF HDFC MUTUAL FUND ARE USUALLY MADE OUT OF BUSINESS POLICY AND THE SAME DOES NOT REQUIRE COMPLEX ANALYSIS BY TECHNICAL EXPERTS AND DOES NOT INVOLVE OR REQUIRES ANY INCURRENCE OF EXPENDITURE. HENCE, THESE INVESTMENTS SHOULD NOT BE CONSIDERED IN WORKING OUT DISALLOWANCE UNDER RULE 8D. RELIANCE WAS PLACED ON THE DECISION OF TRIBUNAL IN RELIANCE CAPITAL ASSET MANAGEMENT LTD. VS. DCIT (ITA NO. 4459/MUM/2012) ON IDENTICAL SETS OF FACTS HELD THAT RULE 8D(III) SHOULD NOT BE APPLIED AS INVESTMENTS MADE BY THE ASSESSEE IS MAINLY IN SCHEMES OF RELIANCE MUTUAL FUND AND GROUP CONCERN WHICH DOES NOT REQUIRES INCURRENCE OF ANY MAJOR EXPENDITURE AS THESE INVESTMENT ARE DRIVEN BY THE CENTRAL BUSINESS POLICY AND STRATEGY. 5. FURTHER RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF MUMBAI BENCH OF ITAT: - - GARWARE WALL ROPES LIMITED VS. ADD L. CIT (I.T.A.NO.4957 / MUM/2012) . - JM F INANCIAL LTD. VS. ADDL. CIT (I.T.A. NO.4521/MUM/2012). - INTERGLOBE ENTERPRISES LTD. VS. DCIT (I.T.A. NO.1580/DEL./2013). 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE JUDICIAL PRONOUNCEMENTS CITED AT BAR ACCORDING TO WHICH CALCULATION OF DISALLOWANCE AS PER RULE 8D(2)(III) IS ERRONEOUS, AS THE AO WITHOUT ASSIGNING ANY REASON DID NOT REDUCE THE INVESTMENT IN MUTUAL FUNDS A ND GROUP CONCERN WHICH DOES NOT QUIRE INCURRENCE OF MAJOR EXPENDITURE. 7. IN VIEW OF THE ABOVE, WE RESTORE THIS GROUND BACK TO THE FILE OF A.O. FOR FRESH CONSIDERATION IN TERMS OF OUR ABOVE DISCUSSION. 6. AS COULD BE SEEN FROM THE ABOVE, THE TRIBUN AL RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LIGHT OF THE OBSERVATION THEREON . THEREFORE, FOLLOWING THE SAID ORDER, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CONSIDER THE ISSUE K EEPING IN VIEW THE OBSERVATION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2009 - 10 AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5 M /S HDFC ASSET MANAGEMENT CO. LTD. ITA NO S . 3057, 3058, 32 23 &32 24 /MUM/20 15 A.Y S .20 10 - 11 AND 2011 - 12 7. AS WE HAVE RESTORED THE APPEALS OF THE ASSESSEE, WE ALSO RESTORE THE APPEALS OF THE REVENUE TO THE FILE OF T HE ASSESSING OFFICER WHO SHALL CONSIDER THE SUBMISSIONS OF THE ASSESSEE THAT THE DIVIDEND INCOME FROM THE INVESTMENTS IN HDFC MUTUAL FUND ( GROWTH PLAN ) IS TAXABLE WHEN THE DIVIDEND IS RECEIVED AND ALSO THE CAPITAL GAINS IS ATTRACTED FOR THE GAIN RECEIVED O N SALE OF THESE INVESTMENTS. THE ASSESSING OFFICER SHOULD ALSO CONSIDER AS TO WHETHER INVESTMENT IN FOREIGN SUBSIDIARY COMPANY IS ALSO TAXABLE OR NOT. IN CASE, THE RETURN FROM THESE INVESTMENTS ARE TAXABLE, THE QUESTION OF APPLYING DISALLOWANCE UNDER SEC TION 14A DOES NOT ARISE. THE ASSESSING OFFICER SHOULD EXAMINE ALL THESE ASPECTS AND DECIDE T HE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH DAY OF MARCH 2017 . SD/ - SD/ - RA JENDRA C.N.PRASAD / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED 29 / 0 3 / 2017 LR, SPS 6 M /S HDFC ASSET MANAGEMENT CO. LTD. ITA NO S . 3057, 3058, 32 23 &32 24 /MUM/20 15 A.Y S .20 10 - 11 AND 2011 - 12 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /