DCIT 9(1)(2), MUMBAI V. ASHRIT HOLDINGS LTD, MUMBAI

ITA 3284/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8455 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 10-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Assessee Lawyers: SHLOKA SHAHA
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3284/ MUM/2016 ( / ASSESSMENT YEAR : 2012 - 13 ) DCIT 9(1)(2) AAYKAR BHAVAN, M K MARG, MUMBAI 400020 / V. ASHRIT HOLDINGS LTD. 191/193 BEACH TOWER, CONDOMINIUM P. BALU MARG,(TATA PRESS LANE) PRABHADEVI, MUMBAI - 400025 ./ PAN : AAACA6083E ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI T.A. KHAN ASSESSEE BY: SHRI SHLOKA SHAHA / DATE OF HEARING : 25 - 10 - 2017 / DATE OF PRONOUNCEMENT : 08.11.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE , BEING ITA NO. 3284/ MUM/2016 FOR ASSESSMENT YEAR 2012 - 13, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 25.02.2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 1 6 , MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2012 - 13, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 29 - 09 - 2014 PASSED BY LEARNED ASSESSING OFFICER (HEREINAF TER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) RE AD AS UNDER: - I.T.A. NO. 3284/MUM/2016 2 A ) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT - (A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSE OF RS.1,43,94,092/ - U/ S 14A WITHOUT APPRECIATING THAT SUB - RULE 8D(3) STARTS WITH HEADING 'FORMULA FOR DETERMI NATION OF EXPENDITURE' AND THE THREE STEPS PRESCRIBED UNDER THIS SUB - RULE TO COMPUTE THE EXPENDITURE IN RELATION TO EXEMPT INCOME AND SHALL BE APPLIED COLLECTIVELY. THERE FORE, THE TOTAL DISALLOWANCE U/ S 14A HAS TO BE THE AGGREGATE OF THE AMOUNTS DETERMINED SO BY APPLYING THREE STEPS TOGETHER AND NOT IN ISOLATION AS DONE BY THE LD. CIT(A). B ) 'WHETHER ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LD. CIT - ( A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSE OF RS.1,43,94,092/ - U/ S 14A, THEREBY IGNORING THE PRINCIPLES AS LAID DOWN BY JURISDICTION HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE LIMITED AND THE SPECIAL BRANCH OF HON'BLE TRIBUNAL IN THE CASE OF ITO V/ S DAGA CAPITAL MANAGEMENT (P) LTD (2009) 117 I TD 169.' C) 'WHETHER AN THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LD. CIT - (A) ERRED IN IGNORING THE CBDT CIRCULAR NO. 5 OF 2014 DATED 11.02.2014 WHEREIN IT HAS BEEN CLARIFIED THAT THE TERM 'INCLUDIBLE' IN THE HEADING SECTION 14A OF THE ACT AND THE HEADING TO RULE 8D OF 1. T. RULES, 1962 INDICATES TH AT FOR INVOKING DISALLOWANCE U/ S 14A, IT IS NOT MATERIAL THAT THE ASSESSEE SHOULD HAVE EARNED SUCH EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSIDERATION. ' D) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT - (A) ERRED IN DIRECTING TO INCLUDE ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME IS EARNED.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND ABOVE SET ASIDE AND THAT OF THE JT. CIT(OSD) BE RESTORED. THE APPELLANT CRAVE S LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN BUS INESS OF TRADING AND INVESTMENTS . T HE ASSESSEE IS AN NBFC . HOWEVER, I.T.A. NO. 3284/MUM/2016 3 IT IS CLAIMED THAT NO TRADING ACTIVITY HAS BEEN UNDERTAKEN DURING THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) , T HE A.O OBSERVED FROM THE PERUSAL OF THE BALANCE SHEET THAT ASSESSEE HAS INVESTED IN VARIOUS FUNDS , INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME . THE ASSESSEE VOLUNTARILY DISALLOWED SUM OF RS.18,97,910/ - U/S. 14A WHILE COMPUTING ITS INCOME UNDER NORMAL PROVISION OF THE ACT. THE A.O ASKED THE ASSESSEE TO FURNI SH COMPUTATION OF DISALLOWANCE U/S. 14A AS WAS OFFERED IN THE COMPUTATION OF INCOME. THE ASSESSEE FURNISHED FOLLOWING DETAILS: (I) THE AMOUNT OF EXPENDITURE DIRECTLY DEPOSITORY CHARGES RS.9 , 56,121/ - RELATING TO INCOME WHICH DOES NOT STT RS . 2 , 62 , 720 / - FORM PART OF TOTAL INCOME AS PER RULE 8D(2)(I) (II) PROPORTIONATE OF INTEREST AS PER RULE (A X B/C) NIL 8D(2 ) (II) (III) ONE - HALF PERCENT OF THE AVERAGE 0 . 5 % OF 6,79 , 069/ - VALUE OF INVESTMENTS RS.13 , 58 , 1 3,874/ - TOTAL EXPENDITURE DISALLOWED U/S.14A RS . 18,97 , 911/ - NOTE (I) A INTEREST EXPENSE = RS.78,74 , 259/ - (NEGATIVE FIGURE AFTER NETTING OFF) (II) B AVERAGE VALUE OF INVESTMENTS = RS.13 , 58, 13,874/ - (I II) C AVERAGE VALUE OF TOTAL ASSETS = RS . 146,64 , 59 , 972/ - B AVERAGE VALUE OF INVESTMENTS - = OPENING BALANCE OF INVESTMENTS + C LOSING BALANCE OF INVESTMENTS 2 134225696 + 137402053 = RS.13,58,13,874/ - 2 C AVERAGE VALUE OF ASSETS - = OPENING BALANCE OF ASSETS + CLOSING BALANCE OF ASSETS 2 973615953+1959303992 = RS.146,64,59,972/ - 2 THE A.O OBSERVED FROM THE AFORE - SAID COMPUTATION AS UND ER: - THE ASSESSEE HAS NOT OFFERED FOR DISALLOWANCE OF INTEREST COMPONENT IN VIEW OF THE NEGATIVE FIGURE OF INTEREST BY NETTING OFF ITS INTEREST EXPENDITURE WITH ITS INTEREST INCOME. I.T.A. NO. 3284/MUM/2016 4 II. THE ASSESSEE HAS TAKEN INTO ACCOUNT ONLY THOSE INVESTMENTS FROM WHICH IT HAS EARNED EXEMPT INCOME DURING THE YEAR, THEREBY EXCLUDING ALL OTHER INVESTMENTS FROM WHICH INCOME, WHICH SHALL NOT FORM PART OF TOTAL INCOME, MAY ARISE IN FUTURE. III. WHILE CAL CULATING THE AVERAGE VALUE OF TOTAL ASSETS, THE ASSESSEE HAS TAKEN THE FIGURE OF OPENING VALUE OF TOTAL ASSETS AT RS.97,36,15,953/ - AS AGAINST RS.95,74,95,815/ - AND HAS TAKEN THE FIGURE OF CLOSING VALUE OF T OTAL ASSETS AT RS.195,93,03,992/ - AS AGAINST THE FIGURE OF RS.193,75,79,636/ - AS APPEARING IN THE BALANCE SHEET. ON BEING ASKED , THE ASSESSEE SUBMITTED AS UNDER: - I. THE NET INTEREST IS TAKEN INTO ACCOUNT BY RELYING UPON A DECISION OF THE HON'BLE ITAT, KOLKATA IN THE CASE OF DCIT VS. TRADE APARTM ENT LTD - ITA NO. 1277/KO1/2077 - A. Y. 2008 - 09. II. THE ASSESSEE HAS TAKEN ONLY THE INVESTMENTS FROM WHICH IT HAS EARNED EXEMPT INCOME DURING THE YEAR, RELYING UPON A JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DELITE ENTERPRISES. T HE ASSESSEE HAS FURTHER STATED THAT GROWTH FUND HAS NOT BEEN TAKEN INTO ACCOUNT AS IT GENERATES TAXABLE INCOME. III. AS REGARDS THE VALUE OF TOTAL ASSETS, THE ASSESSEE HAS ADDED THE AMOUNTS OF ADVANCE TAX PAID DURING THE RESPECTIVE YEARS. THE A.O REJE CTED CONTENTION S OF THE ASSESSEE AND OBSERVED THAT SHORT TERM BORROWINGS HAVE RISEN FROM RS.5.99 CRORES TO RS. 100.01 CRORE S AND THE INTEREST RATE SHOWN IN THE FINANCIAL STATEMENTS IS 9% . I T WAS ALSO OBSERVED BY THE AO FROM BALANCE SHEET THAT THE ASSESSEE TOTAL ASSETS ARE TO THE TUNE OF RS. 19 3.76 CRORES AS ON THE LAST DAY OF THE BALANCE SHEET ON 31 - 03 - 2012 AND ASSESSEE HAS INVESTED RS.129.82 CRORES INTO INVESTMENTS . THE AO ALSO OBSERVED THAT THE INTEREST PAID TO THE RELATED PARTIES IS TO THE TUNE OF RS. 3 .54 CRORES AS AGAINST RS. 49.83 LACS IN PRECEDING YEAR AND INTEREST IS FUNGIBLE IN NATURE AS THERE IS NO SPECIFIC PURPOSE FOR WHICH BORROWINGS WERE RAISED DURING THE TEAR . THE AO OBSERVED THAT THESE ARE MIXED USED FUNDS I.T.A. NO. 3284/MUM/2016 5 AND ASSESSEE IS NOT ABLE TO EXPLAIN FOR WHAT PURPOSES THE BORROWINGS WERE UTILISED FOR THE PURPOSES OF TRADING ACTIVITY OR AS AN NBFC . THE AO OBSERVED THAT THE A SSESSEE HAS EARNED INTEREST INCOME FROM I NTER - CORPORATE DEPOSITS(I CD ) AND DEBENTURES AND THES E INVESTMENTS ARE NOT TAKEN INTO ACCOUNT FOR CALCULATING AVERAGE VALUE OF INVESTMEN TS. THEREFORE CLAIM OF NETTING OFF THE INTEREST EXPENDITURE AGAINST ITS INTEREST INCOME IS NOT TENABLE ON FACTS AND ON LAW. THE AO OBSERVED THAT THE ASSESSEE HAS ONLY TAKEN INTO ACCOUNT ONLY THOSE I NVESTMENTS WHICH HAVE GENERATED EXEMPT INCOME DURING THE YEAR WHICH IS NOT CORRECT VIEW OF THE ASSESSEE KEEPING IN VIEW RULE 8D(2)(II) OF INCOME - TAX RULES, 1962 WHEREIN THOSE INVESTMENTS , INCOME FROM WHICH DOES NOT OR SHALL NOT F ORM PART OF THE TOTAL INCOME , AS APPEARING IN BALANCE SHEET OF THE ASSESSEE HAS TO BE INCLUDED. THE AO ACCEPTED THE CONTENTIONS OF THE ASSESSEE SO FAR AS EXCLUSION OF DEBENTURE AND COMMODITIES MARKET ARE CONCERNED. THE CONTENTION OF THE ASSESSEE THAT IT H AS NOT EARNED EXEMPT INCOME ON ALL INVESTMENT HELD BY IT DURING THE YEAR AND HENCE PROVISION OF SECTION 14A IS NOT APPLICABLE , WAS REJECTED BY THE A.O. . THE A.O . RELIED UPON THE DECISION OF THE DELHI ITAT DATED 09.01.2012 IN THE CASE TECHNOPAK ADVISORS P . LTD.[2012] 50 SOT 31 WHEREIN IT WAS HELD THAT FOR INVOKING SECTION 14A ACTUAL EARNING OF EXEMPT INCOME IS NOT NECESSARY. THE AO ALSO RELIED UPON DECISION OF SPECIAL B ENCH I N THE CASE OF CHEMINVEST LTD. V. ITO 317 ITR 86 (AT) AND OTHER DECISIONS OF THE COU RTS/TRIBUNAL TO REJECT CONTENTION OF THE ASSESSEE THAT EVEN IF THERE IS NO EXEMPT INCOME BUT STILL DISALLOWANCE U/S. 14A CAN BE MADE . THUS, THE AO CONCLUDED THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HE IS NOT SATISFIED AS TO THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE AND THE A.O WORKOUT THE DISALLOWANCE OF EXPENDITURE U/S 14A READ WITH R ULE 8D AS UNDER: - ( I) THE AMOUNT OF EXPENDITURE DIRECTLY DEPOS I TORY C H ARGES [ RS.9 , 56 , 121 / - RELAT I NG TO INCOME WHICH DOES NOT FORM SIT RS .2 , 62 , 720/ - PA R T OF TOTAL INCOME AS PER RULE 8D ( 2 ) (I ) ( II) PROPORTIONATE OF INTEREST AS PER RU L E AXB / C RS .1 , 43 , 94 , 092 / - 8D ( 2 ) (II ) ( II I) ONE - HALF PERCENT OF THE AVERAGE VALUE 0.5 % O F RS . 29 , 35 , 870 / - OF I NVESTMENTS HELD AT THE F I RST AND THE RS . 58 , 71 , 73 , 965 / - LAST DAY OF THE PREVIOUS YEAR TOTAL EXPEND I TURE DISALLOWED U/S .1 4A RS.1 , 85,48,803/ - NOTE (I) A INTEREST EXPENSE = RS.3,54,85,209/ - (3 , 54 , 85,015 + 194) AS PER NOTE 15 ANNEXED TO THE FINANCIAL STATEMENTS FOR THE YEAR I.T.A. NO. 3284/MUM/2016 6 (II) B AVERAGE OF EXEMPT INCOME - YIELDING INVESTMENTS = RS.58, 71,73,965/ - (III) C AVERAGE OF TOTAL ASSETS APPEARING IN THE BALANCE SHEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR = RS.144,75,37,726/ - B AVERAGE VALUE OF INVESTMENTS - = OPENING BALANCE OF INVESTMENTS + C LOSING BALANCE OF INVESTMENTS 2 670212143 + 504135786 = RS. 58,71,73,965 / - 2 C AVERAGE VALUE OF ASSETS - = OPENING BALANCE OF ASSETS + CLOSING BALANCE OF ASSETS 2 = 957495816 + 1937579636 = RS.144,75,37,726/ - 2 THUS, THE AO DISALLOWED RS. 1,66,50,893/ - BEING DIFFERENCE BETWEEN RS. 1,85,48,803/ - WORKED OUT AS DISALLOWANCE U/S 14A R.W.R. 8D LESS THE VOLUNTARY DISALLOWANCE BEING OFFERED BY THE ASSESSEE OF RS.18,97,910/ - IN THE RETURN OF INCOME FILED WITH THE REVENUE, PASSED BY THE AO DATED 29 - 09 - 2014 U/S 143(3). 4. AGGRIEVED WITH THE ASSESSMENT ORDER DATED 29 - 09 - 2014 PASSE D BY THE AO U/S 143(3), THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT( A ). THE ASSESSEE SUBMITTED THAT IT HAS RECEIVED EXEMPT INCOME OF RS. 55,37,398/ - . WITH RESPECT TO DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 1,43,94,092/ - MADE BY THE AO U/S 14A R.W.R 8D, IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE IS A REGISTERED NBFC. IT WAS SUBMITTED THAT IT IS THE BUSINESS OF THE ASSESSEE TO INCUR BORROWINGS AND MAKE ADVANCES. THUS, IT WAS SUBMITTED THAT INTEREST EXPENDITURE WAS IN RELATI ON TO ITS BUSINESS ACTIVITIES. IT WAS SUBMITTED THAT INTEREST EXPENDITURE HAS DIRECT NEXUS WITH THE BUSINESS INCOME OF THE ASSESSEE AND THEREFORE INTEREST EXPENDITURE CANNOT BE ALLOCATED FOR DISALLOWANCE U/S 14A. THE ASSESSEE , INTER - ALIA, CLAIMED WITH RE GARD TO THE DISALLOWANCE OF THE INTEREST EXPENDITURE THAT ITS OWN FUNDS ARE MORE THAN THE EXEMPT INCOME BEARING INVESTMENTS AND HENCE NO DISALLOWANCE WAS WARRANTED AS THERE IS PRESUMPTION THAT THE ASSESSEE HAS MADE INVESTMENTS FROM ITS OWN INTEREST FREE FUNDS AVAILABLE WITH THE I.T.A. NO. 3284/MUM/2016 7 ASSESSEE . T HE ASS ESSEE PRODUCE D ITS FINANCIALS BEFORE LEARNED CIT(A) , AS UNDER : - AMOUNT IN RS. AM O UNT IN RS. PARTICULARS AS ON 31.03.2012 AS ON 31.03.2011 OWN FUND SHARE CAPITAL 29,28,000 29,28,000 RESERVE AND SURPLUS 92 , 03,20,055 88,08,33,082 TOTAL OWN FUNDS 92,32 , 48,055 88,37,61,082 TOTAL EXEMPT INCOME BEARING INVE S TMENT TOTA L INVESTMENTS 1,29,81,34,732 68, 0 2, 1 2,143 ( - ) INVESTMENT S IN DEBENTURES 6,00,00,0 0 0 1,00,00,000 ( - ) INVES T MEN T S IN COMMO D ITY 73, 3 9, 9 8,946 - BALANCE INVESTMENTS 50,41,35,786 67, 0 2 , 1 2,143 WHEREIN IN THE AFORESAID FINANCIALS OF THE ASSESSEE , OWN FUNDS OF THE ASSESSEE ARE TO THE TUNE OF RS.92.32 CRORE AND TOTAL INVESTMENT ARE TO THE TUNE OF RS. 129.81 CRORE S , OUT OF WHICH RS. 6 CRORE S WERE INVESTED IN THE DEBENTURE FROM WHICH INTEREST HAS BEEN EARNED WHICH IS SUBJECT TO THE INCOME - TAX AND RS. 73.39 CRORE HAS BEEN INV ESTED IN THE COMMODITIES . THUS, IT WAS CLAIMED THAT NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A IS WARRANTED. T HE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD. (2009) 313 ITR 340(BOM. HC) AND ALSO DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE CIT V HDFC BANK LTD. (2014) 366 ITR 505(BOM) AND ALSO OTHER DECISIONS OF THE COURTS/TRIBUNAL AND CONTENDED THAT NO DISAL LOWANCE OF THE INTEREST EXPENDITURE CAN BE MADE U/S 14A. IT WAS SUBMITTED THAT THE RE IS AN ASSUMPTION THAT THE ASSESSEE HAS APPLIED ITS OWN INTEREST FREE FUNDS AVAILABLE FOR INVESTMENT IN THE INSTRUMENT S CAPABLE OF YIELDING EXEMPT INCOME . IT WAS SUBMITTED THAT THE INVESTMENTS IN EXEMPT INCOME BEARING INSTRUMENTS IS ONLY TO TH E TUNE OF RS. 50 .41 CRORE S . THE LEARNED CIT( A ) DELETED THE ADDITION S TO THE TUNE OF RS.1,43,94, 0 92/ - TOWARDS DISALLOWANCE OF INTEREST EXPENDITURE AS OWN INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE INVESTMENT IN THE INSTRUMENTS YIE LDING EXEMPT INCOME. THE LEARNED CIT(A) OBSERVED THAT THE I.T.A. NO. 3284/MUM/2016 8 ASSESSEE OWN SHARE CAPITAL AND RESERVES AND SURPLUS ARE TO THE TUNE OF RS. 92.32 CRORES AS AT 31 - 03 - 2012 AND RS. 88.38 CRORES AS ON 31 - 03 - 2011 , WHILE THE INVESTMENTS IN ASSETS FROM WHICH EXEMPT INCOME WAS EARNED WAS AMOUNTING TO RS. 17.69 CRORES AS ON 31 - 03 - 2012 AND RS. 21.37 CRORES AS ON 31 - 03 - 2011. THE ASSESSEE SUBMITTED FUND FLOW STATEMENT WITH REFERENCE TO ITS BALANCE SHEET AND VARIOUS OTHER DOCUMENTS FILED BEFORE THE AO TO PROVE THAT THE OWNED FUNDS ARE MUCH MORE THAN THE INVESTMENTS IN ASSETS WHICH HAVE YIELDED EXEMPT INCOME. THE LEARNED CIT(A) ALSO NOTED THAT THE INVESTMENT IN ASSETS WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME IS RS 50.41 CRORES WHICH IS ALSO HIGHER THAN OWNED INTEREST FREE FUNDS TO THE TUNE OF RS. 92.32 CRORES AVAILABLE WITH THE ASSESSEE AS ON 31 - 03 - 2012. THUS, IN NUT - SHELL THE LEARNED CIT(A) DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. RS.1,43,94,092/ - U/S 14A R.W.R. 8D(2)(II). WITH RESPECT TO THE DISALLOWANCE U/R 8D(2)(III) R.W.S. 14A, THE A.O WORKOUT DISALLOWANCE OF RS. 29,35,870/ - AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENTS WHEREIN THE LEARNED CIT( A ) GAVE THE RELIEF TO THE ASSESSEE BY HOLDING THAT ONLY THOSE INVESTMENTS FROM WHICH EXEMPT INCOME WHICH DOES NOT FROM PART OF THE TOTAL INCOME HAS ACTUALLY ARISEN DURING THE IMPUGNED ASSESSMENT YEAR CAN ONLY BE CONSIDER ED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE OF EXPENDITURE U/S. 14A R.W.S. 8D(2)(III ) INSTEAD OF TOTAL INVESTMENTS AS AT BEGINNING OF THE YEAR AND AT THE END OF THE YEAR FOR WHICH NECESSARY DIRECTIONS WERE ISSUED BY LEARNED CIT(A) TO THE AO TO RECOMPUTED THE DISALLOWANCE , VIDE APPELLATE ORDER DATED 25 - 02 - 2016 PASSED BY LEARNED CIT(A) . 5 . AGGRIEVED WITH THE APPELLATE ORDER DATED 25 - 02 - 2016 PASSED BY LEARNED CIT(A), THE R EVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL . T HE LD. DR RELIED UPON THE ASSESSMENT ORDER OF THE A.O AND FAIRLY STATED THAT THE ASSESSEE CASE IS COVERED BY THE DECISIO N OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) , HDFC BANK LTD. V. CIT (2016) 383 ITR 529(BOM) AND ALSO CIT V. HDFC BANK LIMITED(2014) 366 ITR 505(BOM) . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE ES OWN INTEREST FREE FUNDS AVAILABLE ARE MORE THAN THE INVESTMENTS YIELDING EXEMPT INCOME AND HENCE PRESUMP TION WILL APPLY THAT ASSESSEE HA S INVESTE D ITS OWN FUNDS I.T.A. NO. 3284/MUM/2016 9 FOR THE PURPOSES OF MAKING INVESTMENTS WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME. THUS, IT WAS SUBMITTED THAT NO DISALLOWANCE BE MADE FOR INTEREST EXPENDITURE U/S 14A R.W.R. 8D(2)(II) . THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IT IS ONL Y INVESTMENTS WHICH HAS YIELDED DIVIDEND S (EXEMPT INCOME) ARE TO BE INCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) . 6. WE HAVE CONSIDERED RIVAL CONTENTION S AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF TRADING AND INVESTMENTS . THE ASSESSEE IS AN NBFC . HOWEVER, IT IS CLAIMED THAT NO TRADING ACTIVITY HAS BEEN UNDERTAKEN DURING THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) , THE A.O OBSERV ED FROM THE PERUSAL OF THE BALANCE SHEET THAT ASSESSEE HAS INVESTED IN VARIOUS FUNDS , INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME . THE ASSESSEE VOLUNTARILY DISALLOWED A SUM OF RS.18,97,910/ - U/S. 14A WHILE COMPUTING ITS INCOME UND ER NORMAL PROVISION OF THE ACT , WHILE THE A.O DISALLOWED RS. 1,85,48,803/ - AS EXPENDITURE U/S 14A R.W.R. 8D , AS UNDER : - ( I) THE AMOUNT OF EXPENDITURE DIRECTLY DEPOS I TORY C H ARGES [ RS.9 , 56 , 121 / - RELAT I NG TO INCOME WHICH DOES NOT FORM SIT RS .2 , 62 , 720/ - PA R T OF TOTAL INCOME AS PER RULE 8D ( 2 ) (I ) ( II) PROPORTIONATE OF INTEREST AS PER RU L E AXB / C RS .1 , 43 , 94 , 092 / - 8D ( 2 ) (II ) ( II I) ONE - HALF PERCENT OF THE AVERAGE VALUE 0.5 % O F RS . 29 , 35 , 870 / - OF I NVESTMENTS HELD AT THE F I RST AND THE RS . 58 , 71 , 73 , 965 / - LAST DAY OF THE PREVIOUS YEAR TOTAL EXPEND I TURE DISALLOWED U/S .1 4A RS.1 , 85,48,803/ - NOTE (I) A INTEREST EXPENSE = RS.3,54,85,209/ - (3 , 54 , 85,015 + 194) AS PER NOTE 15 ANNEXED TO THE FINANCIAL STATEMENTS FOR THE YEAR (II) B AVERAGE OF EXEMPT INCOME - YIELDING INVESTMENTS = RS.58,71,73,965/ - (III) C AVERAGE OF TOTAL ASSETS APPEARING IN THE BALANCE SHEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR = RS.144,75,37,726/ - B AVERAGE VALUE OF INVESTMENTS - = OPENING BALANCE OF INVESTMENTS + CLOSING BALANCE OF INVESTMENTS 2 670212143 + 504135786 = RS. 58,71,73,965 / - 2 I.T.A. NO. 3284/MUM/2016 10 C AVERAGE VALUE OF ASSETS - = OPENING BALANCE OF ASSETS + CLOSING BALANCE OF ASSETS 2 = 957495816 + 1937579636 = RS.144,75,37,726/ - 2 THE ASSESSEE HAS PRODUCED ITS FINANCIAL STATEMENTS BEFORE LOWER AUTHORITIES WHICH IS REPRODUCED HEREUNDER AND WHICH IS NOT FACTUALLY DISPUTED BY REVENUE BEFORE US : AMOUNT IN RS. AM O UNT IN RS. PARTICULARS AS ON 31.03.2012 AS ON 31.03.2011 OWN FUND SHARE CAPITAL 29,28,000 29,28,000 RESERVE AND SURPLUS 92 , 03,20,055 88,08,33,082 TOTAL OWN FUNDS 92,32 , 48,055 88,37,61,082 TOTAL EXEMPT INCOME BEARING INVE S TMENT TOTA L INVESTMENTS 1,29,81,34,732 68, 0 2, 1 2,143 ( - ) INVESTMENT S IN DEBENTURES 6,00,00,0 0 0 1,00,00,000 ( - ) INVES T MEN T S IN COMMO D ITY 73, 3 9, 9 8,946 - BALANCE INVESTMENTS 50,41,35,786 67, 0 2 , 1 2,143 WE HAVE OBSERVED THAT ASSESSEE OWN INTEREST FREE FUNDS AVAILABLE ARE TO THE TUNE OF RS.92. 32 CRORES AS AT 31 - 3 - 2012 WHICH IN CLUDED SHARE CAPITAL OF 29.28 LACS AND RESERVES AND SURPLUS TO THE TUNE OF RS. 92.03 CRORES , WHILE OWN INTEREST FREE FUNDS AVAILABLE AS AT 31 - 03 - 2011 WERE TO THE TUNE OF RS.88.38 CRORES . THE ASSESSEE HAD MADE INVESTMENT OF RS. 50.41 CRORES IN THE ASSETS CAPABLE OF YIELDING EXEMPT INCOME AS AT 31 - 03 - 2012 WHICH STOOD AT RS. 67.02 CRORES AS AT 31 - 03 - 2011 . WE HAVE OBSERVED THAT ASSESSEE OWN FUNDS (INTEREST FREE) ARE MUCH MORE THAN THE INVESTMENTS TO THE TUNE OF RS. 50.41 CRORES AS AT 31 - 03 - 2012 AS ALSO RS. 67.02 CRORES AS AT 31 - 03 - 2011 WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME AND PRESUMPTION SHALL APPLY THAT ASSESSEE HAS INVESTED ITS OWN FUNDS FOR MAKING INVESTMENT IN THE ASSETS WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME AND NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE UNDER SUCH CIRCUMSTANCES KEEPING I N VIEW RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V . RELIANCE UTILITIES POWER LTD. (SUPRA) AND ALSO IN THE CASE OF HDFC BANK LTD. (SUPRA). THUS IN I.T.A. NO. 3284/MUM/2016 11 OUR CONSIDER ED VIEW LEARNED CIT( A ) H AS RIGHTLY DELETED THE A DDITION S TO THE TUNE OF RS.1,43,94,092/ - TOWARDS INTEREST EXPENDITURE MADE BY THE AO U/S 14A R.W.R. 8D(2)(II) WHICH APPELLATE ORDER OF LEARNED CIT (A) WE HE REBY SUSTAIN/CONFIRM . WE ORDER ACCORDINGLY. WITH REGARD TO THE DISALLOWANCE OF ADMINISTRATIVE AND OTHER MISCELLANEOUS INDIRECT EXPENDITURE UNDER RULE 8D(2)(III) R.W.S 14A , LEARNED CIT( A ) HAS GIVEN PART RELIEF TO THE ASSESSEE ON THE GROUND THAT ONLY THOSE INVESTMENTS WHICH HAD ACTUALLY YIELDED EXEMPT INCOME ARE TO BE INCLUDED FOR THE PURPOSE OF COMPUTI NG DISALLOWANCE UNDER RULE 8D(2)(III) R.W.S. 14A, IN OUR CONSIDERED VIEW, THIS DECISION OF LEARNED CIT(A) IS IN CONSONANCE WITH THE DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT PRIVATE LIMITED (2017) 165 ITD 27(D EL - SB) AT PARA 11.16 , WHICH IS REPRODUCED HEREUNDER : 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE BASIC ISSUE FOR CONSIDERATION IS THAT THE INVESTMENT, WHICH DID NOT YIELD ANY EXEMPT INCOME, S HOULD ENTER OR NOT ENTER INTO THE COMPUTATION UNDER RULE 8D, WHILE ARRIVING AT THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. 11.1 IN THE PRESENT CASE, OUR DECISION IS RESTRICTED ONLY TO THE EXTENT O F INTERPRETATION OF LANGUAGE EMPLOYED IN RULE 8(2)(III). THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE IS THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. HOFCIN INDIA (P.) LTD. ( SUPRA ), WHEREIN IT HAS BEEN HELD THAT IF NO DIVIDEND INCOME WAS EARNED, SECTION 14A COULD NOT BE INVOKED. *** *** 11.16 THEREFORE, IN OUR CONSIDERED OPINION, NO CONTRARY VIEW CAN BE TAKEN UNDER THESE CIRCUMSTANCES. WE, ACCORDINGLY, HOLD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. T HUS , WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT( A ) KEEPING IN VIEW AFORESAID DECISION OF SPECIAL BENCH OF THE TRIBUNAL WHICH IS BINDING ON US AND HENCE WE HAVE NO HESITATION IN CO NFIRMING THE SAID DECISION OF LEARNED CIT(A) DIRECTING AO TO INCLUDE INVESTMENTS WHICH HAVE ACTUALLY YIELDED EXEMPT INCOME FOR COMPUTING DISALLOWANCE U/R 8D(2)(III) R.W.S. 14A . WE ORDER ACCORDINGLY. I.T.A. NO. 3284/MUM/2016 12 7 . IN THE RESULT , APPEAL OF THE R EVENUE IN ITA NO. 3284/MUM/2016 F OR ASSESSMENT YEAR 2012 - 13 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 0 8 .11.2017 0 8 .11.2017 S D / - S D / - (SAKTIJIT DEY ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 0 8 .11.2017 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI I.T.A. NO. 3284/MUM/2016 13 1 DRAFT DICTATED ON 07 - 11 - 2017 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 07 - 11 - 2017 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON - 11 - 2017 SR PS 7 FILE SENT TO THE BENCH CLERK - 11 - 2017 SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DISPATCH SR PS