DCIT CIR 2(2)(1), MUMBAI V. INFINA FINANCE P.LTD, MUMBAI

ITA 3329/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0694 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE LD
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO.3329/MUM/2016 INFINA FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.3329/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) DEPUTY COMMISSIONER OF INCOME TAX-CIRCLE 2(2)(1) ROOM NO.545,AAYAKAR BHAVAN M.K.ROAD MUMBAI -400 020 / VS. INFINA FINANCE PRIVATE LIMITED 7 TH FLOOR, DANI CORPORATE PARK, 158 CST ROAD, KALINA SANTACRUZ(E) MUMBAI -400 098 ! ./ ./ PAN/GIR NO.AACCM-1561-D ( !# /APPELLANT ) : ( $!# / RESPONDENT ) REVENUE BY : SAURABH DESHPANDE, LD. DR ASSESSEE BY : NONE / DATE OF HEARING : 02/01/2018 / DATE OF PRONOUNCEMENT : 17 /01/2018 /O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2012-13 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-5 [CIT(A)], MUMBAI, APPEAL NO. IT-473/14-15/266/15-16 DATED 15/02/2016 BY RAISING THE FOLLOWING GROUNDS OF APPEAL:- 2 ITA NO.3329/MUM/2016 INFINA FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2012-13 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LA W AND FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF CASE, THE CIT (A) HAS ERRED IN HOLDING THAT WHILE CALCULATING DISALLOWANCE U/S 14A R.W.R.8D, IN VESTMENTS LYING AS STOCK IN TRADE SHOULD NOT BE INCLUDED IN AVERAGE INVESTMENTS . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S 14A R. W. RULE 8D(2)(III) BY EXCLUDING THE LONG TERM INVESTMENTS W HICH ARE IN THE NATURE OF STRATEGIC INVESTMENTS RELYING ON THE DECISION OF IT AT IN CASE OF GARWARE WALL ROPES LTD (65 SOT 86), WITHOUT APPRECIATION THE FAC T THAT THE DECISION OF THE ITAT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AP PEAL HAS BEEN ADMITTED BY THE HONBLE HIGH COURT. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(2)(1), MUMBAI [ AO] U/S 143(3) OF THE INCOME TAX ACT ON 18/02/2015 . NONE HAS APPEARED FOR ASSESSEE DESPITE NOTICE AND THEREFORE, WE PROCEED TO DISPOSE-OFF THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING LD. DEPARTMENTAL REPRESENTATIVE [DR]. 2.1 FACTS LEADING TO THE SAME ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED AS NON-BANKING FINANCE COMPANY (NBFC) WAS ASSESSED FOR IMPUGNED AY UNDER NORMAL PROVISION S AT RS.113.38 CRORES AFTER SOLE DISALLOWANCE U/S 14A FOR RS.1.29 CRORES AS AGAINST RETURNED INCOME OF RS.112.08 CRORES FILED BY THE AS SESSEE ON 28/09/2012. THE SOLITARY ISSUE INVOLVED IN THE APPEAL IS QUANTU M OF DISALLOWANCE U/S 14A. 2.2 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES, FINANCING AND GRANTING LOANS AND ADVANCES AGAINST SHARES. THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.3,28,05,806/- AND MADE SUO-MOTO 3 ITA NO.3329/MUM/2016 INFINA FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2012-13 DISALLOWANCE AGAINST THE SAME U/S 14A FOR RS.16,66, 810/-. HOWEVER, NOT CONVINCED WITH THE WORKING MADE BY ASSESSEE, LD. AO , APPLYING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, COMPUTED THE SAME U/R 8D(2)(III) @0.5% OF AVERAGE VALUE OF INVESTMENTS. T HE DISALLOWANCE, THUS WORKED OUT, CAME TO RS.1,46,59,004/- AND AFTER ADJU STING SUO-MOTO DISALLOWANCE OF RS.16,66,810/- ALREADY MADE BY THE ASSESSEE, THE NET DISALLOWANCE CAME TO RS.1,29,92,194/- WHICH WAS ADD ED TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 15/02/2 016 WHERE LD. CIT(A), RELYING UPON CERTAIN JUDICIAL PRONOUNCEMENTS, DIREC TED LD. AO TO MAKE ADJUSTMENT IN THE FIGURES OF INVESTMENTS AND CONCLU DED THE MATTER IN THE FOLLOWING MANNER:- 3.4 IN THE SUBMISSIONS APPELLANT STATES THAT FROM H IS COMPUTATION ON AVERAGE INVESTMENT IN STOCK-IN-TRADE IS RS.2,40,52,76592/- AT THE END OF 31.03.2012 AND THIS AMOUNT AT THE END OF 31.03.2011 IS RS.1,06,35, 14,887/-. THE AVERAGE INVESTMENT AS INCLUDED IN THE COMPUTATION UNDER RUL E 8D(2)(III) IS RS.1,73,43,95,739/-. ACCORDING TO THE APPELLANT THI S HAS TO BE EXCLUDED FROM THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III) I N VIEW OF BOMBAY HIGH COURT DECISION IN THE CASE OF CIT V/S INDIA ADVANTAGE SEC URITIES LTD. IT NO.1131 OF 2013 WHERE IT IS HELD THAT NO DISALLOWANCE CAN BE M ADE FOR SECURITIES HELD AS STOCK-IN-TRADE. FURTHER, THE APPELLANT STATES THAT THERE WERE STRATEGIC INVESTMENTS IN BUSINESS STANDARD LTD. AND THE SAID INVESTMENTS AT THE END OF THE YEAR WAS RS.89,43,57,090/-. APPELLANT CLAIMS THAT THIS ALSO SHOULD BE EXCLUDED FROM THE COMPUTATION OF DISALLOWANCE U/S.14A R.W.R.8D(2)(II) (III) R.W.RULE 8D(2)(III) IN VIEW OF THE DECISION OF MUMBAI ITAT IN THE CASE OF GARWA RE WALL ROPES IN I.T.ACT,1961 NO.5409/2012. 3.5 IN VIEW OF THE ABOVE BOMBAY HIGH COURT DECISIO N AND MUMBAI ITAT DECISION, AO IS DIRECTED TO COMPUTE THE DISALLOWANCE U/S 8D(2 )(III) AFTER EXCLUDING STOCK-IN- TRADE AVERAGE INVESTMENT OF RS.1,73,43,95,739/- AND AVERAGE STRATEGIC INVESTMENT OF RS.86,40,43,240/-. AO IS DIRECTED TO COMPUTE THE ABOVE DISALLOWANCE AFTER EXCLUDING BOTH THE INVESTMENTS A ND IS ALSO FURTHER DIRECTED TO GIVE CREDIT TO THE APPELLANTS SUO-MOTO DISALLOWANC E OF RS.16,66,810/-. THE BALANCE AMOUNT WHICH ARISES AFTER EXCLUDING ABOVE T WO INVESTMENTS AND AFTER GIVING CREDIT TO APPELLANTS DISALLOWANCE IS UPHELD . THIS GROUND IS PARTLY ALLOWED. 4 ITA NO.3329/MUM/2016 INFINA FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2012-13 AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DR SUPPORTED THE STAND TAKEN BY LD. AO A ND DREW OUR ATTENTION TO THE FACT THAT STATUTORY PROVISIONS DO NOT ENVISAGE ANY ADJUSTMENT IN THE VALUE OF INVESTMENT AND THEREFORE , THE STAND OF LD. CIT(A) WAS NOT JUSTIFIED. 5. WE HAVE CAREFULLY HEARD THE CONTENTIONS AND PERU SED RELEVANT MATERIAL ON RECORD. THE SHORT ISSUE TO BE DECIDED B Y US IS WHETHER THE INVESTMENTS KEPT AS STOCK-IN-TRADE AND STRATEGIC IN VESTMENTS ARE TO BE EXCLUDED OR NOT WHILE ARRIVING AT DISALLOWANCE U/S 14A? 6. SO FAR AS THE QUESTION WHETHER SECTION 14A DISA LLOWANCE IS CALLED FOR IN CASE THE SHARES ARE HELD AS STOCK-IN-TRADE IS CO NCERNED, WE FIND THAT THE ISSUE STOOD SQUARELY IN ASSESSEES FAVOR BY THE RAT IO OF FOLLOWING JUDICIAL PRONOUNCEMENTS:- (I) DCIT VS. INDIA ADVANTAGE SECURITIES LTD. [ITAT MUMBAI ITA NO. 6711/MUM/2011 ORDER DATED 14/0 9/2012] [AS CONFIRMED BY HONBLE BOMBAY HIGH COURT BY WAY O F NON-ADMISSION OF REVENUES APPEAL 2015 79 TAXMANN.COM 370] (II) CCI LTD. VS. JCIT [HONBLE KARNATAKA HIGH COURT 2012 20 TAXMANN.COM 1 96] (III) PCIT VS. STATE BANK OF PATIALA [HONBLE PUNJAB & HARYANA HIGH COURT 2017 78 TAXMAN N.COM 3] (IV) CIT VS. G.K.K. CAPITAL MARKETS (P.) LTD. [HONBLE CALCUTTA HIGH COURT 2017 78 TAXMANN.COM 34 1] RESPECTFULLY FOLLOWING THE RATIO OF ABOVE DECISIONS , WE CONCLUDE THAT INVESTMENTS HELD AS STOCK- IN-TRADE DO NO ATTRACT D ISALLOWANCE U/S 14A. 5 ITA NO.3329/MUM/2016 INFINA FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2012-13 7. FURTHER, LD. CIT(A) HAS NOTED THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN CERTAIN BUSINESS ENTITIES. THE STATED FACT HAS NOT BEEN DISPUTED BY THE REVENUE. WE FIND THAT THE PREDOMINA NT OBJECT OF THE STRATEGIC INVESTMENT IS TO EARN BUSINESS PROFITS AN D NOT TO EARN EXEMPT INCOME THEREUPON AND THE SAME ALSO STOOD COVERED IN ASSESSEES FAVOR BY THE DECISION OF THIS TRIBUNAL RENDERED IN GARWARE WALL ROPES LTD. VS. ACIT [46 TAXMANN.COM 18]. THE REVENUE COULD NOT POINT OUT ANY CONTRARY DECISION OF HIGHER AUTHORITY TO CONTROVERT THE SAME . HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 8. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JANUARY, 2018. SD/- SD/- (C. N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 17. 01.2018 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. &. , . , / DR, ITAT, MUMBAI 6. /0 / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI