DCIT- 3(3)(2), MUMBAI V. VIDEOCON REALTY & INFRASTRUCTURE LTD., MUMBAI

ITA 3443/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5590 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 21-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM AAYAKR APILA SAM . / ITA NO . 3443/MUM/2018 ( INAQA - ARNA BAYA - / ASSESSMENT YEAR 2014 - 15 ) THE DY. COMMISSIONER OF INCOME - TAX, CIRCLE - 3(3)(2), ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 VS. VIDEOCON REALTY & INFRASTRUCTURES LTD. 171 - C, 17 TH FLOOR, C WING, MITTAL COURT, NARIMAN PONT, MUMBAI - 400 021 ( APILAAQAI - / APPELLANT) .. ( P`%YAQAAI - / RESPONDENT) . / PAN NO. AAACV 2303 E M . / CO NO. 165 / MUM/ 2019 (ARISING IN ITA NO. 3443/MUM/2018 FOR AY 2014 - 15 ) VIDEOCON REALTY & INFRASTRUCTURE LIMITED , 171 - C, 17 TH FLOOR,, C WING, MITTAL COURT, NARIMAN PONT, MUMBAI - 400 021 VS. THE DY. CO MMISSIONER OF INCOME - TAX, CIRCLE - 3(3)(2), ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 ( APILAAQAI - / APPELLANT) .. ( P`%YAQAAI - / RESPONDENT) / APPELLANT BY : SHRI RAJEEV GUBGOTRA, DR / R ESPONDENT BY : SHRI MAYANK CHAUHAN, AR / DATE OF HEARING: 03 .0 9 .2019 / DATE OF PRONOUNCEMENT : 03.09 .2019 AADOSA / O R D E R , / PER MAHAVIR SINGH, JM : IN THESE APPEAL S, ONE BY REVENUE AND CROSS OBJECTION BY ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX 2 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 (APPEALS) - 8 , MUMBAI IN APPEAL NO. CIT(A) - 8/IT - 595/16 - 17/15 DATED 15.03.2018 . THE ASSESSMENT WAS FRAMED BY THE DY. COMMISSIONER OF INCOME TAX - CIRCLE 3(3)(2) , MUMBAI (IN SHORT DCIT / AO) FOR AY 2013 - 14 VIDE DATED 28.10.2016 , UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER THE ACT). 2. THE ONLY COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE DISA LLOWANCE OF EXPENSES RELATABLE TO EXEMPT INCOME MADE BY THE AO UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES , 1962 (HEREINAFTER THE RULES) . FOR THIS REVENUE HAS RAISED THE FOLLOWING 7 GROUNDS: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING NETTING OFF OF INTEREST INCOME AGAINST EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME WHILE WORKING OF DISALLOWANCE U/S. 14A OF THE I. T ACT. 1961, WHEN THERE IS NO SUCH PROVISION IN RULE 8D OF I T. RULES, 1962 WHICH PRESCRIBES THE METHOD OF COMPUTING QUANTUM OF DISALLOWANCE FOR THE PURPOSE OF SECTION 14A? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO RECOMPUTE THE DISALLOWANCE U/S. 14A R.W.R. 8D TAKING NET INTEREST AND REDUCING THE VALUE OF STRATEGIC INVESTMENT FIT SUBSIDIARIES / GROUP COMPANIES AMOUNTING TO RS. 2,49,00,150/ - WITHOUT APP RECIATING THE FACT THAT THE HON 'BLE HIGH COURT OF KARNATAKA IN THE CASE OF UNITED BREWERIES 3 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 LTD. V /S. DCIT CENTRAL CIRCLE - 2(3), BANGALORE [ 2016 ] 72 TAXMANN.COM 102 (KARNATAKA) HAS HELD THAT SECTION 14A IS APPLICABLE EVEN WHERE MOTIVE IN ACQUIRING SHARES IS TO OBTAIN CONTROLLING INTEREST IN COMPANIES? 3. WHETHER ART FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD . CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE AMOUNT OF DISALLOWANCE U/S 24A R.W.R. 8D(2)(III) TO THE AMOUNT OF RS. 1 ,76,56,955/ - MADE BY THE AO WAS ON THE BASIS OF C BDT CIRCULAR NO. 5 OF 2014 DATED 11.02.2014? 4 . WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT( A) HAS ERRED IN DIRECTING TO COMPUTE TH E DISALLOWANCE U/S. 14A R.W.R. 8 D AFTER REDUCING THE VALUE OF INVESTMENTS FROM WHERE INCOME IS TAXABLE OR THE INVESTMENTS WHICH ARE FOR BUSINES S OR STRATEGIC REASONS WHILE WORKING OUT THE AVERAGE VALUE OF INVESTMENTS WHEREAS IN THE RECENT JUDGEMENT OF THE APEX COURT IN THE CASE OF M/S. MAXOPP INVESTMENT LTD. VS. CIT IN CIVIL APPEAL NO. 104 - 109 OF 2015 DATED 12 / 02 / 2018, IT IS HELD THAT SECTION 14A APPLIES IRRESPECTIVE OF WHETHER THE SHARES ARE HELD TO GAIN CONTROL OR AS STOCK IN - TRADE? 5 . WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE LD . 4 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 CIT(A) IS CORRECT IN HOLDING THAT ASSESSEE'S OWN FUNDS WERE MORE THAN INVESTMENT MA DE OF RS.353.16 CRORES RELYING INCORRECTLY ON ASSESSEE'S STATEMENT OF OWN FUNDS BEING RS.854.48 CRORES WHEN IN FACT RS. 787.39 CRORES IS AMOUNT PAYABLE BY ASSESSEE TO OTHER PARTIES IN NORMAL COURSE OF BUSINESS AND OWN FUND FIELD AS SHARE CAPITAL AND RESERV ES WAS ONLY RS. 67.09 CRORES WHICH IS MUCH LESS THAN THE INVESTMENTS MADE? 6 . WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE LD. CIT(A) IS CORRECT IN DELETING THE DISALLOWANCE U/S. 14A READ WITH RULE 8D STATING THAT ASSESSEE'S OW N FUNDS WERE MORE THAN INV ESTMENT MADE AND RELYING ON HON 'BLE BOMBAY HIGH COURT'S DECISION IN RELIANCE UTILITIES & POWER LIMITED WHEREAS THE HONBL E SUPREME COURT IN PARA 42 OF THEIR DECISION IN THE CASE OF MIS. MAXOPP INVESTMENT LTD. VS. CIT IN CIVIL APPE AL NO. 104 - 109 OF 2015 DATED 12/ 02 / 2018, HAVE UPHELD THE PRINCIPLE OF APPORTIONMENT IN CASES WHERE THE ASSESSEE HAS MIXED FUNDS AND INTEREST HAS BEEN PAID? 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CI T(A) IS CORRECT I N DELETING THE ADDITION MADE WHEN IT WAS THE FACT THAT THE ASSESSEE 5 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 COMPANY HAS INCURRED EXPENDITURE ONLY FOR INVESTMENT ACTIVITY AND NOT FOR THE OTHER LIMBS OF' CONSTRUCTION WORK AND THEREFORE EXPENDITURE FOR SUCH INVESTMENT SHOULD HAVE BEEN DISALLOWED U/ S. 14A R.W.R. 8 D? THE ASSESSEE IN ITS CROSS OBJECTION HAS RAISED THE FOLLOWING GROUND: - 1. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED LOWER AUTHORITY OUGHT TO H AVE ACCEPTED A SUM OF RS. 27,56, 805/ - AS DISALLOWANCE CAL CULATED BY APPELLANT COMPANY U/S 14A BEING FAIR AND REASONABLE AND CORRECT CLAIM HAVING REGARDS TO ACCOUNTS OF THE APPELLANT COMPANY AND NOT DOING SO IS WRONG AND CONTRARY TO THE PROVISIONS OF THE ACT, AND THE RULES MADE THERE UNDER. (B ) WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL THE LOWER AUTHORITY OUGHT TO HAVE CONSIDERED ONLY THOSE INVESTMENTS WHICH HAVE GENERATED EXEMPT INCOME DURING THE CAPTIONED ASSESSMENT YEAR FOR THE PURPOSE OF CALCULATING AVERAGE VALUE OF INVESTMENTS IN TERMS OF SECTION 14A R .W.R. 8 D(2) AND NOT DOING SO IS WRONG AND CONTRARY TO THE PROVISIONS OF THE ACT, AND THE RULES MADE THERE UNDER. (C) WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL. THE LD. CIT(A) OUGHT TO HAVE 6 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 RESTRICTED THE DISALLOWANCE MADE U/S. 14A R W.R. 8D TO THE E XTENT OF EXEMPT INCOME EARNED BY THE APPELLANT COMPANY AND NOT DOING SO IS WRONG AND CONTRARY TO THE PROVISIONS OF THE ACT, AND THE RULES MADE THERE UNDER. 3. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME BEING DIVIDEND INCOME OF 696/ - AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSEE COMPUTED THE SUO MOTO DISALLOWANCE UNDER SECTION 14A OF THE ACT AT 27,56,805/ - . THE AO NOT CONSIDERING THE WORKING OF THE ASSESSEE FOR MAKING SUO MOTO DISALLOWANCE AND S TATED THAT THE SAME IS NOT AS PER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AND THEREBY, HE WORKED OUT DISALLOWANCE UNDER RULE 8D(2)( II) OF THE RULES BEING INTEREST EXPENSES AT 1,51,31,640/ - AND UNDER RULE 8D(2)(III) OF THE RULES BEING 0.5% OF AVERAGE VALUE OF INVESTMENT ON THE OPENING AND CLOSING DAY OF PREVIOUS YEAR AMOUNTING TO 1 , 76,56, 9 55/ - AND THEREBY TOTAL DISALLOWANCE MADE BY AO AT 3,27,88,595/ - . THE AO AFTER ALLOWING REBATE OF SUO MOTO DISALLOWANCE MADE BY ASSESSE E OF 27,57,805/ - MADE BALANCE DISALLOWANCE OF 3, 00, 31,790/ - . AGGRIEVED, ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A), WHO RESTRICTED THE DISALLOWANCE IN REGARD TO INTEREST UNDER RULE 8D(2)(II) AT NET INTEREST AND REDUCING THE VALUE OF STRATEGIC INVESTME NT FOR CALCULATING AVERAGE VALUE OF INVESTMENT AND DIRECTED THE AO TO FOLLOW HIS PREDECESSORS ORDER FOR AY 2012 - 13. HENCE, HE RESTRICTED THE DISALLOWANCE. AGGRIEVED, REVENUE CAME IN APPEAL AND ASSESSEE SUPPORTED THE ORDER OF CIT(A) IN ITS CROSS OBJECTION. NOW, BEFORE US, THE ASSESSEES COUNSEL STATED THAT THE ONLY EXEMPT INCOME EARNED BY ASSESSEE IS 696/ - AND THE SAME WAS CLAIMED IN ITS COMPUTATION. HOWEVER, HE MADE SUBMISSION THAT THE DISALLOWANCE IF 7 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 RESTRICTED TO THE SUO MOTO DISALLOWANCE OF 27,57,805/ - , WILL MEET THE END OF JUSTICE. 4. ON THE OTHER HAND, THE LEARNED SR. DEPARTMENTAL REPRESENTATIV E SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. WE NOTED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME TO THE EXTENT OF 696/ - AND CLAIMED THE SAME IN THE COMPUTATION OF INCOME. SINCE, THE ASSESSEE AGREED FOR RESTRICTION OF DISALLOWANCE TO THE EXTENT OF SUO MOTO DISALLOWANCE MADE AT 27,57,805/ - , WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THAT EXTENT ONLY. THIS ISSUE REVENUES APPEAL IS DISMISSED AND THE CO IS ALSO BEING SUPPORTIVE , HENCE DISMISSED. 6. ANOTHER ISSUE RAISED BY ASSESSEE IN ITS CO IS AS REG ARDS TO THE COMPUTATION OF INCOME UNDER SECTION 115JB OF THE ACT WHILE COMPUTING THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES BEING EXPENSES RELATABLE TO EXEMPT INCOME. FOR THIS ASSESSEE HAS RAISED THE FOLL OWING GROUND NO. 2: - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF LD. AO IN ADDING THE DISALLOWANCES MADE BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 3D. TO THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE INCOME TAX ACT, 1961 OVER AND ABOVE RS. 27,56.805/ - ADDED SUO - MOTO BY THE APPELLANT COMPANY, WHICH IS WRONG AND CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, 1961. AND THE RULES MADE THERE UNDER. 8 | P A G E ITA NO. 3443 /MUM/201 8 CO NO. 165/MUM/2019 7. WE HAVE HEAR D RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTED THAT THIS ISSUE IS NOW SETTLED BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS (P.) LTD. [2017] 58 ITR(T) 313 (DELHI - TRIB .) (SB) , WHEREIN IT IS HELD THAT NO DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPT INCOME CAN BE MADE WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. HENCE, WE DELETE THE DISALLOWANCE. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED AND TH E CO OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.09 .2019. SD/ - SD/ - ( / RAJESH KUMAR ) ( /MAHAVIR SINGH) ( / ACCOUNTANT MEMBER) ( / JUDICIAL MEMBER) , / MUMBAI, DATED: 03.09 .2019 , . / SUDIP SARKAR, 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// / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI