DCIT 1(1)(1), MUMBAI V. AVENDUS CAPTAIL P.LTD, MUMBAI

ITA 3475/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9836 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 3475/MUM/2016 : A.Y : 2011 - 12 DCIT - 14(1)(1), MUMBAI (APPELLANT) VS. M/S. AVENDUS CAPITAL PVT. LTD., 2 ND FLOOR, IL&FS FINANCIAL CENTRE, WEST QUARDRANT, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. PAN : AABCC2404Q (RESPONDENT) APPELLANT BY : SHRI SUMAN KUMAR RESPONDENT BY : SHRI ASHISH MEHTA DATE OF HEARING : 01/01/2018 DATE OF PRONOUNCEMENT : 23 /0 3 /2018 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 22 , MUMBAI DATED 18.03.2016 , PERTAINING TO THE ASSESSMENT YEAR 2011 - 12 , WHICH IN TURN HAS ARISEN FROM THE ORDER D ATED 20.03.2014 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 2 ITA NO. 3475/MUM/2016 M/S. AVENDUS CAPITAL PVT. LTD. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT THE EXPENSES OF RS.1,56,94,709/ - TOWARDS THE EMPLOYEE STOCK OPTION PLAN (ESOP) IS ALLOWABLE U/S 37(1) OF THE I.T. ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C IT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S 14A R.W RULE 8D TO RS.25,84,454/ - AS AGAINST THE DISALLOWANCE OF RS.41,70,449/ - AND NOT CONSIDERING THE INTEREST EXPENSES WHILE CALCULATING THE DISALLOWANCE U/S 14A R.W. RULE 8D. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 3. THE FIRST GROUND RAISED BY THE REVENUE IS AGAINST THE ACTION OF CIT(A) IN DELETING THE ADDITION OF RS.1,56,94,709/ - MADE BY THE ASSESSING OFFICER TOWARDS CLAIM OF ESOP EXPENSES. 4. AT THE TIME OF HEARING, THE LEARNED REPRESEN TATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IN DISPUTE IN GROUND OF APPEAL NO. 1 IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10 VIDE ITA NO. 4542/MUM/2013 DATED 24.06.2015 , WHI CH THE CIT(A) HAS FOLLOWED IN THE YEAR UNDER CONSIDERATION . THE LEARNED REPRESENTATIVE SUBMITTED THAT, IN VIEW OF THE ABOVE, THE CIT(A) MADE NO MISTAKE IN ALLOWING THE CLAIM OF THE ASSESSEE. 5. THE LD. DR APPEARING FOR THE REVENUE DID NOT OBJECT TO THE F ACTUAL MATRIX BROUGHT OUT BY THE LEARNED REPRESENTATIVE. 3 ITA NO. 3475/MUM/2016 M/S. AVENDUS CAPITAL PVT. LTD. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS, IN OUR VIEW, THE ORDER OF CIT(A) DOES NOT REQUIRE ANY INTERFERENCE INASMUCH AS THE CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN DATED 24.06.2015 (SUPRA). THUS, REVENUE FAILS ON THIS ASPECT. 7. THE SECOND GROUND OF APPEAL IN THIS APPEAL ARISES FROM THE ACTION OF ASSESSING OFFICER IN DISALLOWING INTEREST EXPENDITURE OF RS.15,86,995/ - U/S 14A OF THE ACT BY APPLYING THE PROVISIONS OF RULE 8D(2)(II) OF THE RULES . 8. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT THE ASSESSEE WAS FOUND TO HAVE EARNED EXEMPT INCOME OF RS.42,83,080/ - AND ASSESSEE HAD SUO MOTO DISALLOWED A SUM OF RS.25,84,454/ - OUT OF ADMINISTRATIVE/OVERHEAD EXPENDITURE U/S 14A OF THE ACT AND NO DISALLOWANCE WAS MADE OUT OF INTEREST EXPENDITURE. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD MIXED FUNDS, I.E. NON - INTEREST BEARING FUNDS AS WELL AS INTEREST BEARING FUNDS AND, THEREFORE, HE PROCEEDED TO APPLY RULE 8D(2)(II) OF THE RULES TO DISALLOW THE INTEREST EXPENDITURE OF RS.15,86,995/ - U/S 14A OF THE ACT. THIS DISALLOWANCE HAS BEEN DELETED BY THE CIT(A) NOTICING THAT OWN FUNDS OF THE ASSESSEE, I.E., SHARE CAPITAL AND RESERVES WAS MUCH MORE THAN THE INVESTMENTS IN QUESTION AND, THEREFORE, FOLLOWING THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM) , IT WAS TO BE PRESUMED THAT THE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME ARE OUT OF SUCH NON - I NTEREST BEARING FUNDS. THE CIT(A) ALSO REFERRED TO THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD, 366 ITR 505 (BOM) AND FOUND IT EXPEDIENT TO DELETE THE DISALLOWANCE. AGAINST SUCH A DECISION, REVENUE IS IN APPEAL BEFOR E US. 4 ITA NO. 3475/MUM/2016 M/S. AVENDUS CAPITAL PVT. LTD. 9. ALTHOUGH REVENUE HAS CONTESTED THE ORDER OF THE CIT(A), BUT IT IS ABUNDANTLY CLEAR THAT NO FAULT CAN BE FOUND WITH IT IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD (SUPRA). THERE IS NO CONTROVERSION TO THE FINDING OF THE CIT(A) THAT THE INVESTMENTS WHICH HAVE YIELDED THE IMPUGNED EXEMPT INCOME ARE MUCH LESS THAN THE AVAILABLE NON - INTEREST BEARING FUNDS WITH THE ASSESSEE , AND T HEREFORE, IN SUCH A SITUATION, THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF HDFC BANK LTD (SUPRA) CLEARLY APPLIES AND NO INTEREST DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. ACCORDINGLY, REVENUE FAILS ON THIS ASPECT TOO. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 R D MARCH , 2018. SD/ - SD/ - (SANDEEP GOSAIN) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 2 3 R D MARCH , 2018 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, F BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI