DCIT 14(2)(1), MUMBAI V. LAVASA CORPORATION LTD, MUMBAI

ITA 3491/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5431 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 19-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Business income; Depreciation; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB; 56; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.3491/M/2016 ASSESSMENT YEAR: 2011-12 DCIT 14(2)(1), 432, AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI - 400020 VS. M/S. LAVASA CORPORATION LTD., HINCON HOUSE, L.B.S MARG, VIKHROLI (WEST), MUMBAI 400 083 PAN: AABCT 4435E (APPELLANT) (R ESPONDENT) ITA NO.3614/M/2016 ASSESSMENT YEAR: 2011-12 M/S. LAVASA CORPORATION LTD., HINCON HOUSE, L.B.S MARG, VIKHROLI (WEST), MUMBAI 400 083 PAN: AABCT 4435E VS. CIT(A)-22, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400021 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NIRAJ SHETH, A.R. REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 01.05.2019 DATE OF PRONOUNCEMENT : 21.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED APPEALS ONE BY THE ASSESSEE AND T HE OTHER BY THE REVENUE HAVE BEEN PREFERRED AGAINST THE ORDE R DATED 18.02.2016 OF THE COMMISSIONER OF INCOME TAX (APPEA LS) ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 2 [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. ITA NO.3614/M/2016 (ASSESSEES APPEAL ) 2. GROUND NO.4 IS NOT PRESSED DURING THE COURSE OF HEARING AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 3. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT GROUND NO.1 IS NOT BEING ARGUED, HOWEVER, ASSE SSEE RESERVES THE RIGHT TO ARGUE THE SAID ISSUE IN FUTU RE AND THEREFORE IT WANTS TO KEEP THE ISSUE ALIVE. THE LD. D.R. DID NOT OPPOSE THE ARGUMENTS OF THE LD. A.R. AFTER HEARING BOTH THE P ARTIES AND PERUSING THE MATERIAL ON RECORD, WE HOLD THAT GROUN D NO.1 NEED NOT TO BE ADJUDICATED AT THIS STAGE. 4. THE ISSUE RAISED IN GROUND NO.2 IS AGAINST THE C ONFIRMATION OF DISALLOWANCE BY LD CIT(A) AS MADE BY THE AO UNDE R SECTION 14A READ WITH RULE 8D IN THE ASSESSMENT ORDER ON TH E GROUND THAT ASSESSEE HAS NOT CLAIMED ANY INCOME AS EXEMPT UNDER SECTION 10 AND THEREFORE THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE NOT APPLICABLE. 5. THE FACTS IN BRIEF ARE THAT ASSESSEE EARNED DIVI DEND INCOME OF RS.6.38 CR DURING THE INSTANT YEAR RELEVANT TO A SSESSMENT YEAR A.Y. 2011-12 FROM LIQUID SCHEMES OF MUTUAL FU ND. THE SAID INCOME WAS NOT CLAIMED AN EXEMPT AS THE SAME W AS NETTED AGAINST THE GROSS FINANCE CHARGES OF RS.283.53 CROR ES DEBITED TO THE P&L ACCOUNT AND NET FINANCE CHARGES AFTER REDUC ING THE DIVIDEND INCOME WAS CLAIMED DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. IT WAS ALSO STATED IN NOTE NO.7 TO CO MPUTATION OF ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 3 INCOME THAT THE ASSESSEE HAS NOT MADE ANY DISALLOWA NCE UNDER SECTION 14A OF THE ACT AS THE ENTIRE DIVIDEND INCOM E WAS DEDUCTED AGAINST THE INTEREST EXPENDITURE AND ONLY NET EXPENDITURE WAS CLAIMED UNDER SECTION 36(1)(III) OF THE ACT. THUS NO EXEMPT INCOME UNDER SECTION 10(35) OF THE A CT WAS CLAIMED. HOWEVER, THE AO WHILE PASSING THE ASSESSM ENT ORDER UNDER SECTION 143(3) OF THE ACT DATED 14.03.2014 DI SALLOWED A SUM OF RS.31,60,57,358/- UNDER SECTION 36(1)(III) O F THE ACT AND ALSO DISALLOWED RS.24,34,50,491/-UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. 6. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PAR TLY ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 7.6 THE MATTER HAS BEEN CONSIDERED. FOR THE SAME R EASONS DISCUSSED AT PARA 7.3 ABOVE, THE ASSESSING OFFICER'S ACTION IN MAKING DIS ALLOWANCES U/S 14A BY INVOKING RULE 8D IS UPHELD. REGARDING THE CALCULATION ERRORS POINTED OUT BY THE APPELLANT, IT IS HELD AS UNDER: I. IT HAS BEEN HELD BY VARIOUS COURTS THAT THE INTEREST EXPENSES TO BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D IS THE NE T INTEREST EXPENSE AFTER SETTING OFF INTEREST INCOME. MOREOVER, THE INTEREST EXPENSES ALREADY DISALLOWED WILL ALSO HAVE TO BE EXCLUDED FROM THE G ROSS INTEREST EXPENSES FOR CALCULATING INTEREST DISALLOWANCE UNDER RULE 8D . II. REGARDING AVERAGE VALUE OF INVESTMENT, IT IS SE EN FROM PERUSAL OF THE APPELLANT'S FINANCIALS THAT THE VALUE ADOPTED BY TH E ASSESSING OFFICER IS CORRECT PERUSAL OF SCHEDULE F OF THE BALANCE SHEET SHOWS INVESTMENT AS ON 31.03.2010 AT RS. 379,59,40,0007- AND AS ON 31.03.2 011 AT RS. 128,18,91,000/-. I, THEREFORE, FIND NO REASON TO IN TERFERE WITH THE A.O.'S WORKING OF AVERAGE VALUE OF INVESTMENT. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D IN THE LIGHT OF THE ABOVE FINDINGS. THE ASSESSING OFFI CER IS ALSO DIRECTED TO GRANT EXEMPTION U/S 10(34) IN RESPECT OF THE DIVIDEND INC OME AS PER LAW. THE APPELLANT'S GROUND OF APPEAL IS PARTLY ALLOWED. 7. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE ASSESSEE HAS CLAIMED NET INTEREST EXPENDITURE AFTER REDUCING THE DIVIDEND INCOME AND THUS ASSESSEE HAS NOT AVAILED EXEMPTION IN RESPECT ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 4 OF DIVIDEND INCOME BUT THE DIVIDEND INCOME FORMS PA RT OF THE ASSESSEES TOTAL TAXABLE INCOME. THEREFORE, PROVIS IONS OF SECTION 14A OF THE ACT DOES NOT APPLY TO THE ASSESSEE. THE LD. A.R. IN DEFENCE OF HIS ARGUMENTS RELIED ON A COUPLE OF DECI SIONS NAMELY (I)CREDIT LYONNAIS VS. ACIT (ITA NO.9596/M/2004 AS AFFIRMED IN DIT VS. CREDIT LYONNAIS IN ITA NO.2120 OF 2013 BY H ONBLE BOMBAY HIGH COURT (II)CIT VS. CORTECH ENERGY P. LTD . 372 ITR 97 (GUJ). THE LD. A.R. SUBMITTED THAT PURPOSE BEHIND SECTION 14A OF THE ACT BY NOT PERMITTING THE DEDUCTION OF EXPEN DITURE INCURRED IN RELATION TO EXEMPT INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME IS TO ENSURE THAT ASSESSEE DOES NOT GET DOUBLE BENEFIT AS HELD IN THE CASE OF MAXOPP INVEST MENT LTD. VS. CIT (2018) 91 TAXMANN.COM 154 (SC). THEREFORE WHER E THE ASSESSEE DOES NOT CLAIM ANY EXEMPTION OF INCOME, TH ERE IS NO NEED FOR INVOKING PROVISIONS OF SECTION 14A OF THE ACT. THE LD. A.R. ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. MAHENDRA MILLS 243 ITR 56 SC WHEREIN IT HAS BEEN HELD BY THE HONBLE SUPREME COURT THAT A PRIVILEGE GRANTED BY THE ACT C AN NOT BECOME A DISADVANTAGE AS IN THAT CASE THE ASSESSEE WAS PERMITTED TO DISCLAIM DEPRECIATION SINCE THAT WAS M ORE BENEFICIAL TO THE ASSESSEE. THE LD. A.R. ALSO DREW THE ATTENT ION OF THE BENCH TO THE ASSESSMENT ORDERS PASSED BY THE AO IN ASSESSEES OWN CASE IN A.Y. 2009-10 AND 2010-11 WHEREIN THE AO HAS ACCEPTED THE SIMILAR CLAIM MADE BY THE ASSESSEE IN NOT CLAIMING EXEMPTION IN RESPECT OF DIVIDEND INCOME. THE LD. A .R. SUBMITTED THAT THE REVENUE HAS TO FOLLOW A CONSISTE NT TREATMENT AS IT HAS ACCEPTED THE CLAIM IN THE EARLIER YEARS AND THE SAID CLAIM CAN NOT BE REJECTED IN THE SUBSEQUENT YEARS W HEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES. THE LD. A.R. RELIED ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 5 ON THE DECISION OF RADHASOAMI SATSANG VS. CIT (1991 ) 193 ITR 321 (SC). IN ALTERNATIVE SUBMISSIONS, THE LD. A.R. SUBMITTED THAT THE INVESTMENTS WHICH HAVE NOT FETCHED ANY EX EMPT INCOME DURING THE YEAR CAN NOT BE CONSIDERED FOR TH E PURPOSE OF MAKING DISALLOWANCE UNDER RULE 8D BY RELYING ON A S ERIES OF DECISIONS NAMELY; 1. PR. CIT VS. ZEE NEWS LTD. IN ITA NO.785 & 789/M/201 5 2. PR. CIT VS. RIVIAN INTERNATIONAL PVT. LTD. (ITXA NO .693 OF 2015) 3. CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 (DEL) 4. ACIT VS. VIREET INVESTMENT (P) LTD. (2017) 82 TAXMANN.COM 415 (DEL) SIMILARLY, THE LD. A.R. ALSO SUBMITTED THAT EXPENDI TURE WHICH IS ALREADY CAPITALIZED CAN NOT BE TAKEN INTO ACCOUNT F OR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT AS SAME WOULD AMOUNT TO DOUBLE DISALLOWANCE WHICH I S NOT PERMITTED UNDER THE ACT AS HAS BEEN HELD IN THE CAS E OF NIRMA CREDIT & CAPITAL (P) LTD. (2017) 85 TAXMANN.COM 72 (GUJ-HC). THE LD. A.R. ALSO MADE WITHOUT PREJUDICE SUBMISSION THAT DISALLOWANCE UNDER SECTION 14A MUST NOT EXCEED THE EXEMPT INCOME AS HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT VS. BALLARPUR INDUSTRIES LTD. I N ITA NO.15 OF 2016 DATED 13.10.2016. THE LD DR ON THE OTHER HAND RELIED ON THE ORDER OF LD CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE DE CISIONS REFERRED TO BY THE LD. A.R. WE FIND FROM THE PERUSA L OF THE RECORD THAT DURING THE YEAR THE ASSESSEE HAS NOT CLAIMED A NY EXEMPT INCOME UNDER SECTION 10(35) OF THE ACT BUT INSTEAD REDUCED THE SAME FROM THE INTEREST CLAIMED UNDER SECTION 36(1)( III) OF THE ACT ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 6 AND ONLY NET CLAIM OF INTEREST WAS MADE. THE SAID POSITION HAS BEEN ACCEPTED BY THE REVENUE ITSELF IN A.Y. 2009-10 AND 2010- 11 IN THE ASSESSMENT PROCEEDINGS AS IS CLEAR FROM T HE PERUSAL OF ASSESSMENT ORDERS PLACED BEFORE US. WE ARE IN AGRE EMENT WITH THE CONTENTIONS OF THE LD. A.R. THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IF INCOME IS NOT CLAIMED AS EXEM PT. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION S OF CREDIT LYONNAIS VS. ACIT (SUPRA) AND CIT VS. CORTECH ENERG Y P. LTD. (SUPRA). WE ARE THEREFORE NOT IN AGREEMENT WITH TH E CONCLUSION DRAWN BY THE LD. CIT(A) AND ACCORDINGLY BY SETTING ASIDE THE ORDER OF LD. CIT(A) DIRECT THE AO TO DELETE THE DI SALLOWANCE. THE GROUND NO 2 IS ALLOWED. 9. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST THE C ONFIRMATION OF ADDITION MADE UNDER SECTION 14A WHILE CALCULATIN G BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 10. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT ANY DISALLOWANCE MA DE UNDER SECTION 14A READ WITH RULE 8D IS NOT TO BE CONSIDER ED IN THE COMPUTATION OF BOOK PROFIT UNDER CLAUSE (F) OF EXPL ANATION 1 OF SECTION 115JB OF THE ACT AS SECTION 115JB IS A SEPA RATE CODE IN ITSELF. THE CASE OF THE ASSESSEE IS SQUARELY COVER ED BY THE DECISION OF ACIT VS. VIREET INVESTMENT (P) LTD. (SUP RA) AND EVEREST KANTO CYLINDER LTD. VS. ACIT (LTU) 395 (MUM -TRIB.). WE WOULD LIKE TO POINT OUT THAT THIS IS THE POSITION O F LAW THAT EVEN IF THERE IS A DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D THE SAME IS NOT TO BE CONSIDERED FOR THE PURPOSE OF COM PUTING BOOK PROFIT BUT IN THE PRESENT CASE SINCE WE HAVE DELETE D THE ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 7 DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D, T HEREFORE, THIS GROUND OF THE ASSESSEE IS AUTOMATICALLY ALLOWE D. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.3491/M/2016 (REVENUES APPEAL ) 12. THE ONLY ISSUE RAISED BY THE REVENUE IN ITS APP EAL IS AGAINST THE ORDER OF LD. CIT(A) WHEREIN IT HAS BEEN HELD THAT ULTIMATE COST OF BORROWING WOULD BE THE GROSS INTER EST EXPENSES AS NETED OFF BY INTEREST INCOME EARNED FROM DEPLOYM ENT OF SUCH BORROWED FUNDS. 13. THE FACTS IN BRIEF ARE THAT DURING THE ASSESSME NT PROCEEDINGS, THE AO REJECTED THE COMPUTATION OF AVE RAGE COST OF BORROWING AS SUBMITTED BY THE ASSESSEE ON THE GROUN D THAT ASSESSEE HAS NETED OFF THE INTEREST AND DIVIDEND IN COME AGAINST THE FINANCE CHARGES TO COMPUTE THE COST OF BORROWIN G. ACCORDING TO THE AO THE DIVIDEND INCOME HAS BEEN ALLOWED AS E XEMPT INCOME WHEREAS INTEREST INCOME HAS BEEN ASSESSED TO TAX SEPARATELY AS INCOME FROM OTHER SOURCES AND HENCE I NSTEAD OF NET INTEREST EXPENSES GROSS INTEREST EXPENSES SHOUL D BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF AVERAG E COST OF BORROWING. ACCORDINGLY, THE AO CALCULATED THE AVER AGE COST OF BORROWING AT 14.03% AS AGAINST 12.5% CALCULATED BY THE ASSESSEE. 14. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBM ITTED BEFORE THE LD. CIT(A) THAT THE AO HAS WRONGLY TAKEN THE GR OSS FINANCE CHARGES FOR THE PURPOSE OF CALCULATING OVERALL COST OF BORROWING AND REJECTED THE ASSESSEES CONTENTIONS THAT INTERE ST INCOME ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 8 FROM SHORT TERM DEPLOYMENT OF BORROWED FUNDS TO BE NETTED AGAINST THE INTEREST EXPENSES AS THERE IS A CLEAR NEXUS BETWEEN THE TWO. THE LD. CIT(A) HELD THAT THE ULTIMATE COS T OF BORROWING WOULD BE THE GROSS INTEREST EXPENSE AS NETTED OFF B Y THE INTEREST INCOME EARNED FROM DEPLOYMENT OF BORROWED FUNDS. TH E LD. CIT(A) HAS HELD THAT IT WOULD BE IMMATERIAL WHETHER THE INTEREST INCOME HAS BEEN ASSESSED AS INCOME FROM OTHER SOURC ES OR AS BUSINESS INCOME AND ACCORDINGLY DIRECTED THE AO TO COMPUTE THE OVERALL COST OF BORROWED FUNDS BY REDUCING THE INTEREST INCOME FROM THE GROSS INTEREST EXPENSE. 15. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER, WE FIND THAT T HE LD. CIT(A) HAS TAKEN A VERY REASONED AND POSSIBLE VIEW OF THE ISSUE AND WE DO NOT FIND ANY REASON TO INTERFERE IN THE SAME. MO REOVER, THE LD. D.R. HAS FAILED TO BRING ANY NEW FACTS OR MATER IALS BEFORE US TO TAKE A DIFFERENT VIEW THAN WHAT HAS BEEN TAKEN B Y THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CI T(A) BY DISMISSING THE APPEAL OF THE REVENUE. 16. IN RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.05.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21.05.2019. * KISHORE, SR. P.S. ITA NO.3491/M/2016 ITA NO.3614/M/2016 M/S. LAVASA CORPORATION LTD. 9 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.