SEA GLIMPSE INVESTMENTS P.LTD, MUMBAI V. ADDL CIT RG 3(3), MUMBAI

ITA 3495/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7577 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 28-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: VIPUL JOSHISAMEER G DALAL
• Keywords: Business income; Earning of tax free income
• Section: 14A; 115JB; 37(1); 263; 11

Judgement Text

ITA NO.3495 OF 2011 SEA GLIMPSE INVESTMENTS PVT LTD MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VERMA, JUDICIAL MEMBER ITA NO. 3495/MUM/2011 (ASSESSMENT YEAR: 2006-07) SEA GLIMPSE INVESTMENTS PVT LTD ADD.C.I.T. RANGE 3(3) 112-A EMBASSY CENTRE AAYAKAR BHAVAN, NARIMAN POINT MK ROAD MUMBAI 400021 VS MUMBAI 400020 PAN AAACS 8600 H APPELLANT RESPONDENT APPELLANT BY: MR.VIPUL JOSHI/SAMEER G DALAL RESPONDENT BY: MR. B. JAYA KUMAR, DR DATE OF HEARING: 28/02/2012 DATE OF PRONOUNCEMENT: 21/03/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT UNDER SECTION 263, DATED 30.3.2011. IN THIS CASE TH E ASSESSMENT WAS COMPLETED ON 30.9.2008 UNDER SECTION 143(3). 2. THE ASSESSING OFFICER INQUIRED ABOUT THE ASSESSEE S INVESTMENT AND OTHER DETAILS AND NOTICED THAT THE A SSESSEE HAD EXEMPT INCOME BY WAY OF DIVIDEND TO THE TUNE OF ` .24,34,301/- AND AFTER CONSIDERING THE ASSESSEES EXPLANATION, HE DI SALLOWED THE AMOUNT OF ` .2,14,242/- ON THE RATIO OF EXEMPT INCOME BY TOTAL INCOME VIS--VIS EXPENDITURE OF ` .4.43 CRORES. A DISALLOWANCE UNDER SECTION 14A WAS ACCORDINGLY MADE OF ` .2,14,242/-. 3. ON NOTICING THAT ASSESSING OFFICER HAS NOT CORRECTL Y MADE THE DISALLOWANCE AND NOT BASED ON PROPER ANALYSIS AND A PPRECIATION OF THE FACTS RESULTING IN LOWER DISALLOWANCE AND UNDER ASSESSMENT OF INCOME, THE CIT ISSUED NOTICE UNDER SECTION 263 AND ASKED THE ASSESSEE TO EXPLAIN. AFTER CONSIDERING THE EXPLANAT ION OF THE ITA NO.3495 OF 2011 SEA GLIMPSE INVESTMENTS PVT LTD MUMBAI PAGE 2 OF 6 ASSESSEE THE CIT ADOPTED HIS OWN METHOD AND DIRECTE D THE ASSESSING OFFICER TO DISALLOW AN AMOUNT OF ` .1.0353 CRORE AND RECOMPUTE THE TOTAL INCOME. SINCE THE ASSESSING OFF ICER ALREADY DISALLOWED AN AMOUNT OF ` .2.14 LAKHS WHICH WAS APPROXIMATELY 1%(SIC) OF THE DIVIDEND INCOME, THE CIT FOUND THIS AMOUNT WILL TAKE CARE OF ADMINISTRATIVE EXPENSES INCURRED IN EARNING SUCH DIVIDEND INCOME AND NO FURTHER DISALLOWANCE TOWARDS ADMINIST RATIVE EXPENSES WAS NECESSARY. HE DIRECTED THE ASSESSING O FFICER TO RECOMPUTE THE TOTAL INCOME ACCORDINGLY BY ENHANCING THE ASSESSMENT/TOTAL INCOME. ASSESSEE RAISED GROUNDS ON MERITS AND JURISDICTION TO INVOKE SEC. 263 BY CIT. 4. THE LEARNED COUNSEL REFERRING TO THE PAPER BOOK FIL ED AND THE DETAILED NOTE SUBMITTED ABOUT VARIOUS PROPOSITIONS UNDER SECTION 263 WITH REFERENCE TO VARIOUS CASE LAW SUBMITTED TH AT THE CIT ERRED IN CONSIDERING THE ISSUE UNDER SECTION 263. TO SUMM ARISE THE ELABORATE ARGUMENTS MADE BY THE LEARNED COUNSEL, IT WAS SUBMITTED THAT A) THE ASSESSING OFFICER ALREADY EXAMINED THE DET AIL IN THE COURSE OF THE ASSESSMENT VIDE HIS SHOW CAUSE LETTER DATED 25.07.2008 AND AFTER EXAMINING THE DETAILED REPLY FILED BY THE ASSESSEE DISALLOWED THE AMOUNT UNDER SECTION 14A IN THE ASSESSMENT ORDER. THEREFORE, THE PRESENT ACTION OF THE CIT IN REVISIN G THE ASSESSMENT WAS BAD IN LAW SINCE THE ASSESSING OFFICER INQUIRED AND MADE THE DISALLOWANCE UNDER SECTION 14A, SUBSTITUTION OF THE OPINION OF THE CIT UNDER SECTION 263 IS NOT PERMITTED. B) THE CITS OBSERVATIONS THAT THE ASSESSEE HAD INVESTMENT IN THE SHARES WHICH CALLS FOR DISALLOWANCE OF INVESTMENT UNDER SECTION 14A WAS NOT CORRECT ON THE REASON THAT THE ASSESSEE HAD (A) OWN FUNDS AND THERE ARE NO BORROWALS DURING THE ITA NO.3495 OF 2011 SEA GLIMPSE INVESTMENTS PVT LTD MUMBAI PAGE 3 OF 6 YEAR AND (B) THAT THE ASSESSEE HAD BOTH INVESTMENT IN SHARES AS WELL AS TRADING SHARES AND THAT THE ASSESSEE HAD OFFERED SHORT TERM CAPITAL GAIN ON SAL E OF INVESTMENT SHARES WHICH WAS ALSO TAXED. C) ASSESSEE HAD TRADING IN SHARES WHICH ACCEPTED A S BUSINESS INCOME. D) OUT OF THE DIVIDEND INCOME OF ` .24,34,301/- DIVIDEND INCOME OF ` .23,03,783/- WAS RECEIVED IN RESPECT OF SHARES HELD AS STOCK IN TRADE AND ONLY AN AMOUNT OF ` .1,30,518/- WAS RECEIVED IN RESPECT OF SHARES HELD AS INVESTMENT E) AND THAT NO DISALLOWANCE UNDER SECTION 14A WAS TO BE MADE IN RESPECT OF SHARES HELD IN STOCK IN TRADE AS THE DIVIDEND RECEIVED WAS INCIDENTAL TO THE BUSINESS AND THAT THE CIT ERRED IN RE-WORKING OUT THE INTEREST PAID ON BORROWALS WHICH WAS ALLOWED AS BUSINESS DEDUCTION UNDER SECTION 37(1) BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEARS ENDING O N 31.3.2004, 31.3.2005 AND 31.3.2006 TO ARRIVE AT A WRONG CONCLUSION THAT ` .4.78 CRORES, OUT OF ` .20.23 CRORES BORROWED WAS APPLICABLE TO THE INVESTMENT WHEREAS DURING THE YEAR THE FACT WAS THAT THE BORROWALS HAVE COME DOWN AND FURTHER INVESTMENT HAVE ALSO CAME DOWN FROM ` .15.51 CRORES TO ` .12.49 CRORES. HE ALSO REFERRED TO VARIOUS FACTUAL ASPECTS OF THE DISALLOWANCE MADE BY THE CIT AND EXPLAINED WHY THE CIT HAS CONSIDERED THE WRONG FACTS AND DISALLOWED THE AMOUNT WHICH WAS NOT WARRA NTED. HE FURTHER RELIED ON THE DECISION OF THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD TO SUBMIT T HAT APPLICABILITY OF RULE 8D WAS FROM AY 2008-09, THE FACT OF WHICH W AS ALSO ACCEPTED BY THE CIT, BUT STILL THE DISALLOWANCE WAS WORKED ON THE ITA NO.3495 OF 2011 SEA GLIMPSE INVESTMENTS PVT LTD MUMBAI PAGE 4 OF 6 BASIS OF RULE 8D AND THAT THE ASSESSING OFFICER HAS ORIGINALLY DETERMINED THE DISALLOWANCE AT A REASONABLE AMOUNT PROPORTIONATE TO THE INCOME RECEIVED. HE RELIED ON VARIOUS CASE L AWS TO SUBMIT THAT THE ACTION OF THE CIT WAS NOT JUSTIFIED BOTH O N FACTS AS WELL AS ON LAW. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER, IN HIS REPLY REFERRED TO THE ORDER OF THE CIT TO SUBMIT TH AT THE ASSESSING OFFICERS ORDER WAS NOT CORRECT AS THERE WAS UNDER ASSESSMENT AND THE ASSESSING OFFICER SHOULD HAVE DISALLOWED MORE A MOUNT WHEN THE ASSESSEE HAD INVESTED IN SHARES AND THE CIT HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE AND ACCORDINGLY ENHANCE D THE DISALLOWANCE. HE FURTHER REFERRED TO RULE 8D AND SU BMITTED THAT THERE ARE 3 ASPECTS OF RULE 8D AND THE CIT HAS CONS IDERED ONLY ONE ASPECT AND GONE BY THE INVESTMENT AND NOT BY THE TO TAL INCOME. THE SUBMISSION WAS THAT CIT HAS NOT FOLLOWED RULE 8D AN D SINCE THE ASSESSEE HAD INVESTMENTS WHICH EARNED EXEMPT INCOME , THE INTEREST PAID BY THE ASSESSEE WAS TO BE DISALLOWED UNDER RUL E 14A. HE JUSTIFIED THE ACTION OF CIT AND IN SUPPORT RELIED ON VARIOUS CASE LAW. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECOR D AND RIVAL CONTENTIONS. WITHOUT GOING INTO VARIOUS PROPO SITIONS RAISED ON LEGAL PRINCIPLES, WE ARE OF THE OPINION THAT THE OR DER OF THE CIT CANNOT BE JUSTIFIED. FOR INVOKING THE PROVISIONS UN DER SECTION 263, TWO PARAMETERS ARE TO BE JUSTIFIED. ONE THAT THE OR DER IS ERRONEOUS AND TWO IT IS PREJUDICE TO THE INTERESTS OF THE RE VENUE. AS FAR AS THE ORDER BEING ERRONEOUS IN NATURE, THE ASSESSING OFFI CER AFTER CONSIDERING THAT THE ASSESSEE HAD OFFERED SOME OF T HE SHARE TRANSACTIONS AS BUSINESS INCOME AND SOME OF THE SHA RES HELD IN INVESTMENT WHICH YIELDED SHORT TERM CAPITAL GAIN OF MORE THAN ` .5.79 CRORES, HAS ONLY DISALLOWED A PORTION OF THE TOTAL EXPENDITURE IN RELATION TO THE EXEMPT INCOME TO THE TOTAL INCOM E EARNED BY ASSESSEE. THIS IS ONE WAY OF ARRIVING AT A REASONA BLE AMOUNT FOR DISALLOWANCE UNDER SECTION 14A WHICH CANNOT BE FAUL TED. ITA NO.3495 OF 2011 SEA GLIMPSE INVESTMENTS PVT LTD MUMBAI PAGE 5 OF 6 7. IN FACT THE CIT IGNORED TWO MAJOR FACTORS CONTESTE D BY THE ASSESSEE. ONE THAT THE ASSESSEE HAD OWN FUNDS AND A LL THE BORROWINGS WERE MADE FOR THE PURPOSE OF BUSINESS AN D TWO EVEN WITHIN THE SHARE INVESTMENT, THE ASSESSEE HAD OFFER ED SHORT TERM CAPITAL GAIN WHICH WAS NOT EXEMPT. THEREFORE, THERE IS NO NEED FOR DISALLOWANCE OF ANY AMOUNT EITHER UNDER SECTION 14A OR UNDER SECTION 36(1)(III) TOWARDS INVESTMENT IN SHARES. IF AT ALL THERE ARE ANY AMOUNTS BORROWED FOR THE PURPOSE OF SHARE INVESTMEN T, THE SAME WOULD HAVE OTHERWISE ALLOWABLE WHILE CALCULATING TH E CAPITAL GAIN OR INCOME FROM OTHER SOURCES AS THE CASE MAY BE BUT TH E ENTIRE DISALLOWANCE OF INTEREST CLAIM ON BORROWINGS UNDER SECTION 14A MAY NOT RESULT IN THE GIVEN FACTS OF THE CASE. BE THAT AS IT MAY, WE WOULD NOT HAVE TO EXAMINE THIS PART OF ERRONEOUS NATURE OF THE ORDER AT ALL CONSIDERING THAT THERE IS NO PREJUDICE CAUSED T O THE REVENUE BY ORDER OF THE ASSESSMENT UNDER SECTION 143(3). 8. THE ASSESSING OFFICER HAD DETERMINED THE BUSINESS I NCOME AT ` .14.76 CRORES AND ALLOWED CARRY FORWARD OF LOSSES T O BE SET OF THEREBY DETERMINING THE BUSINESS INCOME AT NIL. THE SHORT TERM CAPITAL GAIN OF ` .5.76 CRORES WAS TO BE TAXED AT 10%. THE ASSESSEE ALSO HAD SUFFERED TAX ON BOOK PROFIT UNDER SECTION 115JB AND THE ASSESSING OFFICER DETERMINED THE TOTAL BOOK PROFIT AT ` .45.53 CRORES ON WHICH THE TAX PAYABLE AT ` . 7.50 CRORES WORKED OUT AT ` .3.41 CRORES. THE ASSESSING OFFICER HAD GIVEN A FINDING T HAT THE TAX PAYABLE ON BOOK PROFIT IS MORE THAN THE TAX PAYABLE ON THE REGULAR INCOME AND, THEREFORE, BOOK PROFIT UNDER SECTION 11 5JB WAS ASSESSABLE TO TAX. THE CONSEQUENTIAL/RE-ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS ALSO PLACED ON RECORD AND NOTICED THAT THE BUSINESS INCOME WAS STILL DETERMINED AT NIL AND THE ASSESSING OFFICER AGAIN ACCEPTED THE INCOME UNDER SECTION 115 JB. 9. THE FACT IS THAT THE ASSESSMENT WAS DONE INVOKING P ROVISIONS OF SECTION 115JB IN BOTH THE SITUATIONS. THERE IS N O EFFECT ON ULTIMATE ASSESSED INCOME/ BOOK PROFIT AND THEREFORE , THE ORDER OF THE ASSESSING OFFICER DOES NOT CAUSE ANY PREJUDICE TO THE REVENUE. ITA NO.3495 OF 2011 SEA GLIMPSE INVESTMENTS PVT LTD MUMBAI PAGE 6 OF 6 IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE ORD ER OF THE CIT UNDER SECTION 263 CANNOT BE SUSTAINED AS ONE OF THE PARAM ETERS FOR INVOKING THE JURISDICTION HAS NOT BEEN FULFILLED. T HEREFORE, WITHOUT ANALYZING THE RIVAL CONTENTIONS ON VARIOUS JUDICIAL PRINCIPLES, WHICH IS ONLY ACADEMIC IN NATURE, WE HOLD THAT THE ORDER OF THE ASSESSING OFFICER PASSED ORIGINALLY UNDER SECTION 143 HAS TO BE UPHELD AND ORDER OF THE CIT UNDER SECTION 263 HAS TO BE CANCEL LED. ACCORDINGLY THE ASSESSEES GROUNDS ARE ALLOWED AND THE ORDER UN DER SECTION 263 IS THEREFORE, CANCELLED. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2012. SD/- SD/- ( VIVEK VERMA ) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 21 ST MARCH, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI