DCT RG 8(2), MUMBAI V. KULGAM HOLDINGS P. LTD, MUMBAI

ITA 3498/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3786 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AARSI PRAS
• Keywords: Depreciation
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 3498/MUM/2011 (ASSESSMENT YEAR : 2005-06) THE D.C.I.T, 8(2), ROOM NO.216-A, AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 ... APPELLANT VS. M/S.KULGAM HOLDINGS PVT. LTD. NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD. PAN:AAACK 6575F .... RESPONDENT C.O.NO.08/MUM/2016 [ARISING OUT OF ITA NO. 3498/MUM/2011, (ASSESSMENT YEAR : 2005-06)] M/S.KULGAM HOLDINGS PVT. LTD. NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD. .... CROSS OBJEC TOR VS. THE D.C.I.T, 8(2), ROOM NO.216-A, AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 ... APPELLANT IN APPEAL REVENUE BY : SHRI AARSI PRAS AD ASSESSEE BY : SHRI K.SHIVRAM DATE OF HEARING : 10/02/2016 DATE OF PRONOUNCEMENT : 24/02/2016 2 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL BY THE REVENUE AND CROSS OBJE CTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT( A)-17, MUMBAI DATED 20/12/2010, PERTAINING TO THE ASSESSMENT YEAR 2005- 06, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING O FFICER DATED 19/12/2007 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . 2. IN THE APPEAL OF THE REVENUE, THE FOLLOWING GROU NDS OF APPEAL HAVE BEEN RAISED:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF RS.4,98,764/- MADE UNDER SECTION 14A OF THE ACT TO RS.1,05,458/- WITHOUT APP RECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE ACCRUED INTEREST OF RS.28,14,197/- ON OPTIONALLY FULLY CONVERTIBLE PREM IUM NOTE (OFFCPN) WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITS ELF OFFERED THE SAID INTEREST ON OFCPN IN THE RETURN OF INCOME. 3. ON THE FACTS AND INTEREST HE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSESSED INCOME CANNOT BE LESS THAN THE RETUNED INCOME, IN VIEW OF THE APEX COURT S DECISION IN THE CASE OF GOETZE INDIA LTD. [284 ITR 323]. 3. THE ASSESSEE BEFORE US IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER -ALIA, ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND OT HER FINANCIAL ACTIVITIES. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD EARNED TAX FREE DIVID END INCOME OF RS.81,46,351/- AND THAT IT HAD INCURRED EXPENDITURE OF RS.7,21,943/- ON ACCOUNT OF VARIOUS HEADS VIZ. DEPRECIATION, SALARY ALLOWANCES, 3 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) ACCOUNTING SERVICE CHARGES AND OTHER EXPENSES. I T WAS NOTED THAT INSPITE OF INCURRENCE OF EXPENDITURE, NO DISALLOWAN CE WAS MADE WITH RESPECT TO THE EXPENDITURE RELATABLE TO THE EARNING OF THE EXEMPT DIVIDEND INCOME, AS REQUIRED BY THE PROVISIONS OF S ECTION 14A OF THE ACT. THE EXPLANATION FURNISHED BY THE ASSESSEE T O THE EFFECT THAT NO SPECIFIC EXPENDITURE WAS INCURRED FOR EARNING OF TH E DIVIDEND INCOME WAS NOT FOUND SATISFACTORY AND INSTEAD THE ASSESSIN G OFFICER DISALLOWED A SUM OF RS.4,98,764/- UNDER SECTION 14A OF THE ACT ON THE GROUND THAT IT WAS AN EXPENDITURE INCURRED FOR EARNING OF DIVI DEND INCOME. THE AFORESAID DISALLOWANCE WAS WORKED OUT BY ALLOCATING THE TOTAL EXPENDITURE INCURRED OF RS.7,21,943/- AGAINST THE V ARIOUS INCOMES EARNED PROPORTIONATELY. 3.1 IN APPEAL BEFORE CIT(APPEALS), THE ASSESSEE COM PANY ASSAILED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT DISALLOWANCE WAS NOT JUSTIFIED AS ASSESSEE HAD NOT INCURRED ANY EXPENDIT URE FOR EARNING OF DIVIDEND INCOME. IT WAS ALSO CLAIMED BY THE ASSESS EE THAT THE DIVIDEND INCOME OF RS.8,46,351/- WAS EARNED ON THE SHARES OF M/S. NIRMA LTD., WHICH WERE ACQUIRED IN THE FINANCIAL YEAR 1989-90 A ND THERE WAS NO BORROWINGS. IT WAS ALSO EXPLAINED THAT THE DIVIDEN D INCOME WAS RECEIVED BY WAY OF ELECTRONIC TRANSFER AND THERE WA S NO OTHER SPECIFIC EXPENDITURE INCURRED ON EARNING OF DIVIDEND INCOME. BEFORE CIT(APPEALS), THE ASSESSEE MADE AN ALTERNATIVE PLEA THAT, IF AT ALL, THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS MERIT ED THE COMPUTATION IN TERMS RULE 8D OF THE INCOME TAX RULE S, 1962 ( IN SHORT THE RULES) BE MADE WHICH WOULD SHOW THAT THE ADHO C DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. THE CIT(APPEALS) 4 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) NOTED THAT THE PROVISIONS OF RULE 8D OF THE RULES G OVERNING THE COMPUTATION OF DISALLOWANCE UNDER SECTION14A OF THE ACT WAS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 ONWARD S AND FOR THE EARLIER ASSESSMENT YEARS THE DISALLOWANCE UNDER SEC TION 14A OF THE ACT COULD MADE ON A REASONABLE ESTIMATE. ACCORDINGLY, HE RESTRICTED THE DISALLOWANCE TO RS.105,458/-, WHICH WAS AN AMOUNT DETERMINED BY APPLYING THE FORMULA PRESCRIBED IN CLAUSE (III) OF RULE 8D(2) OF THE RULES. 4. IN THIS BACKGROUND, LD. DEPARTMENTAL REPRESENTAT IVE OBJECTED TO THE ACTION OF THE CIT(APPEALS) IN RESTRICTING THE D ISALLOWANCE TO RS.1,05,458/- ON THE GROUND THAT THE FORMULA PRESCR IBED IN RULE 8D OF THE RULES COULD NOT BE USED IN THE PRESENT ASSESSM ENT YEAR, WHICH WAS PRIOR TO THE ASSESSMENT YEAR 2008-09, IN ORDER TO C OMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 5. ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE R ESPONDENT ASSESSEE HAS DEFENDED THE ESTIMATION OF DISALLOWANC E MADE BY THE CIT(APPEALS) ON THE GROUND THAT THE SAME WAS REASON ABLE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. PARTIC ULARLY, IT WAS POINTED OUT THAT THE SOLITARY DIVIDEND INCOME WAS FROM A GROUP COMPANY NAMELY, M/S. NIRMA LTD. AND THAT THERE WAS NO FRES H INVESTMENT DURING THE YEAR AND THAT THE DIVIDEND WAS RECEIVED BY ELEC TRONIC TRANSFER AND NO EXPENDITURE WAS INCURRED AT ALL TOWARDS EARNING OF SUCH DIVIDEND INCOME. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. AT THE OUTSET, WE MAY SAY THAT THE ACTION OF THE CIT(APPEA LS) DOES NOT WARRANT ANY INTERFERENCE IN AS MUCH AS ESTIMATION O F DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.1,05,458/- IS RE ASONABLE HAVING 5 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE COMPUTATION OF DISALLOWANCE BY THE ASSESSING OFFICER, IN OUR VIEW, IS MISDIRECTED AND DOES NOT TAKEN INTO CONSIDERATION THE SALIENT FEATU RES OF THE PRESENT CASE IN AS MUCH AS THE DIVIDEND HAS BEEN RECEIVE D FROM A SINGLE SCRIP, WHICH HAS BEEN ACQUIRED BY THE ASSESSEE IN AN EARLI ER FINANCIAL YEAR OF 1989-90 AND NO OSTENSIBLE EXPENDITURE HAS BEEN SHOW N TO HAVE BEEN INCURRED TOWARDS EARNING OF SUCH INCOME IN THE PRE SENT YEAR. THE OBJECTION OF THE LD. DEPARTMENTAL REPRESENTATIVE TH AT THE CIT(APPEALS) ERRED IN APPLYING FORMULA RULE 8D OF THE RULES IS RATHER A MISREADING OF THE IMPORT OF THE ORDER PASSED BY THE CIT(APPEALS). A PERUSAL OF PARA 4.3 OF THE ORDER REVEALS THAT THE CIT(APPEALS) WAS CONSCIOUS THAT THE PROVISIONS OF RULE 8D OF THE RULES WOULD NOT APPLY IN THE YEAR UNDER CONSIDERATION BUT HE HAS FORMULATED AN ESTIMATED EX PENDITURE ON A BASIS AKIN TO THAT PRESCRIBED IN RULE 8D OF THE RUL ES. IN OUR CONSIDERED OPINION, THE ESTIMATE OF DISALLOWANCE DETERMINED BY THE CIT(APPEALS) IS REQUIRED TO BE EXAMINED WITH RESPECT TO ITS REASON ABLENESS IN THE CONTEXT OF THE COMPUTATION MADE BY THE ASSESSING OF FICER AND, IN OUR VIEW, THE ESTIMATE MADE BY THE CIT(APPEALS) DOES NO T CALL FOR ANY INTERFERENCE. ON THIS ASPECT, THE ORDER OF THE CIT (APPEALS) IS AFFIRMED AND REVENUE FAILS. 7. BY WAY OF GROUND OF APPEAL NO.2 & 3, THE REVENUE HAS SOUGHT TO ASSAIL THE DECISION OF THE CIT(APPEALS) IN DIRECTIN G THE ASSESSING OFFICER TO EXCLUDE ACCRUED INTEREST OF RS.28,18,197/- FROM THE TOTAL INCOME. THE SAID AMOUNT REFLECTED INTEREST ACCRUED ON OPTIO NALLY FULLY CONVERTIBLE PREMIUM NOTES(OFCPNS) OF M/S. NIRMA IND USTRIES LTD. ACQUIRED BY THE ASSESSEE. 6 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) 8. IN THIS CONTEXT, THE BRIEF FACTS ARE THAT THE AS SESSEE COMPANY INVESTED IN 1612 OPTIONALLY FULLY CONVERTIBLE PREMI UM NOTES(OFCPNS) OF RS. 25,000/- EACH FOR RS.4.03 CRORES OF M/S. NIR MA INDUSTRIES LTD. THE ISSUE PRICE OF OFCPN WAS RS.25,000/- EACH AND THE F ACE VALUE THEREOF OF RS.33,750/- WAS TO BE PAID AFTER A TENURE OF FIVE Y EARS. THE HOLDER OF OFCPNS HAD OPTION TO INVEST IN THE EQUITY SHARES OF M/S. NIRMA INDUSTRIES LTD. AND NO INTEREST WAS PAYABLE TILL MA TURITY. THE INTEREST ACCRUED ON INVESTMENT IN OFCPN OF M/S. NIRMA INDUS TRIES LTD. FOR THE PERIOD ENDED 31/03/2005 WAS DETERMINED AT RS.28,14, 197/-AND WAS OFFERED IN THE RETURN OF INCOME WITH A QUALIFYING N OTE ATTACHED TO RETURN OF INCOME, WHICH READ AS UNDER:- THE RETURN OF INCOME INCLUDES INTEREST INCOME OF R S.28,14,197 AN INVESTMENT IN OFCPN IN NIRMA INDUSTRIES LTD. HELD AS 31.03.05. THE SAID INCOME IS OFFERED TO AVOID LITIGATION WITHOUT PREJU DICE TO THE VALIDITY OF THE CIRCULAR NO.2/2002 F.NO.149/235/2001-TPL DATED 15/0 2/2002 ISSUED BY CBDT. 8.1 SINCE THE ASSESSEE COMPANY HAD OFFERED THE SAI D AMOUNT AS INCOME IN ITS RETURN OF INCOME, THE ASSESSING OFFIC ER TREATED IT AS PART OF THE TOTAL INCOME WITHOUT MAKING ANY DISCUSSION ON T HE STAND OF THE ASSESSEE STATED IN THE AFORESAID NOTE ACCOMPANYING THE RETURN OF INCOME. 8.2 BEFORE CIT(APPEALS), ASSESSEE COMPANY ASSAILE D THE INCLUSION OF RS.28,14,197/- IN THE TOTAL INCOME ON THE GROUND TH AT SUCH INCOME COULD NOT BE TAXED ON ACCRUAL BASIS. THE CIT(APPEA LS) REFERRED TO A DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF KISSAN DISCRETIONARY FAMILY TRUST DATED 02/11/2007 FOR AS SESSMENT YEAR 2003- 04, WHEREIN ON IDENTICAL ISSUE THE STAND OF THE ASS ESSEE WAS UPHELD. 7 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) ACCORDINGLY, CIT(APPEALS) DIRECTED THE ASSESSING OF FICER TO EXCLUDE THE IMPUGNED INTEREST INCOME ON OFCPNS FROM THE TOTAL I NCOME. 8.3 ON THIS ASPECT, A PRELIMINARY POINT MADE OUT BY THE LD. REPRESENTATIVE FOR THE RESPONDENT ASSESSEE WAS THA T THE GROUNDS OF APPEAL AS FORMULATED BY THE REVENUE (REPRODUCED ABO VE) DOES NOT REFLECT ANY GRIEVANCE WITH REGARD TO THE MERIT OF T HE DECISION OF THE CIT(A) TO EXCLUDE THE IMPUGNED SUM FROM THE TOTAL I NCOME. EXPLAINING THE SAID POSITION THE LD. REPRESENTATIVE FOR THE AS SESSEE POINTED OUT THAT IN THE STATED GROUNDS OF APPEAL, THE GRIEVA NCE PROJECTED BY THE REVENUE WAS THAT THE SAID INCOME WAS OFFERED BY THE ASSESSEE ITSELF IN THE RETURN OF INCOME AND THAT THE FINAL ASSESSED IN COME COULD NOT BE LESS THAN THE RETURNED INCOME. APART THERE FROM, T HE LD. REPRESENTATIVE FOR THE ASSESSEE ALSO REFERRED TO TH E ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ASSE SSEE ITSELF FOR ASSESSMENT YEARS 2002-03 AND 2003-04 VIDE ITA NO.12 59/AHD/2007 DATED 21/06/2013 AND ALSO FOR ASSESSMENT YEAR 2004- 05 VIDE ITA NO.1920/MUM/2009 DATED 22/11/2013 TO POINT OUT THA T SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS POINTED OUT THAT IN ASSESSMENT YEAR 2004-05(SUPRA) ALSO, THE OBJECTIONS OF THE REVENUE WAS ON SIMILAR LINES. 8.4 IN THIS BACKGROUND, THE LD. DEPARTMENTAL REPRES ENTATIVE MERELY REITERATED THE GRIEVANCE PROJECTED IN THE GROUNDS O F APPEAL NO.2 &3 STATED ABOVE. 9. HAVING CONSIDERED THE RIVAL STANDS, IN OUR OPINI ON, NO ERROR CAN BE FOUND WITH THE ORDER OF THE CIT(APPEALS) CONSIDE RING THAT HIS DECISION IS IN CONSONANCE WITH THE DECISION OF THE TRIBUNAL IN THE 8 ITA NO. 3498/MUM/2011 C.O. NO.08/MUM/2016 (ASSESSMENT YEAR : 2005-06) ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 AND 2003-04 DATED 21/06/2013 AND FOR ASSESSMENT YEAR 2004-05(SUPRA) D ATED 21/11/2013, COPIES OF WHICH HAD BEEN PLACED ON RECORD. THE OR DERS OF THE TRIBUNAL CONTINUE TO HOLD THE FIELD AND, THEREFORE, IN OUR V IEW THE IMPUGNED DECISION OF THE CIT(APPEALS) DESERVES TO BE AFFIRME D. WE HOLD SO. 9.1 THUS, ON GROUNDS NOS. 2 & 3 ALSO THE REVENUE F AILS. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 11. IN SO FAR AS THE CROSS OBJECTION IS CONCERNED, THE LD. REPRESENTATIVE FOR THE ASSESSEE DID NOT PRESS THE S AME AT THE TIME OF HEARING AND IT IS HEREBY DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/02/2015 SD/- SD/- (JOGINDER SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 24/02/2016 VM , 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// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI