ACIT 14(2)(2), MUMBAI V. MAXIMA AGROTRADE P.LTD, MUMBAI

ITA 3515/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1855 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 12-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 08-06-2015
• Court: TRIBUNAL
• Department Lawyers: SUSHIL KUMAR PODDAR DR
• Assessee Lawyers: AJAY R SINGH
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.3515/MUM/2015 ASSESSMENT YEAR: 2010-11 ACIT - 14(2)(1), 432, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S MAXIMA AGROTRADE PVT. LTD. 1 ST FLOOR, CAPRI BUILDING ANANT, KANEKAR MARG, BANDRA EAST, MUMBAI-400051 ( ' / REVENUE) ( #$ % /ASSESSEE) P.A. NO. AAFCM0945G ' / REVENUE BY SHRI SUSHIL KUMAR PODDAR- DR #$ % / ASSESSEE BY SHRI AJAY R. SINGH & '' ( % ) / DATE OF HEARING : 17/11/2016 ( % ) / DATE OF ORDER: 18/11/2016 M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 11/03/2015 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND THE FIRST APPELLATE AUTHORITY ERRED IN D ELETING THE DISALLOWANCE OF RS.1,54,33,285/- MADE U/S 14A OF TH E INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES, AS THE ASSESSEE MADE THE INVESTME NT IN EQUITY SHARES. 2. DURING HEARING, THE LD. DR, SHRI SUSHIL KUMAR PODDAR, CONTENDED THAT THE ASSESSEE IS HAVING CONTR OLLING INTEREST IN THE COMPANY, THEREFORE, IN VIEW OF THE DECISION FROM HON'BLE KARNATAKA HIGH COURT IN M/S UNITED BREWERIE S LTD. VS DCIT (ITA NO.419 OF 2009) ORDER DATED 31/05/2016 , THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL ) DESERVES TO BE REVERSED AS THE ASSESSEE WAS HAVING CONTROLLI NG INTEREST IN THE COMPANY. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SHRI AJAY R. SINGH, CONTENDED THAT NO EXE MPT INCOME WAS EARNED BY THE ASSESSEE AND HE RELIED UPO N BY THE DECISION FROM HON'BLE DELHI HIGH COURT IN CHEM INVE ST LTD. VS CIT (2015) 378 ITR 33 (DEL.) AND ANOTHER DECISION O F THE TRIBUNAL IN THE CASE OF DCIT VS M/S ROOFTOP INFRA P ROJECTS PVT. LTD. (ITA NO.3481/MUM/2015). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 3 ARE THAT THE LD. ASSESSING OFFICER DISALLOWED EXPEN DITURE AMOUNTING TO RS.1,54,33,285/- U/S 14A READ WITH RUL E-8D OF THE ACT. IN APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TA X (APPEAL), IT WAS EXPLAINED THAT THE ASSESSEE COMPAN Y HAD INVESTED IN EQUITY SHARES OF ITS GROUP COMPANIES TO THE TUNE OF RS.18,10,22,126/- AS A PASSIVE INVESTMENT FOR THE P URPOSES OF HOLDING CONTROLLING INTEREST/STAY IN THE GROUP CONC ERNS AND NO DIVIDEND/EXEMPT INCOME WAS EARNED. THE FIRST APPELL ATE AUTHORITY CONSIDERING THE DECISION FROM HON'BLE AL LAHABAD HIGH COURT IN CIT VS SHIVAM MOTORS PVT. LTD. (ITA N O.88 OF 2014) AND HON'BLE DELHI HIGH COURT IN CIT VS HOLCIM INDIA PVT. LTD. (ITA NO.486 OF 2014 AND ITA NO.299 OF 214 ) ORDER DATED 05/09/2014 DELETED THE DISALLOWANCE. THE REVE NUE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS TRIBUNAL. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE VARIOUS HIGH COURTS. THE HONBLE DELHI HIGH COURT IN THE CA SE OF JOINT INVESTMENT PRIVATE LIMITED REPORTED IN 372 ITR 694 HAS HELD THAT SECTION 14 OF THE ACT OR RULE 8D CANNOT BE INT ERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME OF THE ASSESSEE IS TO BE DISALLOWED. THAT THE WINDOW FOR DISALLOWAN CE IS INDICATED IN SECTION 14A AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 4 THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION O F THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUN T OF TAX EXEMPT INCOME. SIMILAR VIEW HAS BEEN TAKEN BY THE H ONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PCIT VS . EMPIRE PACKAGE PVT. LTD. IN ITA NO.415 OF 2015 DT.12/1/16 (P&H). 2.3. THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S CHEMINVEST LTD. VS. CIT (2015) 61 TAXMAN.COM 118; 378 ITR 33 (DEL.), WHEREIN ALSO THE ASSESSEE HAD MADE STRAT EGIC INVESTMENTS IN SUBSIDIARIES/GROUP COMPANIES FOR RET AINING CONTROL OVER THEM BUT HAS NOT RECEIVED ANY DIVIDEND INCOME FROM SUCH INVESTMENTS, HAS HELD THAT SECTION 14A WI LL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR AND THAT THE EXPRESSION DOE S NOT FORM PART OF THE TOTAL INCOME, IN SECTION 14A OF THE AC T ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WH ICH IS NOT INCLUDED IN THE TOTAL INCOME DURING THE RELEVANT PR EVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCU RRED IN RELATION TO THE SAID INCOME. 2.4. ALMOST IDENTICAL ISSUE HAS BEEN TAKEN BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT KA NPUR VS. M/S. SHIVAM MOTORS PVT. LTD. IN ITA NO.88 OF 2014 VIDE ORDER DATED 05.05.2014; BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECTH ENERGY PVT. LTD. IN ITA NO.239 OF 2014 VIDE ORDER DATED 24.03.2014 AND BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELITE ENTE RPRISES IN ITA NO.110 OF 2009 VIDE ORDER DATED 26/02/2009. M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 5 THE LD. DR RELIED UPON THE DECISION FROM HON'BLE KA RNATAKA HIGH COURT IN THE CASE OF M/S UNITED BREWEREIS LTD. VS DCIT (ITA NO.419/2009) ORDER DATED 31/05/2016, WHEREIN, FOLLOWING SUBSTANTIAL QUESTION OF LAW AROSE FOR CON SIDERATION:- WHETHER IN LAW, THE PROVISION OF SECTION 14A OF TH E ACT ARE APPLICABLE TO THE EXPENSES INCURRED BY THE APPELLAN T TOWARDS INTEREST AND OTHERS ON THE LOAN BORROWED FOR ADVANC ED MADE TO THE SUBSIDIARIES IN THE COURSE OF BUSINESS FOR ITS EXPANSION. 2.5. VIDE PARA-8 ONWARDS OF THE ORDER FROM HON'BLE KARNATAKA HIGH COURT, IT WAS OBSERVED/HELD AS UNDER :- 8. SO FAR AS SECOND QUESTION OF APPLICABILITY OF SEC.14A OF THE ACT TO THE EXPENSES INCURRED BY THE APPELLANT TOWARDS INTEREST AND OTHERS ON THE LOAN B ORROWED IS CONCERNED, THE FINDING OF THE TRIBUNAL IS AT PAR AGRAPH 11 WHICH READS AS UNDER : 11. THE REVENUE IS IN APPEAL AND WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IN OUR VIEW, THE RECENT JUDGMENT OF THE SPECIAL BENCH IN BOMBAY IN ITO V. DAGA CAPITAL MANAGEMENT PVT. LTD.., ('2009) 312 ITR (AT) 1, IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THI S ORDER, IT HAS BEEN. HELD. THAT SECTION 14A IS APPLICABLE EVEN WHERE THE MOTIVE IN ACQUIRING THE SHARES WAS TO OBTAIN CO NTROLLING INTEREST IN THE COMPANIES. THE FINDING OF THE COMMI SSIONER OF INCOME-TAX (APPEALS) CANNOT, THEREFORE, BE UPHEL D AS IT IS CONTRARY TO THE DECISION OF THE SPECIAL BENCH. WE, M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 6 ACCORDINGLY, UPHOLD IN PRINCIPLE THE APPLICABILITY OF SECTION 14A. HOWEVER, IT IS FOR THE ASSESSING OFFICER TO AS CERTAIN FROM THE FACTS OF THE CASE AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTILIZED TO ACQUIRE SHARES IN THE CO MPANIES. IT IS ALSO NECESSARY TO SEE AS TO WHETHER ANY INTER EST BEARING BORROWED FUNDS WERE USED IN MAKING THE ADVA NCES AND EXPENDITURE IN THE CASE OF CASTLE BREWERIES. TH IS FACTUAL EXERCISE HAS TO BE CARRIED OUT BY THE ASSESSING OFF ICER AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE OF BEING HEA RD. THE ASSESSING OFFICER MAY MAKE THE DISALLOWANCE OF INTE REST U/ S.14A ONLY IF IT IS FOUND THAT INTEREST BEARING BOR ROWED FUNDS WERE USED TO ACQUIRE SHARES IN THE COMPANIES OR FUR MAKING ADVANCES TO CASTLE BREWERIES. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH THE ABOVE DIRECTIONS. THE GROUND IS TREATED AS PARTLY A LLOWED. 9. THE AFORESAID SHOWS THAT THE TRIBUNAL AFTER HOLDING IN PRINCIPLE THE APPLICABILITY OF SEC. 14A, HAS FUR THER DIRECTED THE ASSESSING OFFICER TO ASCERTAIN FROM TH E FACTS OF THE CASE AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTILIZED TO ACQUIRE SHARES IN THE COMPANIES AND THE MATTER IS RELEGATED TO THE ASSESS ING OFFICER. AS PER THE LANGUAGE IN SEC. 14A, THE ENQUI RY HAS TO BE UNDERTAKEN BY THE ASSESSING OFFICER WHICH HAS BEEN SO ORDERED BY THE TRIBUNAL. HENCE, IT CAN BE SAID THAT THE TRIBUNAL HAS EXERCISED THE DISCRETION WHERE RIGHTS OF BOTH SIDES ARE KEPT OPEN FOR ADMISS IBLE DEDUCTION UNDER SEC.14A. WHEN SUCH A DISCRETION IS EXERCISED AND THE RIGHTS OF THE APPELLANT -ASSESSEE IS ALSO KEPT OPEN TO SATISFY THE ASSESSING OFFICER, IT CANNOT BE SAID THAT ANY SUBSTANTIAL QUESTIONS OF LA W WOULD ARISE FOR CONSIDERATION, AS SOUGHT TO BE M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 7 CANVASSED. IN OUR VIEW, AT THE STAGE OF ENQUIRY UND ER SEC. 14A, IT IS OPEN TO THE ASSESSING OFFICER TO INDEPENDENTLY CONSIDER THE MATTER FOR ADMISSIBILITY OF THE INTEREST ON BORROWINGS AND IF YES TO WHAT EXTEN T. HENCE, WHEN THE QUESTION AT LARGE IS FURTHER TO BE CONSIDERED BY THE ASSESSING OFFICER, WE DO NOT FIND THAT ANY FURTHER OBSERVATIONS ARE REQUIRED TO BE MADE IN THIS REGARD. IN ANY CASE, THE QUESTION OF LAW AS SO UGHT TO BE CANVASSED WOULD NOT ARISE FOR CONSIDERATION A T THIS STAGE ON THE SAID ASPECTS AS SOUGHT TO BE CANVASSED. 10. THE LEARNED COUNSEL FOR THE APPELLANT RELIED UP ON VARIOUS DECISIONS OF THE HIGH COURT AND OF THE APEX COURT, BUT IN NONE OF THE DECISIONS, THE QUESTION A RISEN BEFORE THE RESPECTIVE COURT AS TO WHETHER THE FINDI NG OF FACT RECORDED BY THE TRIBUNAL CAN BE DISTURBED OR U PSET AT THE STAGE OF APPEAL BEFORE THIS COURT, WHICH IS LIMITED TO THE QUESTION OF LAW. ALL DECISIONS PROCE ED ON THE BASIS THAT THE NEXUS IS ESTABLISHED, WHICH AS P ER THE FINDING OF FACT RECORDED BY THE TRIBUNAL IS NOT ESTABLISHED IN THE PRESENT CASE. HENCE, THE SAID DECISIONS ARE OF NO HELP TO THE APPELLANT. 11. HENCE, SUBJECT TO THE AFORESAID OBSERVATIONS, T HE APPEAL IS DISMISSED. 2.6. IF THE AFORESAID OBSERVATION IS ANALYZED, WE FIND THAT IN PARA-9 OF THE ORDER OF THE HON'BLE KARNATAKA HIG H COURT, IT HAS BEEN CLARIFIED THAT IN ACCORDANCE WITH SECTION 14A OF THE M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 8 ACT, THE ENQUIRY HAS TO BE UNDERTAKEN BY THE ASSESS ING OFFICER AND THE TRIBUNAL HAS EXERCISED THE DISCRETION WHERE RIGHTS OF BOTH SIDES ARE KEPT OPEN FOR ADMISSIBLE DEDUCTION U /S 14A. WHEN SUCH A DISCRETION IS EXERCISED AND THE RIGHTS OF THE ASSESSEE IS ALSO KEPT UPON TO SATISFY THE ASSESSING OFFICER, IT CANNOT BE SAID THAT ANY SUBSTANTIAL QUESTION OF LAW WOULD ARISE FOR CONSIDERATION, AS SOUGHT TO BE CANVASSED. IT WAS FURTHER OBSERVED THAT, AT THE STAGE OF ENQUIRY U/S 14A, THE ASSESSING OFFICER IS FREE TO INDEPENDENTLY CONSIDER THE MATTER FOR ADMISSIBILITY OF INTEREST ON BORROWINGS AND ITS EXTENT. IN THE PRESENT APPEAL, WE NOTE THAT NO EXEMPT INCOME W AS EARNED BY THE ASSESSEE FROM THE STRATEGIC INVESTMEN T MADE IN GROUP COMPANIES, THEREFORE, NO DISALLOWANCE WAS REQ UIRED TO BE MADE U/S 14A OF THE ACT. THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ACT , ENVISAGE THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, W HICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. SINCE, NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE AND SINCE THE GENUINENESS OF THE EX PENDITURE, INCURRED BY THE ASSESSEE, WAS NOT IN DOUBT, NO DISA LLOWANCE COULD BE MADE U/S 14A OF THE ACT. THE RATIO LAID D OWN IN CIT VS CORRTECH ENERGY P. LTD. (2015) 372 ITR 97 (GUJ.) (PARA-15), CIT VS HERO CYCLE LTD. 323 ITR 518 (P & H)(PARA-15) , EICHER GOODEARTH LTD. VS CIT (2015) 378 ITR 28 (DEL), PARA -14, M/S MAXIMA AGROTRADE PVT LTD. ITA NO.3515/MUM/2015 9 MAXOPP INVESTMENT LTD. VS CIT (2012) 347 ITR 272 (D EL.)(PARA- 12) AND CONSISTENT STAND TAKEN BY THE TRIBUNAL, CON SIDERING THE DECISIONS FROM HON'BLE JURISDICTIONAL HIGH COUR T, WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE LD. COMMISSIONER OF INCOME TAX (APPEAL), CONSEQUENTLY, T HE APPEAL OF THE REVENUE IS DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 17/11/2016. SD/- SD/- ( N.K. PRADHAN ) (JOGINDER SINGH) #$ / ACCOUNTANT MEMBER %$ / JUDICIAL MEMBER & ' MUMBAI; * DATED : 18/11/2016 F{X~{T? P.S / +' !'&%'()*)+' / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT 2. 0./ / THE RESPONDENT. 3. 1 1 & 2% ( ,- ) / THE CIT, MUMBAI. 4. 1 1 & 2% / CIT(A)- , MUMBAI 5. 4'5% , 1 ,-), 6 , & / DR, ITAT, MUMBAI 6. 7#8 / GUARD FILE. !' / BY ORDER, 04-%% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , & / ITAT, MUMBAI,