UNILAZER VENTURES PVT. LTD., MUMBAI V. ACIT - 16(1), MUMBAI

ITA 3562/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6079 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 24-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARKAMAL SOHI SANDHU
• Assessee Lawyers: F V IRANI
• Keywords: Earning of tax free income; Capital expenditure; Rule 8D
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3562/MUM/2018 ASSESSMENT YEAR: 2013 - 14 UNILAZER VENTURES PVT. LTD., 3 RD FLR, NISHUVI BUILDING, 75, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400018. VS. ASST. CIT 16(1), 4 TH FLOOR, ROOM NO. 467, AAYAKARBHAVAN, MUMBAI - 400020. PAN NO. AAACU4786C APPELLANT RESPONDENT ASSESSEE BY : MR. F . V. IRANI , AR REVENUE BY : M S . HARKAMAL SOHI SANDHU , DR DATE OF HEARING : 17/09/2019 DATE OF PRONOUNCEMENT : 25/09/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2013 - 14. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX - 4, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : 1. THE AO WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPENDITURE OF RS.1,64,30,025 MERELY BECAUSE THE INTEREST WAS PAID ON BORROWING UTILIZ ED FOR INVESTMENTS. THE AO OUGHT T O HAVE APPRECIATED THAT THE INVESTMENT HAVE UNILAZER VENTURES ITA NO. 3562/MUM/2018 2 YIELDED TAXABLE AN D NON - T AXABLE INCOME. DISALLOWANCE HAD ALREADY BEEN MADE BY APPELLANT UNDER RULE 8D. 2. ALTERNATELY, IF THE AO WAS TO DISAL LOW THE BALANCE INTEREST OF RS. 1,64 , 30,025 ON BORROWING USED FOR TAXABLE INTEREST BEARING INVESTMENTS, HE OUGHT TO HAVE ALLOWED THE EXPENDITURE AGAINST SUCH INTEREST . 3. ALTERNATIVELY , IF HE WAS TO CONSIDER IT A CAPITAL EXPENDITURE, HE OUGHT TO HAVE ALLOWED IT TO BE ADDED TO T HE COST OF INVESTMENTS. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2013 - 14 ON 25.11.2013 DECLARING TOTAL INCOME OF RS.26,60,74,530/ - . THE NATURE OF BUSINESS OF THE ASSESSEE IS TRADING IN COMMODITIES. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENSES ON BORROWINGS AMOUNTING TO RS.2,24,73,535/ - AND PROCESSING CHARGES OF RS.39,03,100/ - . IN RESPONSE TO A QUERY RAISED BY THE AO TO SHOW CAUSE AS TO WHY THE INTEREST EX PENSES SHOULD NOT BE DISALLOWED AS THE SAME WAS NOT INCURRED FOR THE PURPOSE OF CARRYING ON BUSINESS ACTIVITIES, THE ASSESSEE FILED A REPLY STATING THAT IT HAS BORROWED FUNDS DURING THE YEAR UNDER CONSIDERATION FROM M/S BARCLAYS INVESTMENT & LOAN (INDIA) L TD. AND INTEREST COST PERTAINED TO SUCH LOAN AND HENCE THE BORROWING WAS UTILIZED FOR MAKING INVESTMENTS ONLY. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID REPLY OF THE ASSESSEE AND MADE A DISALLOWANCE OF RS.1,64,30,025/ - (RS.2,24,73,535/ - MINUS RS.60,4 3,510/ - ). THE REASON GIVEN BY THE AO FOR ALLOWING RS.60,43,510/ - IS THAT THE ASSESSEE HAS ITSELF DISALLOWED AND ADDED BACK THE ABOVE SUM AS PER RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). UNILAZER VENTURES ITA NO. 3562/MUM/2018 3 3. IN APPEAL, THE CIT(A) OBSERVED THAT IN THE COMPUTATION OF INCOME THOUGH THERE IS A LINE ITEM UNDER THE HEAD INCOME FROM OTHER SOURCES AS LESS : EXPENSES U/S 57, THE SAME HAS BEEN CLAIMED AS - WHICH MEANS THAT THE ASSESSEE HAS CLAIMED NO EXPENSES U/S 57 OF THE ACT IN THE RETURN OF INCOME. FURTHER, IT IS NOT ED BY HIM THAT THE INVESTMENTS COULD HAVE BEEN MADE IN INTEREST YIELDING AND DIVIDEND YIELDING IS NOT DEFINITIVE IN NATURE AND WHETHER ACTUALLY ANY INVESTMENT WAS MADE IN THE INSTRUMENT WHICH WERE INTEREST YIELDING IN NATURE, HAS NOT BEEN SPELT OUT WITH FA CTS AND FIGURES. REGARDING THE CONTENTIONS OF THE ASSESSEE THAT IT HAD PLACED RS.15 CRORES IN BONDS WITH BARCLAYS WHICH HAD EARNED INTEREST OF RS.1,24,91,507/ - IN AY 2013 - 14 AND THESE BONDS WERE KEPT AS MARGIN AGAINST THE BORROWINGS AND THEREFORE, THE INT EREST EXPENSES SHOULD BE ALLOWED AGAINST THIS INCOME, THE CIT(A) OBSERVED THAT THERE IS NO CLAIM OF EXPENSES BY THE ASSESSEE IN ITS RETURN OF INCOME U/S 57 OF THE ACT. FURTHER, HE OBSERVED THAT NO SUCH CLAIM HAS BEEN MADE EITHER BEFORE THE AO OR DURING THE APPELLATE PROCEEDINGS BEFORE HIM. IN VIEW OF THE ABOVE REASONS, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS.1,64,30,025/ - MADE BY THE AO. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE FUNDS COULD HAVE BEEN UTILIZED ONLY IN TWO KIN DS OF INVESTMENTS I.E. INTEREST YIELDING AND DIVIDEND YIELDING. THE FORMER I.E. INTEREST YIELDING HAS RESULTED IN INTEREST INCOME AND TO SUCH EXTENT THE INTEREST EXPENSE IS ALLOWABLE. IT IS FURTHER SUBMITTED THAT THE LATTER I.E. DIVIDEND YIELDING HAS UNILAZER VENTURES ITA NO. 3562/MUM/2018 4 RESUL TED IN EXEMPT INCOME FOR WHICH INTEREST DISALLOWANCE HAS ALREADY BEEN TAKEN. IN THIS REGARD, THE LD. COUNSEL REFERS TO THE DETAILS OF INTEREST RECEIVED AND PAID TO BARCLAYS INVESTMENT AND LOAN (INDIA) LTD., WHICH WERE FILED BEFORE THE AO. SUMMARIZING THE A BOVE, THE LD. COUNSEL SUBMITS THE FOLLOWING DETAILS : PARTICULARS AMOUNT (IN RS) INTEREST PAID TO BARCLAYS INVESTMENT & LOAN (INDIA) LIMITED RS.2,24,55,719/ - INTEREST EARNED FROM BARCLAYS INVESTMENT & LOAN (INDIA) LIMITED RS.1, 24,91, 507/ - NET INTEREST EXPENSE TO BARCLAYS INVESTMENT & LOAN (INDIA) LIMITED RS.99,64,212/ - DISALLOWANCE AS PER RULE 8D RS. 60,43, 51 0/ - NET INTEREST CLAIMED RS. 39,20,702/ - PROCESSING CHARGES CLAIMED RS.39,03,100/ - THUS THE LD. COUNSEL SUBMITS THAT THE DISALLOWANCE OF RS.1,64,30,025/ - MADE BY THE AO BE DELETED. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) REFERS TO PARA 6.3 OF THE ORDER DATED 08.03.2018 PASSED BY THE LD. CIT(A) AND SUBMITS THAT THE SAME MAY BE CONFIRMED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE FUNDS INVESTED BY THE ASSESSEE IN INTEREST YIELDIN G INVESTMENTS HAS RESULTED IN INTEREST INCOME. TO SUCH EXTENT, THE INTEREST EXPENSE IS ALLOWABLE. ALSO THE FUNDS US ED BY THE ASSESSEE IN DIVIDEND YIELDING INVESTMENTS HAVE YIELDED EXEMPT INCOME FOR WHICH INTEREST DISALLOWANCE HAS BEEN TAKEN BY THE ASSESSEE. THE UNILAZER VENTURES ITA NO. 3562/MUM/2018 5 BORROWINGS WERE PARTLY USED FOR INTEREST BEARING INVESTMENTS, WHEREIN THE INTEREST HAS BEEN INCLUDED IN THE C OMPUTATION OF INCOME. WE FURTHER FIND THAT THE ASSESSEE HA S PLACED RS.15 CRORES IN BONDS WITH BARCLAYS WHICH HAS EARNED INTEREST OF RS.1,24,91,507/ - IN THE IMPUGNED ASSESSMENT YEAR. THIS WAS IN THE NATURE OF BONDS WHICH WERE KEPT AS MARGIN AGAINST THE BORR OWING. OBVIOUSLY, THIS INTEREST EXPENSE IS ALLOWABLE AGAINST THE INTEREST INCOME. AS FAR AS THE BORROWINGS USED PARTLY FOR INVESTMENTS YIELDING EXEMPT INCOME ARE CONCERNED, THE ASSESSEE HAS SUO MOTU TAKEN AN ADDITION OF RS.60,43,510/ - BY WORKING OUT AS P ER RULE 8D OF THE RULES. IN VIEW OF THE AFORESAID FACTS, WE DELETE THE DISALLOWANCE OF RS.1,64,30,025/ - MADE BY THE AO. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/09/2019. SD/ - SD/ - (C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 25/09/2019 RAHUL SHARMA, SR. P.S. UNILAZER VENTURES ITA NO. 3562/MUM/2018 6 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// (SR. PRIVATE SECRETARY) ITAT, MUMBAI