AF-TAAB INVESTMENT COMPANY LTD, MUMBAI V. ITO WD 2(1)(2), MUMBAI

ITA 3684/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3759 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-01-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 24-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Earning of tax free income; Wholly owned subsidiary; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , !' , # , $ BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I .T.A. NO.3684/MUM/2012 & I.T.A. NO.8981/MUM/2010 ( # ' (' / ASSESSMENT YEAR: 2004-05 & 2005-06) AF-TAAB INVESTMENT COMPANY LIMITED CORPORATE CENTRE, B BLOCK, 34, SANT TUKARAM ROAD, CARNAC BUNDER, MUMBAI - 400009 / VS. THE INCOME TAX OFFICER 2(1)(2) MUMBAI ./ ./ PAN/GIR NO. : AAACA4800H ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI P. J. PARDIWALA DEPARTMENT BY: SHRI MANOJ KUMAR / DATE OF HEARING: 04.01.2016 !' /DATE OF PRONOUNCEMENT: 11.05.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE APPEALS AGAINST THE ORD ER DATED 28.03.2012 AND 04.10.2010 PASSED BY THE COMMISSIONE R OF INCOME TAX (APPEALS)-14, MUMBAI [HEREINAFTER REFERRED TO A S THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 2004-05 & 2005-06. THESE APPEALS ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION BEING THE MATTER OF ITA NO.3684/MUM/12 & ITA NO.8981/M/10 A.Y.2004-05 & 2005-06 2 CONTROVERSY AND THE PARTIES ARE SAME WHICH CAN CONV ENIENTLY BE ADJUDICATED TOGETHER. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTING AND DEALING IN SHARES AND SECURITIES. THE COMPANY DERIVES ITS INCOME FROM SHORT TERM AND LONG TERM INVESTMENTS IN SHARES , MUTUAL FUND, EQUITIES AND INVESTMENT IN REAL ESTATE. THE ASSESS EE COMPANY IS A 100% SUBSIDIARY OF THE TATA POWER COMPANY LTD. THE ASSESSEE COMPANY INVESTED IN THE SUBSIDIARY COMPANY AND EARN ED EXEMPT INCOME BUT THE CONTENTION OF THE ASSESSEE IS THAT T HE EXPENDITURE INCURRED UPON THE STRATEGIC INVESTMENT IS NOT LIABL E TO BE ADDED IN THE INCOME OF THE ASSESSEE. BUT THE ASSESSING OFFICER ASSESSED THE SAME AS INCOME OF ASSESSEE AND THE LEARNED CIT(A) CONFIR MED THE ORDER OF ASSESSING OFFICER THEREFORE THE ASSESSEE FILED AN A PPEAL FOR THE ABOVE MENTIONED ASSESSMENT YEAR BEFORE US. 3. HOWEVER, THE ASSESSEE HAS RAISED NUMBER OF ISSUE S BUT THE LEARNED REPRESENTATIVE OF THE ASSESSEE ONLY RAISED THE ISSUE U/S.14A OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT) WHERE IN THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE THE INTEREST EXPE NDITURE TO THE TUNE OF RS.8,42,08,035/- FOR A.Y.2004-05 AND RS.9,7 0,012/- FOR A.Y.2005-06. THE LEARNED REPRESENTATIVE OF THE ASS ESSEE HAS ARGUED THAT THE ASSESSEE EXPENDED THE MONEY FOR STRATEGIC INVESTMENT WITH THE OBJECT TO CONTROL THE STAKE IN GROUP CONCERN AND NO T TO EARN THE INCOME, THEREFORE, IN THE SAID CIRCUMSTANCES NO DIS ALLOWANCE OF ANY ITA NO.3684/MUM/12 & ITA NO.8981/M/10 A.Y.2004-05 & 2005-06 3 KIND IS REQUIRED IN CONNECTION WITH THE EXPENDITURE INCURRED IF ANY FOR THE SAID INVESTMENT IN VIEW OF THE LAW SETTLED IN [ 2014] 46 TAXMANN.COM 18, INCOME TAX APPELLATE TRIBUNAL, MUMB AI BENCH IN CASE OF GARWARE WALL ROPES LTD. VS. ADDITIONAL COMM ISSIONER OF INCOME TAX RANGE 5(1), [2009] 183 TAXMAN 159 (BOM) IN CASE OF COMMISSIONER OF INCOME TAX 8 VS. SRISHTI SECURITI ES PVT. LTD. AND [2013] 35 TAXMANN.COM 210 (DELHI) HIGH COURT OF BOM BAY IN CASE COMMISSIONER OF INCOME TAX VS. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD.. HOWEVER, ON THE OTHER HAND LEARNED DEPARTMEN TAL REPRESENTATIVE HAS REFUTED THE SAID CONTENTION. IN THE INSTANT CA SE INVESTMENT MADE IN SUBSIDIARY COMPANY FOR STRATEGIC INVESTMENT I.E. FO R COMMERCIAL EXPEDIENCY OR INVESTMENT OR STOCK IN TRADE IS IN QU ESTION. ASSESSING OFFICER DISALLOWED THE INTEREST EXPENDITURE TO THE TUNE OF RS.84,20,803/- FOR A.Y. OF 2004-05 AND AN AMOUNT OF RS.7,70,012/- FOR THE A.Y.2005-06. BUT IN CONNECTION WITH THE ST RATEGIC INVESTMENT IN THE SUBSIDIARY COMPANY THE LAW IS NOT QUITE CLEA R THAT IF ANY COMPANY MADE AN INVESTMENT IN SUBSIDIARY COMPANY FO R COMMERCIAL EXPEDIENCY OR INVESTMENT OR STOCK IN TRADE FOR ANY PURPOSE OF CONTROLLING INTEREST IN OTHER COMPANIES THEN INTERE ST PAID TO SUCH PARTIES WOULD NOT BE TAXABLE U/S.36(1)(III) OF THE ACT. IN VIEW OF THE ABOVE MENTIONED LAW APPEAL OF THE APPELLANT ARE HER EBY ALLOWED AND ASSESSING OFFICER IS HEREBY DIRECTED TO RE-CALCULAT E THE EXPENDITURE INCURRED TOWARDS THE DIVIDEND INCOME BY EXCLUDING T HE INVESTMENT MADE FOR CONTROLLING INTEREST IN THE OTHER COMPANIE S WHILE COMPUTING ITA NO.3684/MUM/12 & ITA NO.8981/M/10 A.Y.2004-05 & 2005-06 4 AVERAGE VALUE OF INVESTMENT. THE LAW SETTLED IN [20 14] 46 TAXMANN.COM 18, INCOME TAX APPELLATE TRIBUNAL, MUMB AI BENCH IN CASE OF GARWARE WALL ROPES LTD. VS. ADDITIONAL COMM ISSIONER OF INCOME TAX RANGE 5(1), [2009] 183 TAXMAN 159 (BOM) IN CASE OF COMMISSIONER OF INCOME TAX 8 VS. SRISHTI SECURITI ES PVT. LTD. AND [2013] 35 TAXMANN.COM 210 (DELHI) HIGH COURT OF BOM BAY IN CASE COMMISSIONER OF INCOME TAX VS. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. IN ACCORDANCE WITH LAW. 4. IN RESULT THE BOTH THE APPEAL OF THE ASSESSEE ARE HEREBY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY, 2016 SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 11 TH MAY, 2016 MP MP MP MP ) * +# !, -,( / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ) / BY ORDER, - & //TRUE COPY// ./' (DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI