ARCHWAY INVESTMENT COMPANY LTD, MUMBAI V. ITO 2(1)(1), MUMBAI

ITA 3744/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1197 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 14-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Capital asset; Business expenditure; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.3744/MUM /2013 ASSESSMENT YEAR-2009-10 ARCHWAY INVESTMENT COMPANY LTD, NEVILLE HOUSE, J.N. HEREDIA MARG, BALLARD ESTATE, MUMBAI-400001 / VS. INCOME TAX OFFICER-(2)(1)(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 PAN NO. AAACA5507H ( / ASSESSEE) ( / REVENUE) / ASSESSEE BY SHRI YOGESH THAR / REVENUE BY SHRI RAJESH KUMAR YADAV- DR / DATE OF HEARING : 12/04/2017 / DATE OF ORDER: 12/04/2017 ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 12/02/2013 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE FIRST GROUND RAISED BY THE ASSESSEE PER TAINS TO DISALLOWING A SUM OF RS.1,16,76,976/- U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) READ WIT H RULE- 8D OF THE RULES. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSEE , SHRI YOGESH THAR, THE IMPUGNED ISSUE IS COVERED BY THE ORDER OF THE EARLIER YEARS VIDE ORDER DATED 10/02/2 017 (ITA NO.8461/MUM/2010 AND 5598/MUM/2011, ETC) FOR ASSESSMENT YEAR 2007-08 AND 2008-09. THIS FACTUAL ASSERTION OF THE ASSESSEE WAS NOT CONTROVERTED BY L D. DR, SHRI RAJESH KUMAR YADAV, EXCEPT SAYING THAT EACH YE AR IS INDEPENDENT. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT SO FAR AS, THE DISALLOWANCE OF RS.1,16,76,976/- BY TRE ATING THE SAME AS EXPENSES INCURS TOWARDS EARNING EXEMPT INCOME U/S 14A OF THE ACT READ WITH RULE-8D OF THE RULES IS CONCERNED, THE TRIBUNAL IN THE CASE OF ASSESSEE VIDE AFORESAID ORDER DATED 10/02/2017 HELD AS UNDER:- 18. THE ISSUES RAISED IN THE ABOVE STATED APPEALS ARE IDENTICAL AS RAISED IN APPEALS RELATING TO A.Y. 200 7-08. THE ASSESSEE HAS AGITATED THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A OF THE ACT WHEREAS THE REVENUE HA S COME ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 3 IN APPEAL AGITATING THE ACTION OF THE LD. CIT(A) IN ALLOWING THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON TH E INVESTMENTS MADE. 19. AS DISCUSSED ABOVE, THE ASSESSEE IS AN INVESTME NT AND FINANCE COMPANY. IT HAD MADE STRATEGIC INVESTMENTS. THE LD. A.R. HAS STATED THAT MORE THAN 90% OF THE INVESTMEN TS OF THE ASSESSEE WERE STRATEGIC INVESTMENTS MADE IN SUBSIDI ARIES AND ASSOCIATED COMPANIES. HE, IN THIS RESPECT, HAS INVI TED OUR ATTENTION TO PAGE 6 OF THE PAPER BOOK WHICH IS AN A UDIT REPORT OF THE CHARTERED ACCOUNTANT REGARDING THE INVESTMEN TS MADE AND IN PARA 5 OF THE SAID DOCUMENT IT HAS BEEN STAT ED THAT THE AGGREGATE COST OF INVESTMENTS MADE IN GROUP/HOLDING/SUBSIDIARY COMPANIES WAS NOT LESS THA N 90% OF THE COST OF THE TOTAL ASSETS OF THE COMPANY AT ANY POINT OF TIME THROUGHOUT THE RELEVANT ACCOUNTING PERIOD/YEAR. 20. AS DISCUSSED ABOVE IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT CIT VS. SRISHTI SECURITI ES (P.) LTD. (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS HEL D THAT IF THE CAPITAL HAS BEEN BORROWED FOR THE PURPOSE OF BU SINESS OR PROFESSION OF THE ASSESSEE COMPANY THEN THE INTERES T PAID ON THE BORROWED FUNDS IS AN ALLOWABLE EXPENDITURE. IT HAS BEEN FURTHER HELD THAT IN CASE OF AN INVESTMENT COMPANY THE AMOUNT BORROWED MAY BE UTILISED FOR THE PURPOSE OF ACQUISI TION OF STOCK IN TRADE OR FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS. THE RATIO OF THE ABOVE DECISION OF THE HON BLE BOMBAY HIGH COURT SQUARELY APPLIES IN THE CASE OF THE ASSE SSEE. 21. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE HAS B ROUGHT OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT, PANAJI, GOA VS. PHIL CORPN. LTD. (2011) 202 TAXMAN 368 WHEREIN THE HONBLE BOMBAY HIGH COURT HA S HELD THAT WHERE THE INVESTMENT IN SHARES OF SISTER/SUBSI DIARY COMPANY IS MADE TO HAVE CONTROL OVER THAT COMPANY A ND FURTHER THAT SUCH AN INVESTMENT WAS ACCORDINGLY PAR T OF THE BUSINESS OF THE ASSESSEE, IN THAT EVENT THE ASSESSE E IS ENTITLED TO DEDUCTION OF INTEREST PAID ON THE BORRO WED AMOUNT UNDER SECTION 36(1)(III) OF THE ACT. WE, FURTHER FI ND THAT RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE OF EICHER GOODEARTH LTD. VS. CIT (2015) 60 TAXMAN.COM 268 (DEL.) HAS H ELD THAT IF THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF PROM OTION OF BUSINESS-MORE SPECIFICALLY TO RETAIN CONTROL OR AS PART OF HIS ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 4 STRATEGIC INVESTMENT OF THE ASSESSEE COMPANY, SUCH EXPENSES BY WAY OF INTEREST OUT GO WOULD HAVE TO BE TREATED AS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. 22. IN VIEW OF THE VARIOUS CASE LAWS AS DISCUSSED A BOVE, THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE FOR T HE PURPOSE OF STRATEGIC INVESTMENT AS THE INVESTMENT BEING THE BUSINESS OF THE ASSESSEE IS AN ALLOWABLE EXPENDITURE UNDER S ECTION 36(1)(III) OF THE INCOME TAX ACT. SO FAR AS THE DISALLOWANCE UNDER SECTION 14A IS CON CERNED, NO DOUBT THE ASSESSMENT YEAR UNDER CONSIDERATION IS A. Y. 2008- 09 AND THE RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION. HOWEVER, IN THE LIGHT OF THE DECISIO NS REFERRED TO ABOVE, THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO STRATEGIC INVESTMENTS IS HELD TO BE AN ALLOWABLE BU SINESS EXPENDITURE. THE SAME THEREFORE CANNOT BE HELD TO B E FOR INVESTMENT PURPOSES OR WITH THE OBJECT OF EARNING O F DIVIDEND/TAX EXEMPT INCOME, BUT THE SAME, IN THE LI GHT OF ABOVE REFERRED TO JUDICIAL DECISIONS CAN SAFELY BE SAID TO BE RELATED TO THE BUSINESS ACTIVITY OF THE ASSESSEE AN D NO DISALLOWANCE, THEREFORE, IS ATTRACTED ON SUCH AN IN COME U/S 14A OF THE ACT. FURTHER, THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. I N ITA NO.1131 OF 2013 VIDE ORDER DATED 17.03.2015 HAS UPH ELD THE FINDING OF THE TRIBUNAL HOLDING THAT WHILE MAKING T HE DISALLOWANCE UNDER RULE 8D, THE SHARES HELD AS STOC K IN TRADE SHOULD NOT BE CONSIDERED, ONLY THE SHARES TAKEN AS INVESTMENT IN THE ACCOUNT BE CONSIDERED FOR COMPUTATION OF DIS ALLOWANCE OF EXPENDITURE UNDER RULE 8D. 23. SO THE PROPOSITION LAID DOWN BY THE HONBLE BOM BAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LT D. (SUPRA) IS THAT ANY EXPENDITURE WHICH IS HELD TO BE RELATIN G TO THE BUSINESS ACTIVITIES OF THE ASSESSEE AND NOT FOR THE PURPOSE OF EARNING OF EXEMPT INCOME AND THE EXEMPT DIVIDEND IN COME, IF ANY, IS INCIDENTAL TO SUCH BUSINESS ACTIVITY OF THE ASSESSEE, THEN NO DISALLOWANCE UNDER SECTION 14A IN RELATION TO SUCH INVESTMENT IS ATTRACTED. THEREFORE, IN THE LIGHT OF ABOVE CASE LAWS, IN OUR VIEW, NO INTEREST DISALLOWANCE EVEN UN DER SECTION 14A READ WITH RULE 8D2(II) IN RELATION TO THE INVES TMENTS MADE BY THE ASSESSEE BEING RELATING TO ITS BUSINESS ACTI VITY IS ATTRACTED. OUR ABOVE DECISION IS IN LINE WITH THE O RDER OF THE ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 5 CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF D CIT VS. M/S. JAYNEER CAPITAL PVT. LTD. ITA NO.7111/M/2014 VIDE ORDER DATED 13.07.2016 WHEREIN THE TRIBUNAL HAS FURTHER R ELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CAS E OF ORIENTAL STRUCTURAL ENGINEERS (P) LTD., 35 TAXMANN .COM 201; ORDER OF CHENNAI BENCH OF TRIBUNAL IN THE CASE OF E IH ASSOCIATED HOTELS LTD. (ITA NO.1503/MDS/2012 DATED 17.7.2013); ORDER OF MUMBAI BENCH OF TRIBUNAL IN TH E CASE OF M/S. JM FINANCIAL LTD. (ITA NO.4521/MUM/2012 DATE D 26.3.2014); AND, ORDER OF DELHI BENCH OF TRIBUNAL I N THE CASE OF INTERGLOBE ENTERPRISES LTD. (ITA NOS.1362 & 103 2/DEL/2013 DATED 4.4.2014). SIMILAR PROPOSITION CAN BE APPLIED IN CASE OF DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RU LE 8D2(III) ALSO. WE ACCORDINGLY DIRECT THE AO TO EXCLUDE THE S TRATEGIC INVESTMENTS MADE IN GROUP/ASSOCIATE COMPANIES FOR T HE PURPOSE OF COMPUTATION OF DISALLOWANCE UNDER SECTIO N 14A READ WITH RULE 8D. WE FIND THAT IN THE AFORESAID ORDER, THE TRIBUNAL HELD THAT THE INTEREST EXPENDITURE, INCURRED BY THE ASSESSEE, FOR THE PURPOSES OF STRATEGIC INVESTMENT, AS THE INVESTMENT BEING THE BUSINESS OF THE ASSESSEE IS AN ALLOWABLE EXPENDITURE U/S 36(1)(III) OF THE ACT. SO FAR AS, APPLICABILITY OF RULE-8D IS CONCERNED, THE EXPENDIT URE INCURRED IN RELATION TO STRATEGIC INVESTMENT WAS HE LD TO BE ALLOWABLE BUSINESS EXPENDITURE. THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS INDIA ADVANTAGE SECURITIES LTD. (ITA NO.1131 OF 2013) DAT ED 17/03/2015 ALONG WITH THE DECISION OF THE CO-ORDINA TE BENCH IN THE CASE OF DCIT VS M/S JAYNEER CAPITAL PV T. LTD. (ITA NO.7111/MUM/2014) DATED 13/07/2016, ETC. WERE CONSIDERED. THE LD. ASSESSING OFFICER WAS DIRE CTED TO EXCLUDE THE STRATEGIC INVESTMENT MADE IN THE GROUND/ASSOCIATE COMPANIES FOR THE PURPOSES OF ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 6 COMPUTATION OF DISALLOWANCE U/S 14A R.W.R.8D OF THE RULES. THE LD. ASSESSING OFFICER IS ACCORDINGLY DIR ECTED TO FOLLOW THE AFORESAID ORDER. 3. SO FAR AS, THE DISALLOWANCE OF INTEREST OF RS.87,35,150/- U/S 14A R.W.R 8D OF THE RULES IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE T RIBUNAL IN THE CASE OF DCIT VS M/S PNB INSURANCE BROKING PV T. LTD. (ITA NO.2517/MUM/2013) ORDER DATED 19/05/2015. THE LD. DR CONTENDED THAT THOUGH THIS ISSUE IS COVE RED BUT NOT IN THE CASE OF THE PRESENT ASSESSEE BUT IN A DIFFERENT CASE. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION OF THE AFORESAID ORDER DATED 19/05/2015 FOR READY REFERENCE AND ANALYSIS:- 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS. 1 3,79,844/- U/S. 14A OF THE I.T. ACT. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS IN THE BUSINESS OF INSURANCE BROKING. THE RETURN FOR THE Y EAR WAS ELECTRONICALLY FILED ON 29.9.2009 WHICH WAS TAKEN U P FOR SCRUTINY ASSESSMENT. WHILE GOING THROUGH THE RETURN OF INCOM E, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEC LARED DIVIDEND INCOME AT RS. NIL ON ITS INVESTMENT OF SHARES AND M UTUAL FUND. ON FURTHER PERUSAL OF THE BALANCE SHEET, THE AO FOUND THAT THE TOTAL INVESTMENT WAS AT RS. 13,90,15,862/-. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE DISALLOWANCE U/S. 14A WAS NOT MADE. ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 7 3.1. THE ASSESSEE FILED A DETAILED REPLY CLAIMING T HAT THERE IS NO DIVIDEND INCOME SINCE NONE OF THE INVESTMENTS ARE D IVIDEND GENERATING INVESTMENTS. THE AO DID NOT ACCEPT THIS SUBMISSION OF THE ASSESSEE CLAIMING THAT SINCE THERE WAS NO DIVID END INCOME THERE CANNOT BE A QUESTION OF DISALLOWANCE OF EXPEN SES U/S. 14A OF THE ACT. THE AO PROCEEDED BY COMPUTING THE DISALLOW ANCE IN THE LIGHT OF THE PROVISIONS OF SEC. 14A OF THE ACT R.W. RULE 8D. THE DISALLOWANCE WAS COMPUTED AT RS. 13,79,844/- 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THERE WAS NO EXEMPT INCOME EARNED NOR THERE WAS ANY INVESTMENT BEARING EXEMPT INCOME AND THEREFORE PROVISIONS OF SEC. 14A ARE NOT ATTRACTED. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) HELD AS UNDER: I HAVE GONE THROUGH THE ISSUE. IT IS SEEN THAT IN THIS YEAR, ALL THE MUTUAL FUNDS IN WHICH THE APPELLANT HAS INVESTED GR OWTH ORIENTED FUNDS AND IN THESE FUNDS NO DIVIDEND WILL BE DECLAR ED. HOWEVER, WHEN THE UNITS ARE MATURED/SURRENDERED THE APPELLAN T WILL GET A HIGHER FIGURE THAN THE AMOUNT OF INVESTMENT AND IT IS TAXABLE AS CAPITAL GAINS. IN VIEW OF THIS, IT CANNOT BE CONSID ERED THAT THESE INVESTMENTS ARE TAX EXEMPT INVESTMENTS. IN VIEW OF THIS POSITION, NO DISALLOWANCE NEEDS TO BE MADE U/S. 14A OF THE INCOM E-TAX ACT IN THIS A.YR 2009- 10. THE AO IS DIRECTED TO DELETE TH E ADDITION OF RS. 13,79,844/-. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ASSESSMENT ORDER. 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REL IED UPON THE ORDER OF THE FIRST APPELLATE AUTHORITY. THE LD. COU NSEL FURTHER BROUGHT TO OUR NOTICE DECISION OF THE TRIBUNAL MUMB AI BENCHES WHICH ARE PLACED ON RECORD IN THE FORM OF PAPER BOO K. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDICIA L DECISIONS BROUGHT TO OUR NOTICE. IN OUR CONSIDERED OPINION, T HE INVESTMENTS MADE BY THE ASSESSEE ARE IN GROWTH ORIENTED FUNDS W HERE NO DIVIDEND IS DECLARED. HOWEVER, WE FIND THAT WHENEVE R THERE IS MATURITY OF THESE FUNDS, THE AMOUNT IS SUBJECT TO T AX UNDER THE HEAD CAPITAL GAIN. CONSIDERING ALL THESE FACTS IN TOTA LITY AND DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL, MUMBAI B ENCH, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. C IT(A). ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 8 IN THE AFORESAID ORDER, THE BENCH HAS DIRECTED THAT WHENEVER, THERE IS MATURITY OF THESE GROWTH ORIENTE D FUND, THE AMOUNT WILL BE SUBJECT TO TAX UNDER THE H AND CAPITAL GAINS, THEREFORE, THE LD. ASSESSING OFFICER IS DIRECTED TO FOLLOW THE AFORESAID ORDER OF THE TRIBU NAL. 4. THE LAST GROUND RAISED BY THE ASSESSEE PERTAINS TO RS.1,16,76,976/- BEING THE DISALLOWANCE U/S 14A OF THE ACT R.W.R 8D OF THE RULES TO THE BOOK PR OFIT U/S 115JB OF THE ACT. THIS GROUND WAS ARGUED TO BE CONSEQUENTIAL IN NATURE. THE LD. DR, HAD NO OBJECTI ON TO THE SUBMISSION OF THE LD. AR. THUS, WE HELD SINCE, WE HAVE DELIBERATED THE IMPUGNED AMOUNT IN PRECEDING PARAS OF THIS ORDER, THEREFORE, IT IS CONSEQUENTIAL IN NATURE. FINALLY, THE APPEAL OF THE ASSESSEE IS DISPOSED OFF IN TERMS INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 12/04/2017. SD/- SD/ - (RAJENDRA) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; # DATED : 12/04/2017 F{X~{T? P.S/. . . ITA NO.3744/MUM/2013 ARCHWAY INVESTMENT CO. LTD. 9 %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. %& '( / THE APPELLANT (RESPECTIVE ASSESSEE) 2. )*'( / THE RESPONDENT. 3. + + , ( %& ) / THE CIT, MUMBAI. 4. + + , / CIT(A)- , MUMBAI, 5. /01 )2 , + %& %23 , / DR, ITAT, MUMBAI 6. 14 5 / GUARD FILE. / BY ORDER, */& ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI