DCIT CIR 6(3)(1), MUMBAI V. INDRAJIT POWER LTD, MUMBAI

ITA 389/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6760 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 17-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVARAM; RAHUL K HAKANI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , HONBLE JUDICIAL MEMBER & SHRI DR. A.L. SAINI , HONBLE ACCOUNTANT MEMBER ITA NO. 389 / MUM /201 7 (ASST. YEAR : 20 12 - 13 ) D CIT , CIRCLE - 6(3)(1), MUMBAI. V S . M/S. INDRAJIT POWER PVT. LTD. , UTTAM HOUSE, 69, P.D . MELLO ROAD, CARNAC BUNDER, MUMBAI PAN NO. AAACI 8656 B (APPELLANT) (RESPONDENT) C.O.NO. 168/MUM/2018 (ARISING OUT OF I TA NO. 389/MUM/2017 ) M/S. INDRAJIT POWER PVT. LTD., UTTAM HOUSE, 69, P.D. MELLO ROAD, CARNAC BUNDER, MUMBAI. VS. DCIT, CIRCLE - 6(3)(1), MUMBAI. PAN NO. AAACI 8656 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SHIVARAM , SR. ADV. & SHRI RAHUL K. HAKANI, ADV. DEPARTMENT BY : SHRI VIRENDRA SINGH DR DATE OF HEARING : 19 / 0 6 /201 8 . DATE OF PRONOUNCEMENT : 27 / 0 6 /201 8 . O R D E R PER DR. A.L. SAINI , ACCOUNTANT MEMBER THE CAPTIONED APPEAL FILED BY THE RE V E NUE AND THE CROSS OBJECTION S FILED BY THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 2 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) 2012 - 13 , ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 12, MUMBAI , IN APPEAL NO. CIT(A) - 12/DCIT - 6(3)(1)/134/15 - 16 , DATED 02/11/ 2016, WHICH IN TURN ARISES OUT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT, 'ACT') , DATED 25/03/2015. 2. THE GRIEVANCE S RAISED BY THE REVENUE ARE AS FOLLOWS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE UNDER SEC. 14A R.W. R ULE 8D OF RS. 1,85,38,029/ - IGNORING THE CBDT CIRCULAR NO. 05/2014 DATED 11/02/2014 THAT CLARIFIES THAT DISALLOWANCE UNDER SEC. 14A HAS TO BE MADE IRRESPECTIVE OF THE FACT WHETHER ANY EXEMPT INCOME HAS BEEN EARNED DURING THE YEAR BY THE ASSESSEE OR NOT? 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND CONFIRM THE ORDER OF THE A.O. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3 . THE GRIEVANCE S RAISED BY THE ASSESSEE IN CROSS OBJECTION ARE AS FOLLOWS : - 1. T HE LD. CIT(A) FAILED TO APPRECIATE THAT FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SEC. 14A R.W.R. 8D, AVERAGE INVESTMENT WAS RS. 1 CRORE AND NOT RS. 33,75,39,850/ - AS ADOPTED BY THE LD. ASSESSING OFFICER. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT DISALLOWANCE U/S 14A R.W.R. 8D(2) IS BAD IN LAW AS ASSESSEE HAD SUFFICIENT NON - INTEREST BEARING FUNDS AND INVESTMENT DURING THE YEAR WAS NOT OUT OF BORROWED FUNDS. 3. THE LD. CIT(A) FAILED TO APPRECIATED THAT LD. ASSESSING OFFICER ERRED IN APPLYING RULE 8D(2)(II I) TO THE FACTS OF THE PRESENT CASE. 4. THE RESPONDENT CRAVES LEAD TO ADD, AMEND, ALTER OR VARY THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE DATE OF HEARING. 3 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) 4 . SINCE THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION S FILED BY THE ASSESSEE RELATE TO THE SAME ASSESSMENT YEAR , SAME ASSESSEE AND IDENTICAL ISSUES ARE INVOLVED, THEREFORE THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENI E NCE AND BREVITY. 5. THE FACTS O F THE CASE IN BRIEF ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT WHICH FETCHES EXEMPT INCOME OR WHICH DOES NOT FETCH ANY INCOME. IN THIS REGARD, THE ASSESSEE WAS ASKED TO FURNISH A WORKING OF DISALLOWANCE U/S 14A R . W . R . 8D AND ALSO SHOW CAUSE WHY DISALLOWANCE U/S 14A R . W . R 8D SHOULD NOT BE MADE. IN RESPONSE , THE ASSESSEE HAS NOT SUBMITTED ANY EXPLANATION, DETAILS AND REPLY. THE ASSESSING OFFICER HAS CONSIDERED THAT FIRSTLY THE DISALLOWANCE U/S . 14A NOT ONLY INCLUDES DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES , BUT ALSO ON ACCOUNT OF ADMINISTRATIVE EXPENSES . SINCE THE ASSESSEE HAS COMPLETELY FAILED TO JUSTIFY THE RATIONALE OF NOT MAKING ANY DISALLOWANCE U/S . 14A, THE DISAL LOWANCE HAS TO BE MADE UNDER RULE 8D OF THE I.T. RULES, 1962 . THE ASSESSING OFFICER NOTED THAT T HE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD , REPORTED IN (2010) 3 28 ITR 81 (BORN) HAS CATEGORICALLY HELD 4 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) THAT RULE 8D READ WITH SECTION 14A IS NOT ARBITRARILY OR UNREASONABLE , BUT CAN BE APPLIED IF ASSESSEE'S METHOD IS NOT SATISFACTOR ILY. THE HONBLE COUR T ALSO HELD THAT FRO M ASSESSMENT YEAR 2008 - 09 PROVISION OF RULE 8D WILL APPLY. THE COURT FURTHER HELD THAT SECTION 14A IS FOUNDED ON THE VALID RATIONALE THAT THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME I.E. GROSS INCOME MINUS EXPENDITURE. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE AS PER RULE 8D AS UNDER: - SR.NO. PARTICULARS AMOUNT. 1 THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME RULE 8D(2)(I) NIL 2 EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WH I CH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AN AMOUNT COMP UTED IN ACCORDANCE WITH THE FOLLOWING FORMULA NAMELY: A X B/C RS. 31,60,31,155 X (RS. 33,75,39,850/RS.633,06,24,268) RS. 1,68,50,330 A = THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR B = THE AVERAGE OF VALUE OF INVESTMENT , INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR RULE 8D(2)(II) 3 I) AVERAGE VALUE OF INVESTMENTS OPENING BALANCE OF INVESTMENTS + C LOSING BALANCE OF INVESTMENTS/2 RS. 16,87,699 5 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) = (RS. 2,00,00,000 + RS.65,50,79,700 /2 = RS. 33,75,39,850/ - ) II) DISALLOWANCE AN AMOUNT EQUAL TO ONE HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT IN COME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR . III) 0.5% OF 4 TOTAL DISALLOWANCE RS. 1,85,38,029 A CCORDINGLY, THE ASSESSING OFFICER DISALLOWED RS.1,85,38,029/ - U/S . 14A R.W.R . 8D AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE . 6 . AGGRIEVED BY THE STAND , SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WITH SUCCESS. THE LD. CIT(A) NOTED THAT THERE IS NO RECEIPT OF EXEMPT INCOME DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THEREFORE SECTION 14A R.W.R 8 D DO NOT AP P LY TO THE ASSESSEE , HENCE, HE DELETED THE ADDITION MA D E BY THE ASSESSING OFFICER. 7 . AGGRIEVED BY THE ORDER OF THE LD. CIT(A) , THE REVENUE IS IN APPEAL AND THE ASSESSEE IS IN CROSS OBJECTION BEFORE US ON THE SAME ISSUE . LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND SO TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED 6 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) FOR THE SAKE OF CONVENIENCE A N D B R E V I T Y . ON THE OTHER HAND, LD. C OUNSEL FOR THE ASSESSEE HAS DEFENDED THE ORDER PASSED BY THE LD. CIT(A) . 8 . WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . WE NOTE THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION DOES NOT HAVE ANY EXEMPT INCOM E. IT IS A SETTLED POSITION OF LAW THAT UNLESS THERE IS AN EXEMPT INCOME IN A PARTICULAR YEAR, SECTION 14A IS NOT TRIGGERED FOR THAT YEAR. T HE CASE OF THE ASSESSEE IS THAT INVESTMENTS ARE MADE FROM INTEREST FREE FUNDS AVAILABLE AND SUCH INVESTMENT S MADE BY THE ASSESSEE FOR CONTROLLING INTEREST AND NOT FOR EARNING ANY TAX FREE INCOME. THE ASSESSEE MADE INVESTMENT S IN UNQUOTED EQUI T Y SHARE OF AURA MINERALS PVT. LTD. OF RS. 2 CRORES WHICH IS MUCH LESS THAN THE RESERVE & SURPLUS OF RS.42,95,91,531/ - . NOW , IT IS A SETTLED POSITION THAT IF THERE IS NO EXEMPT INCOME, THE DISALLOWANCE UNDER SEC. 14A SHOULD NOT BE MADE AND THE ASSESSING OFFICER HAS ADMITTED THE FACT THAT THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. T HEREFORE , WE ARE OF THE VIEW THAT THE ADDITION SHOULD NOT BE MADE UNLESS AND UNTIL THERE IS A RECEIPT OF EXEMPT INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION , AND FOR THAT , WE RELY ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT 7 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) IN THE CASE OF CHEMINV EST LTD. VS. CIT (2015) 378 ITR 33 (DELHI - HC) , WHEREIN IT WAS HELD THAT NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE IN A YEAR IN WH I CH NO EXEMPT INCOME HAD BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE EXPRESSION DOES NOT FROM PART OF TOTAL INCOME IN SECTION 14A ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH WAS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVA NT PREVIOUS YEAR FOR THE PURPOSE DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME , T HEREFORE , SECTION 14A WOULD NOT APPLY IF NO EXEMPT INCOME WAS RECEIVED DURING THE RELEVANT PREVIOUS YEAR. THAT BEING SO, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A) , HIS ORDER ON THIS ISSUE IS HEREBY UPHELD AND THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 9. THE ASSESSEE HAS RAISED THE CROSS OBJECTION VIDE CROSS OBJECTION NO.168/MUM/2018 . WE NOTE THAT TH E CROSS OBJECTION S ARE ONLY SUPPORTING TO THE ORDER OF THE LD. CIT(A). AS WE DISMISSED THE APPEAL OF THE REVENUE ON THE SAME ISSUE, THEREFORE, THE CROSS OBJECTION S FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND IS ACCORDINGLY DISMISSED IN LIMINI . 8 ITA NO. 389 / MUM/2017 & C.O.NO. 168/MUM/2018 ( M/S. INDRAJIT POWER PVT. LTD. ) 10 . IN THE RESULT, APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION S FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 2 7 T H DAY OF JUNE , 201 8 . S D / - S D / - ( SAKTIJIT DEY ) ( A.L. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 7 T H JUNE , 201 8 . VR/ - COPY TO: 1 . THE ASSESSEE M/S. INDRAJIT POWER PVT. LTD., UTTAM HOUSE, 69, P.D. ME LLO ROAD, CARNAC BUNDER, MUMBAI. 2 . THE REVENUE DCIT, CIRCLE - 6(3)(1), MUMBAI. 3 . THE PR. CIT - 6, MUMBAI. 4 . THE CIT(A) - 12, MUMBAI. 5 . THE D.R . , MUMBAI. 6 . GUARD FILE. BY ORDER DY./ASST. REGISTRAR, ITAT, MUMBAI.