INDIA INFOLINE FINANCE LTD, MUMBAI V. ACIT 12(2)(2), MUMBAI

ITA 3901/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9916 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 01-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN K SINGH
• Keywords: Earning of tax free income; Wholly owned subsidiary; Bad and doubtful debts; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM ITA NO. 3901 /MUM/201 8 ( ASSESSMENT YEAR: 2012 - 13) INDIA INFOLINE FINANCE LIMITED, IIFL TECH CENTER, 6 TH FLOOR, ACKRUTI CENTRE POINT, MIDC, ANDHERI MUMB AI - 400093. VS. A.C.I.T. 12(2)(2), MUMBAI AAYAKAR BHAWAN, CHURCHGATE , MUMBAI - 400020. PAN/GIR NO. AABCI 2915 C (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI PRITESH MEHTA (AR) REVENUE BY SHRI CHAUDHARY ARUN K. SINGH (DR) DATE OF HEARING 27 /08 / 20 19 DATE OF PRONOUNCEMENT 18 / 09 /2019 / O R D E R PER: R.C. SHARMA , A .M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 2 9 /03/2018 OF LD. CIT(A) - 20 , MUMBAI FOR THE A.Y. 2012 - 13 IN THE MATTER OF ORDER PASSED U/S 143(3) OF T HE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: 1. THE L D. CIT (A) FAILED TO APPRECIATE THAT THE ASSESSEE HAS MINIMAL ACTIVITIES RELATING TO EXEMPT INCOME. 2. THE L D. CIT(A) FAILED TO APPRECIATE THAT THE A SSESSEE HAS MADE INVESTMENTS IN THE SUBSIDIARY COMPANIES TO RETAIN MANAGEMENT CONTROL OF THE SAID SUBSIDIARIES AND NOT TO EARN INCOME. ITA NO. 3 901 /MUM / 20 1 8 INDIA INFOLINE FINANCE LTD. VS ACIT 2 3. THE L D. CIT (A) FAILED TO APPRECIATE THAT THE EXPENSES OF THE SUBSIDIARY COMPANIES ARE BEING BORNE BY THE SUBSIDIARY COMPANIES THEMSELVES AND NO SUBSTANTIAL EXPENDITURE IS REQUIRED TO BE INCURRED BY THE ASSESSEE FOR MAKING AND MAINTAINING THESE INVESTMENTS. 4. THE L D. CIT(A) FAILED TO APPRECIATE THAT THAT THE DISA LLOWANCE ON AD HOC BASIS OF 0.5 % OF AVERAGE INVESTMEN TS IS UNCALLED FOR AND UNREASONABLE. 5. THE L D. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAS SUO - MOTO DISALLOWED EXPE NSES AMOUNTING TO RS.15,00,000/ - CONSIDERING THE EXPENSES BEING ATTRIBUTABLE TOWARDS EARNING DIVIDEND INCOME. 6. FURTHER, L D CIT (A) FAILED TO APPRECIATE THAT HON'BLE ITAT IN THE CASE OF GARWARE ROPES, HAS HELD THAT IT WAS INCUMBENT ON THE AO TO FIND OUT THAT AS TO WHETHER THE A SSESSEE HAS INCURRED AN EXPENDIT URE FOR EARNING DIVIDEND INCOME . THE ONUS OF PROVING THAT NO EXPENSE HA S B EEN INCURRED IS NOT ON THE ASSESS E E. 7. THE L D CIT (A) FAILED TO APPRECIATE THAT THE ASSESSEE HAS INVESTED SHORT TERM SURPLUS FUNDS IN LIQUID SCHEMES OF MUTUAL FUNDS. SINCE THE INVESTMENTS IN MUTUAL FUNDS WERE MADE ON SHORT TERM BASIS IN LIQUID MUTUAL F UNDS, NO EXPENSE HAS BEEN INCURRED FOR MAKING SUCH INVESTMENTS. 8. THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, VARY OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LENDING AND INVESTMENT ACTIVITIES. DURING THE COURSE OF ASSESSMENT U/S 143(3), THE A.O MADE A DISALLOWANCE BY INVOKING THE PROVISIONS OF SEC. 14A OF THE ACT BY APPLYING RULE 8D OF THE RULES. IT WAS THE ALLEGATION OF THE A.O THAT THE ASSESSEE WAS IN RECEIPT OF DIVIDEND INCOME OF RS.29.79 CRORES, WHICH WAS CLAIMED AS EXEMPT. ACCORDINGLY, HE COMPUTED THE DISALLOWANCE OF RS.4.19 LACS. BY THE IMPUGNED ORDER, THE CIT(A) ITA NO. 3 901 /MUM / 20 1 8 INDIA INFOLINE FINANCE LTD. VS ACIT 3 AFFIRMED THE ACTION OF THE A.O, AGAINST WHICH ASSES SEE IS IN FURTHER APPEAL BEFORE US. AT THE OUTSET, THE LD. A.R PLACED ON RECORD THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS 2009 - 10, 2010 - 11 AND 2011 - 12, WHEREIN UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE MATTER WAS RESTORED BACK TO THE FILE OF THE A.O FOR DECIDING AFRESH IN TERMS OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE ORDER DATED 25.07.2014. 3. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL FOR A.Y 2009 - 10, WHEREIN UNDER SIMILAR FACTS AND CIRCUMSTANCES, FOR DECIDING THE QUANTU M OF DISALLOWANCE TO BE MADE U/S. 14A OF THE ACT, WHEN THE ASSESSEE WAS HAVING HIS OWN SUFFICIENT FUNDS, THE MATTER WAS RESTORED BACK TO THE FILE OF THE A.O. THE PRECISE OBSERVATION OF THE BENCH WAS AS UNDER : - 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION S AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF RS. 1,89,85,307/ - ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A BY APPLYING RULE 8D. THE ASSESSEE HAS BROUGHT OUT THE DETAILS BEFORE US SHOWING THE ASSES SEES OWN FUND IS RS. 1208 CRORE AGAINST THE INVESTMENT OF RS. 402 CRORES, THEREFORE, THE ASSESSEE CONTENDED THAT THE ASSESSEES OWN FUND IS MORE THAN SUFFICIENT FOR THE INVESTMENT DURING THE YEAR. PRIMA FACIE IT APPEARS THAT THE ASSESSEES OWN FUND IS MUC H MORE THAN THE INVESTMENT. FURTHER THE BORROWINGS OF THE ASSESSEE IS FOR A SHORT TERM RANGING FROM 30 DAYS TO 90 DAYS IN MOST OF THE CASES. THE ASSESSEE HAS FILED THE DETAILS UNDER WHICH THE ASSESSEE HAS RAISED THE FUNDS THROUGH NCD, UNSECURED DEBENTURES FOR 89 DAYS, 88 DAYS AND 30 DAYS RESPECTIVELY. IT IS CLEAR FROM THE SHORT TENURE OF THE BORROWINGS THAT THE SAME CANNOT BE USED FOR THE PURPOSE OF LONG TERM INVESTMENT WHICH IS IN THE 100% SUBSIDIARY OF THE ASSESSEE, THEREFORE, THE DISALLOWANCE MADE BY ASS ESSING OFFICER WITHOUT EXAMINING ALL THESE ASPECTS THAT THE ASSESSEES OWN FUND AND INTEREST PAID ON SHORT BORROWINGS CANNOT BE APPROVED. IT IS PERTINENT TO NOTE THAT WHEN MOST ITA NO. 3 901 /MUM / 20 1 8 INDIA INFOLINE FINANCE LTD. VS ACIT 4 OF THE INVESTMENT ARE IN THE SUBSIDIARIES OF THE ASSESSEE THEN THESE ASPECTS AR E CRUCIAL AND RELEVANT ASPECTS FOR MAKING DISALLOWANCE U/S 14A. SINCE THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE IN THE LIGHT OF THESE FACTS AS DISCUSSED ABOVE, THEREFORE, THE ISSUE OF DISALLOWANCE OF INTEREST AS WELL AS THE ADMINISTRATIVE EXPENSES R EQUIRES TO BE RECONSIDERED IN THE LIGHT OF FACT THAT THE MAJORITY OF THE INVESTMENT IS IN THE 100% SUBSIDIARY AND FURTHER THE DISALLOWANCE AS COMPUTED UNDER RULE 8D CANNOT EXCEED THE ACTUAL EXPENDITURE WHICH COULD BE ATTRIBUTABLE FOR EARNING THE DIVIDEND I NCOME FROM THE SUSIDIARY. WE NOTE THAT THE ADMINISTRATIVE AND OTHER EXPENSES INCLUDES ADVERTISEMENT, RENT, PROVISIONS FOR BAD AND DOUBTFUL DEBTS, LEGAL AND PROFESSIONAL FEE, CERTIFICATION EXPENSES WHICH COULD BE ATTRIBUTABLE FOR EARNING THE DIVIDEND INCOME FROM THE INVESTMENT MADE IN THE 100% SUBSIDIARIES. SINCE THE INVESTMENT IS A LONG TERM INVESTMENT AND WAS MADE IN THE EARLIER YEARS AND, THEREFORE, NO DECISION MAKING PROCESS IS SAID TO BE UNDERTAKEN DURING THE YEAR FOR MAKING THIS INVESTMENT. ACCORDINGL Y IN VIEW OF THE ABOVE DISCUSSION AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ISSUE OF DISALLOWANCE U/S 14A IS SET ASIDE TO THE RECORD OF ASSESSING OFFICER FOR RECONSIDERATION AFTER CONSIDERING ALL THE FACTS AND ASPECTS DISCUSSED ABOVE AND IN THE L IGHT OF DECISION OF THIS TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LTD. (SUPRA) 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4. DURING THE YEAR UNDER CONSIDERATION ALSO, WE FIND THAT DISALLOWANCE HAS BEEN MADE ON THE PLEA THAT INTEREST - BEARING FUNDS HAVE BEEN DIVERTED FOR EARNING EXEMPT INCOME, WHEREAS THE CLAIM OF THE ASSESSEE WAS THAT IT HAS ITS OWN FUNDS MUCH MORE THAN THE INVESTMENT SO MADE, THEREFORE, FOLLOWING THE PROPOSITION LAID DOWN BY OUR CO - ORDINATE BENCH IN ASS ESSEES OWN CASE, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O FOR DECIDING AFRESH IN TERMS OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 25.07.2014. ITA NO. 3 901 /MUM / 20 1 8 INDIA INFOLINE FINANCE LTD. VS ACIT 5 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN COURT ON 1 8 TH SEPTEMBER , 2019. SD/ - (PAWAN SINGH) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 18 / 09 /2019 *RANJAN COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. RE GISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//