DCIT 3(1), MUMBAI V. BAJAJ CAPITAL VENTURES P.LTD, MUMBAI

ITA 4005/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70611 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 07-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S VENKATARAMAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL B BENC H, MUMBAI !' , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI KARUNAKARA RAO , AM ./I.T.A. NO.4005/M/2012 ( & ' (' / ASSESSMENT YEAR :2008-2009) DCIT - 3(1), R.NO.607, AAYAKAR BHAVAN, MUMBAI 400 020. & / VS. BAJAJ CAPITAL VENTURES P. LTD., 106/107, 10 TH FLOOR, BAJAJ BHAVAN, JAMANLAL BAJAJ MARG, NARIMAN POINT, MUMBAI-400021. ) $ ./PAN : AAACA 3565 F ( )* /APPELLANT) .. ( +,)* / RESPONDENT) )* - . / APPELLANT BY : SHRI PARESH JOHRI, DR +,)* - . / RESPONDENT BY : SHRI S. VENKATARAMAN & - /$ /DATE OF HEARING : 4.7.2013 01( - /$ /DATE OF PRONOUNCEMENT : 2.8.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 7.6.2012 IS AGA INST THE ORDER OF CIT (A)- 5, MUMBAI DATED 16.3.2012 FOR THE ASSESSMENT YEAR 2 008-2009. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN TREATING THE INTEREST OF RS. 1,25,22,877/- EARNED ON MONIES LEND BY THE ASSESSEE AS INCOME FROM PROFITS & GAINS OF BUSINES S OR PROFESSION AS AGAINST INCOME FROM OTHER SOURCES HELD BY THE AO, WITHOUT APPRECI ATING THE FACT THAT BUSINESS OF THE ASSESSEE WAS OF INVESTMENT & TRADING AND FURTHER THE ASSESSEE IS NOT AN NBFC AS SUCH GIVING OF LOANS AND ADVANCES TO OTHER PART IES CANNOT BE CONSIDERED AS BUSINESS ACTIVITY. 2. WHETHER THE CIT (A) WAS RIGHT IN CONSIDERING THE DISALLOWANCE U/S 14A WITHOUT EXCLUDING THOSE ASSETS FROM THE TOTAL ASSET S, IN RESPECT OF WHOM INTEREST DIRECTLY RELATABLE HAS ALREADY BEEN EXCLUDED . 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) WAS CORRECT IN HOLDING THAT DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES U/S 14A BE RESTRICTED TO RS. 4,04,568/- AS PER RULE-8D(2)(I II) AS AGAINST DISALLOWANCE OF RS. 26,21,175/- MADE BY THE AO WITHOUT APPRECIATING THE FACT THAT DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES WAS MADE BY THE AO BY APPLY ING THE PROVISIONS OF SECTION 2 36(1)(III) AS WELL AFTER CRITICAL ANALYSIS OF EXPEN SES CLAIMED IN RESPECT TO THE BUSINESS OPERATIONS OF THE ASSESSEE COMPANY, ON WHICH NO FIN DING IS GIVEN BY THE LD CIT (A). 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE NET LOSS OF RS. 98,36,081/-. AS A RESULT OF SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT, TOTAL INCOME OF ASSESSEE WAS DETERMINED AT (-) RS. 4,81,056/- AGAINST (-) RS. 98,36,081/- AS PER THE ASSESSEE. D URING ASSESSMENT PROCEEDINGS, AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AN D DISALLOWED RS. 67,33,850/- ON ACCOUNT OF INTEREST EXPENSES U/R 8D(2)(II) AND RS. 26,21,175/- ON ACC OUNT OF ADMINISTRATIVE EXPENSES U/R 8D(2)(III). TOTAL DISALLOWANCE WORKS OUT TO RS. 93,55,025/-. REGARDING INTEREST EXPENSES, AO OBSER VED THAT THE ASSESSEE HAS RECEIVED LOANS FROM THE SHAREHOLDERS AND IN TURN, E XTENDED SAID LOAN TO THREE OF THE COMPANIES, OF WHICH TWO OF THEM ARE GROUP CONCERNS. WHEN THE SAID INVESTMENTS YIELDS THE EXEMPT INCOME, THE INTEREST LIABILITY FA LLS WITH IN THE SCOPE OF THE SAID PROVISIONS OF RULE 8D R W SECTION 14A OF THE ACT. A O OBSERVED THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING. THEREFORE, THE AO TREATED THE INTEREST INCOME OF RS 1,25,22,877/- EARNED DURING THE YEAR AS INCOME FROM OTHER SOURCES. AGGRIEVED WITH THE ABOVE DISALLOWANCES MADE BY TH E AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORIT Y. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) PARTL Y ALLOWED THE APPEAL OF THE ASSESSEE. WE SHALL TAKE UP THE ISSUE RELATING TO TA XING THE INTEREST INCOME U/H INCOME FROM OTHER SOURCES. IN APPEAL BEFORE THE CIT (A), ASSESSEE DEMONSTRATE THE BOOK ENTRIES, OBJECT CLAUSE OF THE MOA AND RELIED O N VARIOUS BINDING JUDGMENTS. THEREFORE, CIT (A) ALLOWED THE CLAIM OF THE ASSESSE E BY HOLDING AS UNDER: I HAVE CONSIDERED THE ABOVE FACTS AND SUBMISSIONS A ND THE ARGUMENTS MADE BY THE LD AR OF THE APPELLANT. THE OBJECT CLAUSE PERMITTED BY THE COMPANY TO CARRY ON THE ACTIVITY OF MONEY LENDING. IT CAN BE SEEN FROM THE RESOLUTIONS PASSED AT THE MEETING HELD ON SEPTEMBER 3 RD , 2007 THAT CONSENT OF THE BOARD OF DIRECTORS WAS OBTAINED TO BORROW MONIES FROM TIME TO TIME UP TO A N AMOUNT NOT EXCEEDING RS. 200 CRS, FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY SUBJECT TO INTEREST RATE NOT EXCEEDING 12% PER ANNUM. A RESOLUTION WAS ALSO PAS SED BY THE BOARD OF DIRECTORS TO MAKE LOANS FROM TIME TO TIME PROVIDED THAT THE MAXI MUM AMOUNT OF LOAN FOR EACH INDIVIDUAL PURPOSE DID NOT EXCEED RS. 100 CRS. THE ANALYSIS OF THE BANK ACCOUNT FOR THE PERIOD OCTOBER, 2007 TO MARCH, 2008 ALSO INDICA TES THAT MONIES WERE BORROWED AND ADVANCED IN A SYSTEMATIC AND ORGANIZED MANNER. THE FREQUENCY OF 3 MONEY LENDING TRANSACTIONS UNDER TAKEN AND THE AMOU NTS BORROWED AND LENT DURING THE PREVIOUS YEAR ALSO INDICATE THAT THE ACTIVITY O F MONEY LENDING WAS A REAL AND SUBSTANTIVE ACTIVITY. THE RATES OF INTEREST AT WHI CH MONIES WERE BORROWED IN COMPARISON TO THE RATES OF INTEREST AT WHICH MONIES WERE LENT INDICATE THAT THE ACTIVITY WAS CARRIED ON WITH A MOTIVE OF MAKING PROFIT. IN THESE CIRCUMSTANCES, THE DECISIONS OF THE HONBL E SUPREME COURT IN NARAIN SWADESHI WEAVING MILLS VS. COMMISSIONER OF EXCESS PROFITS TAX (26 ITR 765 ) AND IN SOLE TRUSTEE LOKA SHIKSHANA TRUST VS. CIT (101 I TR 234) DEFINING THE TERM BUSINESS, ARE CLEARLY SATISFIED. CONSEQUENTLY, T HE INTEREST EARNED ON MONEY LENDING OPERATION OF RS. 1,25,22,877/- AROSE FROM A SYSTEMATIC AND ORGANIZED ACTIVITY CARRIED ON WITH A MOTIVE OF PROF IT AND HENCE OUGHT TO BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION. GROUND NO.3 IS, THEREFORE, ALLOWED. 4.1. AGGRIEVED WITH THE SAID DECISION OF CIT (A), R EVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE GROUND NO.1. 5. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED O N THE ORDER OF THE AO. 6. PER CONTRA , LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE U S ON THIS ISSUE. ON PERUSAL OF THE ORDER OF THE CIT (A) ORDER, WE ARE OF THE OPINION T HAT THE CIT (A)S DECISION, IN TREATING THE INTEREST INCOME OF RS. 1,25,22,877/- E ARNED ON MONEY LENDING OPERATION AS PROFITS & GAINS OF BUSINESS OR PROFESSION, IS R EASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. IN THIS REGARD, WE HAVE CONSIDERE D OBJECT CLAUSE AUTHORIZING THE ASSESSEE TO CONDUCT THE BUSINESS OF MONEY LENDING A ND THE ENTRIES IN THE BOOKS OF ACCOUNTS AND THE BANK ACCOUNTS. ACCORDINGLY, GROUN D NO.1 RAISED BY THE REVENUE IS DISMISSED . 8. GROUND NO.2 AND 3 RELATE TO THE DISALLOWANCES U/S 14A R.W. RULE-8D OF IT RULES, 1962. DURING THE ASSESSMENT PROCEEDINGS, ON FINDING THE CLAIM OF EXEMPT INCOME, AO MADE A DISALLOWANCE AMOUNTING TO RS. 67, 33,850/- IN RESPECT OF INTEREST EXPENDITURE AND RS. 26,21,175/- IN RESPECT OF ADMIN ISTRATIVE EXPENSES. AO HAS NOT STRICTLY FOLLOWED THE JURISDICTIONAL HIGH COURT JUD GMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT, 328 ITR 82 (BOM) AND COMPUTE D THE DISALLOWANCE IN ACCORDANCE WITH RULE-8D OF THE IT RULES. 4 9. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, ASSESSEE MADE VARIOUS SUBMISSIONS ABOUT THE NEED FOR COMPUTING TH E DISALLOWANCE FOR THE AY 2008- 2009 AND AS PER RULE-8D OF THE IT RULES READ WITH J UDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD. (SUPRA). ASSESSEE FURNISHED THE COMPUTATION AS PER RULE-8D FOR THE AY 2008-2009 AND SUBMITTED THAT BY APPLYING THE FORMULA AS PER RULE-8D(2)(III), THE DI SALLOWANCE WORKS OUT TO RS. 4,04,568/- ONLY. THUS, THE ASSESSEE COMPUTED THE DI SALLOWANCE ON ACCOUNTS OF CLAUSE (II) AND (III) OF RULE 8D TOGETHER SHOULD BE ONLY TO THE TUNE OF RS. 16,91,489/-. CIT (A) CONSIDERED THE ABOVE CALCULATIONS AND CONFI RMED THE DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS. 16,91,489/-. ASSESSEE GOT PART RELIEF IN THIS REGARD. AGGRIEVED, THE REVENUE FILED THE PRESENT APPEAL BEF ORE THE TRIBUNAL BY RAISING THE GROUND NO.2 MENTIONED ABOVE. 10. DURING THE PROCEEDINGS BEFORE US, LD DR SUBMITT ED THAT THE RELIEF GRANTED BY THE CIT (A) IS EXCESS. FURTHER, HE MENTIONED THAT CIT (A) ACCEPTED THE COMPUTATION WITHOUT DUE VERIFICATION OF THE FACTS, CORRECTNESS OF THE SAID COMPUTATION OF DISALLOWANCE AT RS. 16,91,489/- AND THE APPLICABILI TY OF THE EXISTING LAW IN FORCE. HOWEVER, HE RELIED ON THE PROVISIONS OF RULE 8D R W S 14A AND ASKED FOR STRICT COMPLIANCE BY THE AO. DR IS NOT HAPPY WITH THE CIT (A) FOR NOT REMANDING THE CALCULATION TO THE AO BEFORE ACCEPTING THE FIGURE O F RS 16,91,489/-. 11. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE SAID AMOUNT OF RS. 16,91,489/- WAS COMPUTED IN ACCORDANC E WITH RULE-8D AND THE SAID CALCULATIONS BEING VERY SIMPLE IN NATURE, THEY NEVE R REQUIRE ATTENTION OF THE AO BY WAY OF REMANDING THE MATTER TO THE FILES OF THE AO. 12. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AN D PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE LIMITED ISSUE RAISED BEFO RE US IS RESTRICTED TO THE CORRECTNESS OF THE CALCULATION OF DISALLOWANCE AS P ER RULE-8D OF THE ACT. AFTER DISCUSSION OF THE PARTIES IN THE OPEN COURT, WE ARE OF THE OPINION THAT THE DISALLOWANCE CONFIRMED BY THE CIT (A) IS PROPER BUT THE SAME IS SUBJECTED TO THE CORRECTNESS OF THE CALCULATIONS AS PER CLAUSE-(II) & (III) OF RULE-8D(2). AO MAY EXAMINE THE CORRECTNESS BEFORE RESTRICTING THE DISA LLOWANCE AS HELD BY THE CIT (A). 5 IN THIS REGARD, WE CONFIRM THE ORDER OF THE CIT (A) IN SUBSTANCE AND THEREFORE, IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, G ROUND NO.2 & 3 RAISED BY THE REVENUE ARE DISMISSED . 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 2.8.2013. SD/- SD/- ( I.P. BANSAL) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 2& 2.8.2013. . & . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. +,)* / THE RESPONDENT. 3. 3/ ( ) / THE CIT(A)- 4. 3/ / CIT 5. 4 56 +/& , , / DR, ITAT, MUMBAI 6. 6!' 7 / GUARD FILE. ,4/ +/ //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI