DCIT (OSD) 2(3), MUMBAI V. NRC LTD, MUMBAI

ITA 4125/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8930 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROHAN DESH
• Keywords: Earning of tax free income; Proportionate interest; Question of law
• Section: 143(3); 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4125/MUM/2014 ASSESSMENT YEAR: 2010-11 DCIT(OSD)-2(3), R. NO.577, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. NRC LTD. STATE BANK OF INDIA, CENTRAL OFFICE, ACCOUNTS & COMPLIANCE DEPT. 14 TH FLOOR, MADAM CAMA ROAD, NARIMAN POINT, MUMBAI-400021 ( / REVENUE) ( ! ' /ASSESSEE) PAN. NO. AAACN1616J / REVENUE BY SHRI SUMAN KUMAR-DR ! ' / ASSESSEE BY SHRI ROHAN DESHPANDE # $ % ' & / DATE OF HEARING : 12/01/2017 % ' & / DATE OF ORDER: 12/01/2017 ITA NO.4125/MUM/2014 NRC LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 12/03/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED BY THE REVENUE PERTAINS TO D ELETING THE DISALLOWANCE BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL), MADE U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) READ WITH RULE-8D(2) OF THE I NCOME TAX RULES, 1962 (HEREINAFTER THE RULES), BASED UPON THE FACT THAT THE INVESTMENT, MADE BY THE ASSESSEE, WERE QUITE OL D, IGNORING THE DECISION FROM HON'BLE BOMBAY HIGH COUR T IN THE CASE OF M/S GODREJ AND BOYCE MFG. LTD. 328 ITR 81 (BOM.). 2. DURING HEARING, THE LD. DR, SHRI SUMAN, KUMAR, ADVANCED ARGUMENTS, WHICH IS IDENTICAL TO THE GROUN D RAISED. THE LD. DR RELIED UPON THE DECISION FROM HO N'BLE KARNATAKA HIGH COURT IN THE CASE OF M/S UNITED BREW EREIS LTD. VS DCIT (ITA NO.419/2009) ORDER DATED 31/05/20 16. ON THE OTHER HAND, SHRI ROHAN DESHPANDE, LD. COUNSE L FOR THE ASSESSEE, CONTENDED THAT NO EXEMPT INCOME WAS E ARNED BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR AND FURTHER NO NEW INVESTMENT WAS MADE BY THE ASSESSEE. RELIANCE WAS PLACED UPON THE DECISION OF THE TRIBUN AL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2009-10 (ITA NO.2508/MUM/2013) ORDER DATED 06/07/2015 AND GODREJ CONSUMER PRODUCTS LTD. VS ACIT (2016) 69 TAXMAN.COM 436 ITA NO.4125/MUM/2014 NRC LTD. 3 (MUM. TRIB.), ORDER DATED 20/04/2016. THIS FACTUAL ASSERTION OF THE ASSESSEE WAS NOT CONTROVERTED BY T HE REVENUE. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY, DURING THE RELEVANT PERIOD, WAS IN THE BUSINESS OF MANUFACTURING MANMADE FIBERS , VISCOSE FILAMENT YARN, NYLON TYRE CORD, CHEMICAL AN D GENERATION OF POWER, DECLARED LOSS OF RS.59,22,98,9 78/- IN ITS RETURN FILED ON 14/10/2010. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE DETAILS, INFORMATION, CLARIFICATION AND EXPLANATION ASKED BY THE LD. ASSESSING OFFICER. THE ASSESSEE COMPANY ONLY EARNED DIVIDEND INCOME OF RS.475 FROM COOPERATIVE CREDIT S OCIETY, WHICH WAS TAXABLE AND INCLUDED IN THE TOTAL INCOME. THE ASSESSEE WAS HAVING LONG TERM INVESTMENT, MADE IN E ARLIER YEARS, WAS FROM OWN SOURCES/FUNDS. THE LD. ASSESSI NG OFFICER WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT MADE ADDITION BY DISALLOWING THE SUM OF RS.38,69,12 9/- AS PROPORTIONATE INTEREST EXPENDITURE U/S 14A OF THE A CT R.W.R.8D OF THE RULES. THE ASSESSEE VIDE COMMUNICAT ION DATED 06/12/2012 ALSO EXPLAINED THAT ENTIRE NET WOR TH OF THE ASSESSEE COMPANY WIPED OUT/ERODED AND THE ASSES SEE COMPANY FILED REFERENCE BEFORE BIFR UNDER THE PROVI SIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISION) ACT 1 985. THE COMPANIES WAS DECLARED AS SICK INDUSTRIAL UNIT UNDE R SECTION 3(1)(O) OF THE SICA ON 16/07/2009. ITA NO.4125/MUM/2014 NRC LTD. 4 2.2. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEAL), THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER WAS DELETED. THE REVENUE IS AGGRIEVED AND IS IN APP EAL BEFORE THIS TRIBUNAL. IN THE LIGHT OF THE FOREGOIN G DISCUSSION, THE CONTENTION OF THE ASSESSEE, BEFORE US, IS THAT DURING THE RELEVANT ASSESSMENT YEAR, ASSESSEE DID NOT EARN ANY EXEMPT INCOME, THEREFORE, WE ARE OF THE VIEW, THAT NO DISA LLOWANCE U/S 14A OF THE ACT R.W.R. 8D CAN BE MADE. OUR VIEW FIND SUPPORT FROM THE DECISION FROM HON'BLE DELHI HIGH C OURT IN CHEM INVEST LTD. VS CIT (2015) 234 TAXMAN 761 (DEL. ) AND HON'BLE APEX COURT IN RAJENDRA PRASAD MOODY (1978) 115 ITR 519 (SC) AND ANOTHER DECISION IN MAXOPP INVESTM ENT LTD. VS CIT (2011) 203 TAXMAN 364 (DEL.). THE HON BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PR IVATE LIMITED REPORTED IN 372 ITR 694 (DEL.), HAS HELD TH AT SECTION 14 OF THE ACT OR RULE 8D CANNOT BE INTERPRETED SO A S TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME OF THE ASSESSEE I S TO BE DISALLOWED. THAT THE WINDOW FOR DISALLOWANCE IS IND ICATED IN SECTION 14A AND IS ONLY TO THE EXTENT OF DISALLOWIN G EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE TA X EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT OF T AX EXEMPT INCOME. SIMILAR VIEW HAS BEEN TAKEN BY THE H ONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PCIT VS . EMPIRE PACKAGE PVT. LTD. IN ITA NO.415 OF 2015 DT. 12/1/16 (P&H). ITA NO.4125/MUM/2014 NRC LTD. 5 2.3. THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S CHEMINVEST LTD. VS. CIT (2015) 61 TAXMAN.COM 118; 378 ITR 33 (DEL.), WHEREIN, THE ASSESSEE HAD MADE STRAT EGIC INVESTMENTS IN SUBSIDIARIES/GROUP COMPANIES FOR RET AINING CONTROL OVER THEM BUT HAS NOT RECEIVED ANY DIVIDEND INCOME FROM SUCH INVESTMENTS, HELD THAT SECTION 14A WILL N OT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURIN G THE RELEVANT PREVIOUS YEAR AND THAT THE EXPRESSION DOE S NOT FORM PART OF THE TOTAL INCOME, IN SECTION 14A OF T HE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDED IN THE TOTAL INCOME DURING TH E RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EX PENDITURE INCURRED IN RELATION TO THE SAID INCOME. ALMOST IDENTICAL ISSUE HAS BEEN TAKEN BY THE HONBL E ALLAHABAD HIGH COURT IN THE CASE OF CIT KANPUR VS. M/S. SHIVAM MOTORS PVT. LTD. IN ITA NO.88 OF 2014 VIDE ORDER DATED 05.05.2014; BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECTH ENERGY PVT. LTD. IN ITA NO.239 OF 2014 VIDE ORDER DATED 24.03.2014 AND BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELI TE ENTERPRISES IN ITA NO.110 OF 2009 VIDE ORDER DATED 26/02/2009. 2.4. SO FAR AS, THE RELIANCE PLACED UPON BY LD. DR ON THE DECISION FROM HON'BLE KARNATAKA HIGH COURT IN T HE CASE OF M/S UNITED BREWEREIS LTD. VS DCIT (ITA NO.419/20 09) ITA NO.4125/MUM/2014 NRC LTD. 6 ORDER DATED 31/05/2016, IS CONCERNED, FOLLOWING SUB STANTIAL QUESTION OF LAW AROSE FOR CONSIDERATION:- WHETHER IN LAW, THE PROVISION OF SECTION 14A OF TH E ACT ARE APPLICABLE TO THE EXPENSES INCURRED BY THE APPELLAN T TOWARDS INTEREST AND OTHERS ON THE LOAN BORROWED FO R ADVANCED MADE TO THE SUBSIDIARIES IN THE COURSE OF BUSINESS FOR ITS EXPANSION. VIDE PARA-8 ONWARDS OF THE ORDER FROM HON'BLE KARNATAKA HIGH COURT, IT WAS OBSERVED/HELD AS UNDER :- 8. SO FAR AS SECOND QUESTION OF APPLICABILITY OF SEC.14A OF THE ACT TO THE EXPENSES INCURRED BY THE APPELLANT TOWARDS INTEREST AND OTHERS ON THE LOAN BORROWED IS CONCERNED, THE FINDING OF THE TRIBUNAL IS AT PARAGRAPH 11 WHICH READS AS UNDER : 11. THE REVENUE IS IN APPEAL AND WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IN OUR VIEW, THE RECENT JUDGMENT OF THE SPECIAL BENCH IN BOMBAY IN ITO V. DAGA CAPITAL MANAGEMENT PVT. LTD.., ('2009) 312 ITR (AT) 1, IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THI S ORDER, IT HAS BEEN. HELD. THAT SECTION 14A IS APPLICABLE EVEN WHERE THE MOTIVE IN ACQUIRING THE SHARES WAS TO OBTAIN CONTROLLING INTEREST IN THE COMPANIES. THE FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) CANNOT, THEREF ORE, BE UPHELD AS IT IS CONTRARY TO THE DECISION OF THE SPECIAL BENCH. WE, ACCORDINGLY, UPHOLD IN PRINCIPLE THE APPLICABILITY OF SECTION 14A. HOWEVER, IT IS FOR TH E ASSESSING OFFICER TO ASCERTAIN FROM THE FACTS OF TH E CASE ITA NO.4125/MUM/2014 NRC LTD. 7 AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTIL IZED TO ACQUIRE SHARES IN THE COMPANIES. IT IS ALSO NECE SSARY TO SEE AS TO WHETHER ANY INTEREST BEARING BORROWED FUN DS WERE USED IN MAKING THE ADVANCES AND EXPENDITURE IN THE CASE OF CASTLE BREWERIES. THIS FACTUAL EXERCISE HAS TO BE CARRIED OUT BY THE ASSESSING OFFICER AFTER GIVING D UE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. THE ASSESSING OFFICER MAY MAKE THE DISALLOWANCE OF INTE REST U/ S.14A ONLY IF IT IS FOUND THAT INTEREST BEARING BORROWED FUNDS WERE USED TO ACQUIRE SHARES IN THE COMPANIES OR FUR MAKING ADVANCES TO CASTLE BREWERIES. WE, THEREF ORE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH THE ABOVE DIRECTIONS. THE GROUND IS TREATED AS PART LY ALLOWED. 9. THE AFORESAID SHOWS THAT THE TRIBUNAL AFTER HOLDING IN PRINCIPLE THE APPLICABILITY OF SEC. 14A, HAS FURTHER DIRECTED THE ASSESSING OFFICER TO ASCERTAIN FROM THE FACTS OF THE CASE AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTILIZED TO ACQUIRE SHARES I N THE COMPANIES AND THE MATTER IS RELEGATED TO THE ASSESSING OFFICER. AS PER THE LANGUAGE IN SEC. 14A, THE ENQUIRY HAS TO BE UNDERTAKEN BY THE ASSESSING OFFICER WHICH HAS BEEN SO ORDERED BY THE TRIBUNAL. HENCE, IT CAN BE SAID THAT THE TRIBUNAL HAS EXERCIS ED THE DISCRETION WHERE RIGHTS OF BOTH SIDES ARE KEPT OPEN FOR ADMISSIBLE DEDUCTION UNDER SEC.14A. WHEN SUCH A DISCRETION IS EXERCISED AND THE RIGHTS OF TH E APPELLANT -ASSESSEE IS ALSO KEPT OPEN TO SATISFY TH E ASSESSING OFFICER, IT CANNOT BE SAID THAT ANY SUBSTANTIAL QUESTIONS OF LAW WOULD ARISE FOR CONSIDERATION, AS SOUGHT TO BE CANVASSED. IN OUR ITA NO.4125/MUM/2014 NRC LTD. 8 VIEW, AT THE STAGE OF ENQUIRY UNDER SEC. 14A, IT IS OPEN TO THE ASSESSING OFFICER TO INDEPENDENTLY CONSIDER THE MATTER FOR ADMISSIBILITY OF THE INTERE ST ON BORROWINGS AND IF YES TO WHAT EXTENT. HENCE, WHEN THE QUESTION AT LARGE IS FURTHER TO BE CONSIDERED BY THE ASSESSING OFFICER, WE DO NOT FIND THAT ANY FURTHER OBSERVATIONS ARE REQUIRED TO BE MADE IN THIS REGARD. IN ANY CASE, THE QUESTION OF L AW AS SOUGHT TO BE CANVASSED WOULD NOT ARISE FOR CONSIDERATION AT THIS STAGE ON THE SAID ASPECTS AS SOUGHT TO BE CANVASSED. 10. THE LEARNED COUNSEL FOR THE APPELLANT RELIED UPON VARIOUS DECISIONS OF THE HIGH COURT AND OF THE APEX COURT, BUT IN NONE OF THE DECISIONS, THE QUESTION ARISEN BEFORE THE RESPECTIVE COURT AS TO WHETHER THE FINDING OF FACT RECORDED BY THE TRIBUNA L CAN BE DISTURBED OR UPSET AT THE STAGE OF APPEAL BEFORE THIS COURT, WHICH IS LIMITED TO THE QUESTION OF LAW. ALL DECISIONS PROCEED ON THE BASIS THAT THE NEXUS IS ESTABLISHED, WHICH AS PER THE FINDING OF F ACT RECORDED BY THE TRIBUNAL IS NOT ESTABLISHED IN THE PRESENT CASE. HENCE, THE SAID DECISIONS ARE OF NO HELP TO THE APPELLANT. 11. HENCE, SUBJECT TO THE AFORESAID OBSERVATIONS, T HE APPEAL IS DISMISSED. 2.5. IF THE AFORESAID OBSERVATION IS ANALYZED, WE FIND THAT IN PARA-9 OF THE ORDER OF THE HON'BLE KARNATAK A HIGH COURT, IT HAS BEEN CLARIFIED THAT IN ACCORDANCE WIT H SECTION 14A OF THE ACT, THE ENQUIRY HAS TO BE UNDERTAKEN BY THE ITA NO.4125/MUM/2014 NRC LTD. 9 ASSESSING OFFICER AND THE TRIBUNAL HAS EXERCISED TH E DISCRETION WHERE RIGHTS OF BOTH SIDES ARE KEPT OPEN FOR ADMISSIBLE DEDUCTION U/S 14A. WHEN SUCH A DISCRETIO N IS EXERCISED AND THE RIGHTS OF THE ASSESSEE IS ALSO KE PT UPON TO SATISFY THE ASSESSING OFFICER, IT CANNOT BE SAID TH AT ANY SUBSTANTIAL QUESTION OF LAW WOULD ARISE FOR CONSIDE RATION, AS SOUGHT TO BE CANVASSED. IT WAS FURTHER OBSERVED THA T, AT THE STAGE OF ENQUIRY U/S 14A, THE ASSESSING OFFICER IS FREE TO INDEPENDENTLY CONSIDER THE MATTER FOR ADMISSIBILITY OF INTEREST ON BORROWINGS AND ITS EXTENT. IN THE PRESE NT APPEAL, WE NOTE THAT NO EXEMPT INCOME WAS EARNED BY THE ASS ESSEE NOR ANY NEW INVESTMENT WAS MADE DURING THE RELEVANT PERIOD, THEREFORE, NO DISALLOWANCE WAS REQUIRED TO BE MADE U/S 14A OF THE ACT. THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ACT, ENVISA GE THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIV ABLE DURING THE RELEVANT PREVIOUS YEAR. SINCE, NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE AND SINCE THE GENUINENES S OF THE EXPENDITURE, INCURRED BY THE ASSESSEE, WAS NOT IN DOUBT, NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT. THE RATIO LAID DOWN IN CIT VS CORRTECH ENERGY P. LTD. ( 2015) 372 ITR 97 (GUJ.)(PARA-15), CIT VS HERO CYCLE LTD. 323 ITR 518 (P & H)(PARA-15), EICHER GOODEARTH LTD. VS CIT (201 5) 378 ITA NO.4125/MUM/2014 NRC LTD. 10 ITR 28 (DEL), PARA-14, AND CONSISTENT STAND TAKEN B Y THE TRIBUNAL, CONSIDERING THE DECISIONS FROM HON'BLE JURISDICTIONAL HIGH COURT, WE, THEREFORE, DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (APPEAL), CONSEQUENTLY, THE APPEAL OF THE REVENUE I S DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES OF BOTH SIDES AT TH E CONCLUSION OF THE HEARING ON 12/01/2017. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ' DATED :12/01/2017 F{X~{T? P.S/. . . !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. )*+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / # 0' ( )* ) / THE CIT, MUMBAI. 4. / / # 0' / CIT(A)- , MUMBAI 5. 23-' , / )*&) 4 , # / DR, ITAT, MUMBAI 6. 5 6 / GUARD FILE. ! / BY ORDER, .2*'-' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # / ITAT, MUMBAI