ACIT 3(1)(1), MUMBAI V. AVENUE SUPERMARTS P.LTD, MUMBAI

ITA 4145/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0051 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4145 /MUM/201 6 ASSESSMENT YEAR: 20 11 - 12 A CIT 3( 1 ) ( 1 ) R. NO. 607 , AAYAKAR BHAVAN, MUMBAI 400020 VS. AVENUE SUPERMARTS P. LTD. 903 DALMAL HOUSE, 206, J.B. MARG, NARIMAN POINT, MUMBAI 400021 PAN NO. AACCA8432H (APPELLANT) (RESPONDENT) APPELLANT BY: MR. B.S. BIST , D R RESPONDENT BY: MR. VI JAY BAHETI , A R DATE OF HEARING: 13 /0 4 /2017 DATE OF ORDER: 21 /06/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 20 1 1 - 1 2 . THE APPEAL IS DIRECTED AGAINST THE ORDER COMMISSIONER (APPEALS) 08 , MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER: 1 .1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 1,68,197/ - U/S. 36(1)(VA) R.W.S. 2(24)(X) BEING DELAYED PAYMENT OF PF/ESIC WITHOUT APPRECIATING THE FACT THAT SECTION 43B DOES NOT APPLY TO EMPLOYEES CONTRIBUTION, ONLY SECTION 2(24)(X)R.W.S. 36(1)(VA) IS APPLICABLE IN THE CASE OF THE ASSESSEE COMPANY . ITA NO 4145/MUM/2016 2 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 1,68,197/ - U/S. 36(1)(VA) R.W.S. 2(24)(X) BEING DELAYED PAYMENT OF PF/ESIC WITHOUT APPRECIATING THE DECISION IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION [2014(1) TMI 502 (GUJ HC) DATED DECEMBER 26, 2013, WHEREIN IT IS HELD THAT SECTION 43B DOES NOT APPLY TO EMPLOYEES CONTRIBUTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 28,83,482/ - U/S. 14A R.W.R. 8D(II) WITHOUT APPRECIATING THE FACT THAT THE ASSESSE COMPANY COULD NOT SUBSTANTIATE ITS CLAIM THAT INTEREST BEARING FUND WERE NOT UTILIZED FOR INVESTMENT YIELDING EX EMPT INCOME. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 3. BRIEFLY STATED , THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) OBSERVED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS THAT PAYMENTS TO THE TUNE OF RS. 1,68,197/ - HAD BEEN MADE TOWARDS E MPLOYEES CONTRIBUTION TO THE PF / ESIC AFTER THE DUE DATE . THE A.O. RELIED ON THE DECISION IN THE CASE OF DCIT V S. SUDHIR GENSET LTD . 45 SOT 63 (URO), CIT V S. M/S. SPECTRUM CONSULTANT INDIA PVT. LTD. (KAR), GUJARAT STATE ROAD TRANSPORT CORPORATION 41 TAXMANN.COM 100 (GUJ.) AND CONSIDERED THE BELATED PAYMENT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESIC AS INCOME OF THE ASSESSEE AS PER SECTION 43B R.W.S. 2(24) (X) R.W.S. 36(1) (VA) AND BROUGHT IT TO TAX. 3.1 THE A.O. OBSERVE D THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 5,15,543/ - BUT IN THE COMPUTATION OF INCOME IT HA D NOT SHOWN IT AS EXEMPT INCOME AND OFFERED THE SAME FOR TAXATION. IN RESPONSE TO A QUERY RAISED BY THE A.O., THE ASSESSEE SUBMITTED THAT AS IT HAD NOT CLAIMED DIVIDEND INCOME OF RS. 5,15,543/ - AS EXEMPT INCOME, THE DISALLOWANCE U/S. 14A WOULD NOT ARISE. FURTHER, THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT NO BORROWED FUNDS WERE USED FOR INVESTMENT MADE BY THE ASSESSEE. ITA NO 4145/MUM/2016 3 RELIANCE WAS PLACED BY HIM ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. RELIANCE UTILITIES AND POWER LTD. , (2009) 313 ITR 340 (BOM.). THE A.O. WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S. 14A R.W.R. 8 D AND MADE A DISALLOWANCE OF RS. 28,83,481/ - . 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A) . REGARDING THE DISALLOWANCE OF RS. 1,68,197/ - MADE BY THE A.O. U/S. 36 (1) (VA) R.W.S. 2 (24) (X), THE LD. CIT (A) FOLLOWED THE DECISION IN CIT V S. HINDUSTAN ORGANICS CHEMICALS LTD. ITA NO. 399/2012 (BOMBAY HIGH COURT), ALOM EXTRUSION LTD . 319 ITR 306 (SC) AND THE ORDER OF THE ITAT IN THE CASE OF PIK PEN LTD . AND DELETED THE ABOVE DISALLOWANCE. 4.1 REGARDING THE DISALLOWANCE OF RS. 28,83,482/ - MADE BY THE A.O. U/S. 14A R.W.R. 8D WE FIND THAT THE LD. CIT (A) HAS RELIED UPON THE DECISION I N THE CASE OF DELITE ENTERPRISES (ITA NO. 2983/M/2005) (BOM); CIT V S . WINSOME TEXTILE INDUSTRIES LTD . (2009) 319 ITR 204 (HC - P & H) ; WINCO SEEDLINGS LTD. V S . DCIT 107 ITD 267 (DELHI) (TM); UNION BANK OF INDIA V S . ACIT , ITA NO. 5347/MUM/2007; PUKHRAJ CHUNILAL BAFNA V S . DY. CIT (2014) 35 SOT 187/47 TAXMANN.COM 288 (MUM. TRIB.) AND DELETED THE ABOVE DISALLOWANCE. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE A.O. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. C IT (A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE BEGIN WITH THE 1 ST GROUND OF APPEAL REGARDING DISALLOWANCE OF RS. 1,68,197/ - MADE BY THE A.O. U/S. 36 (1) (VA) R.W.S. 2 (24) (X) OF THE ACT . WE FIND THAT T HE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. GHATGE PATIL TRANSPORTS LTD [2015] 53 TAXMANN.COM 141 (BOM). IN THAT ITA NO 4145/MUM/2016 4 CASE THE ADDITIONS WERE MADE ON ACCOUNT OF PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND, ESI AND PENSION FUND IN A SUM OF RS. 32,03,947/ - . WHILE DISALLOWING THE CLAIM FOR DEDUCTION, THE DEPARTMENT CONTENDED THAT PAYMENT OF EMPLOYEES' CONTRIBUTION HAD TO BE MADE WITHIN THE DUE DATE VIZ. ON OR BEFORE THE 15T H OF EVERY SUCCEEDING MONTH. ADMITTEDLY, THESE PAYMENTS WERE NOT SO MADE BUT WERE PAID AFTER THE DUE DATES. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE DEDUCTION MADE TO THE EXTENT OF RS. 32,03,547/ - . THE HON'BLE BOMBAY HIGH COURT HELD THAT (I) B OTH E MPLOYEES' AND EMPLOYER'S CONTRIBUTIONS ARE COVERED UNDER AMENDMENT TO SECTION 43B AND JUDGMENT OF SUPREME COURT IN CIT V S . ALOM EXTRUSIONS LTD. [2009] 319 ITR 306/185 TAXMAN 416 AND (II) TRIBU NAL WAS RIGHT IN HOLDING THAT PAYMENTS THEREOF ARE SUBJECT TO BENEFITS OF SECTION 43B AND HENCE, DEDUCTION WAS ALLOWABLE . AS THE ISSUE IS SAME , WE FOLLOW THE ABOVE DECISION AND UPHOLD THE ORDER OF THE LD. CIT (A) . THUS, THE 1 ST GROUND OF APPEAL IS DISM ISSED. 6.1 WE NOW COME TO THE 2 ND GROUND OF APPEAL. WE FIND THAT IN THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LD. CIT (A), IT IS STATED THAT THE INVESTMENT IN MUTUAL FUNDS AT RS. 95.38 LACS ARE MUCH LOWER THAN THE AGGREGATE OF CAPITAL AND RESERVE AND SURPLUS OF THE ASSESSEE AT RS. 58444.89 LACS AS ON 31.03.2011. IN HDFC BANK LTD. VS. DCIT [2016] 67 TAXMANN.COM 42 (BOM), THE HON'BLE BOMBAY HIGH COURT REFERRING TO THE DECISION IN CIT V S . HDFC BANK LTD. [2014] 366 ITR 505 (BOM) AND CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM) HELD AS UNDER : 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CASE OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES & POWER LTD . (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIES COMING OUT OF ASSESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF ITA NO 4145/MUM/2016 5 THE INVESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON I NTEREST) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) FOR THE FIRST TIME ON 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIANCE UTILITI ES AND POWER LTD . (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOULD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE ACT. THE AFORESAID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY T HE REVENUE IN AS MUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COURT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN VIZ. BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISSUE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES & POWER LTD . (SUPRA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE HOLD THAT THE LD. CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE OF RS. 23,64,637/ - UNDER RULE 8D (2) (II) . WE UPHOLD THE SAM E. 6.2 FINALLY WE DEAL WITH THE DISALLOWANCE OF RS. 5,18,845/ - MADE BY THE A.O. UNDER RULE 8D (2) (III) . IN GODREJ & BOYCE MFG. CO. LTD. V S . DY. CIT (2010) 194 TAXMAN 203 (BOM.) THE HON'BLE BOMBAY HIGH COURT HAS EXPLAINED RULE 8D AS UNDER : AS REGARD RULE 8D (2)(III), IT HAD BEEN SUBMITTED THAT SOME MECHANISM OR FORMULA HAD TO BE ADOPTED FOR ATTRIBUTING PA R T OF THE ADMINISTRATIVE / MANAGERIAL EXPENSES TO TAX - EXEMPT INVESTMENT INCOME. THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO TAX - FREE INVESTMENT INCOME HAVE A FIXED COMPONENT AND A VARIABLE COMPONENT. A VIEW WAS TAKEN THAT THE DISALLOWANCE SHOULD ALSO BE L INKED TO THE VALUE OF THE INVESTMENT RATHER THAN THE AMOUNT OF EXEMPT INCOME. UNDER PORTFOLIO MANAGEMENT SCHEMES (PMS), THE FEE CHARGED RANGES BETWEEN 2 AND 2.5 PER CENT OF THE PORTFOLIO VALUE WHICH WOULD BE INCLUSIVE OF A PROFIT ELEMENT FOR THE PORTFOLIO MANAGER. ITA NO 4145/MUM/2016 6 WHILE THE FIXED ADMINISTRATIVE EXPENSES WERE EXCLUDED ON THE GROUND THAT IN THE CASE OF A LARGE CORPORATE TAXPAYER THEY WOULD BE SPREAD OVER A LARGE NUMBER OF VOLUMINOUS ACTIVITIES, THE VARIABLE EXPENSES WERE COMPUTED AT ONE - HALF PER CENT OF T HE VALUE OF THE INVESTMENT. IN VIEW OF THE ABOVE DECISION, THE DISALLOWANCE OF RS. 5,18,845/ - MADE BY THE A.O. UNDER RULE 8D (III) IS SUSTAINED. THUS, 2 ND GROUND OF APPEAL IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 /06/2017 SD/ - (C.N. PRASAD) SD/ - (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 21 /06/2017 RAHUL DHOKE P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI