BRICS GILT FINANCE P.LTD, MUMBAI V. ASST CIT 1(2), MUMBAI

ITA 4167/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9917 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: RONAK G DOSHILD
• Keywords: Earning of tax free income; Question of law
• Section: 143(3); 14A

Judgement Text

ITA NO.4167/MUM/2013 BRICS GILT FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 4167/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) BRICS GILT FINANCE PRIVATE LIMITED 1 ST FLOOR,SADHNA HOUSE P.B.MARG BEHIND MAHINDRA TOWER WORLI MUMBAI 400 0018 / VS. ASSISTANT COMMISSIONER OF INCOME TAX 1(2) ROOM NO.535 AAYKAR BHAVAN, M.K.ROAD NEW MARINE LINES MUMBAI -400 020 ! ./ ./PAN/GIR NO. AAACJ-8885-B ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : RONAK G.DOSHI,LD. AR REVENUE BY : SUMAN KUMAR , LD. DR / DATE OF HEARING : 29/06/2017 / DATE OF PRONOUNCEMENT : 14 /07/2017 ITA NO.4167/MUM/2013 BRICS GILT FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2009-10 ASSAILS THE ORDER OF LD. COMMISSIONER OF IN COME TAX (APPEALS)-2 [CIT(A)], MUMBAI DATED 01/03/2013. GROU ND NO. 2 HAS NOT BEEN PRESSED BEFORE US DURING PROCEEDINGS AND HENCE , THE SAME IS DISMISSED AS BEING NOT PRESSED. THE ONLY ISSUE INVOLVED IN THE APPEAL IS DISALLOWANCE U/S 14A READ WITH RULE 8D. 2. BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN GOVT. SECURITIES & PROVIDING LOAN AGAINST SHARES, WAS ASSESSED U/S 143(3) FOR IMPUGNED AY ON 24/11/2011 AT RS.8,06,00,240/- UNDER NORMAL PROVISI ONS AFTER SOLE ADDITION U/S 14A READ WITH RULE 8D FOR RS.1,23,84,108/-. 2.1 THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF R S.18,919/- ON INVESTMENT OF RS.32.99 CRORES WHICH LED THE LD. AO TO PROCEED WITH DISALLOWANCE U/S 14A. THE ASSESSEE HAD MADE SUO-MOTO DISALLOWANCE OF RS.28,000/- IN THE COMPUTATION OF INCOME AND CO NTENDED THAT NO BORROWED FUNDS WERE USED TO MAKE THE SAID INVESTMEN TS AND MAJORITY OF INVESTMENT WERE IN UNLISTED GROUP / SUBSIDIARY COMP ANIES AND THEREFORE, NO FURTHER DISALLOWANCE WAS REQUIRED AGAINST THE SA ME. HOWEVER, NOT CONVINCED, LD. AO NOTED THAT THE ASSESSEE CLAIMED I NTEREST EXPENDITURE OF RS.3.73 CRORES AND THEREFORE, APPLIED RULE 8D AN D WORKED OUT AGGREGATE DISALLOWANCE OF RS.1.23 CRORES WHICH CONS ISTED OF INTEREST ITA NO.4167/MUM/2013 BRICS GILT FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2009-10 3 DISALLOWANCE OF RS.1.09 CRORES U/R 8D(2)(II) AND BA LANCE RS.0.14 CRORES TOWARDS ADMINISTRATIVE EXPENDITURE U/R 8D(2)(III). 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 01/03/2 013 WHERE THE LD. AO WAS DIRECTED TO RE-COMPUTE THE SAID DISALLOWANCE AFTER EXAMINING THE ASSESSEES SUBMISSION / DETAILED WORKING TO SHO W THAT THE INVESTMENTS WERE MADE OUT OF NON-INTEREST BEARING F UNDS. 3.1 AFTER APPRECIATING THE SAME AS PER THE DIRECTIO NS OF LD. CIT(A), LD. AO VIDE ORDER DATED 19/11/2013 DELETED ADDITION U/R 8D(2)(II) BUT CONFIRMED THE SAME TO THE EXTENT OF RS.14.36 LACS U /R 8D2(III). STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR ASSESSEE, DREW OUR ATTENTION TO THE FACT THAT THE ASSESSEE MADE SUO-MOTO DISALLOWANCE OF RS.28,000/- AFTER DETAILED WORKING AND THE SAME WAS FAR IN EXCESS OF RS.18,919 /- EXEMPT INCOME RECEIVED BY THE ASSESSEE AND THEREFORE, NO FURTHER ADDITION IN RESPECT THEREOF WAS WARRANTED FOR IN TERMS OF JUDGMENT OF HONBLE DELHI HIGH COURT IN JOINT INVESTMENTS P. LTD. VS. CIT [2015 372 ITR 694 ]. 4.1 THE LD. AR FURTHER CONTENDED THAT THE MAJORITY OF INVESTMENTS MADE BY THE ASSESSEE WERE STRATEGIC INVESTMENT IN G ROUP CONCERNS AND HENCE, NOT INCLUDIBLE FOR THE PURPOSE OF COMPUTATIO N OF SAID DISALLOWANCE AS PER THE VARIOUS JUDICIAL PRONOUNCEMENTS. FURTHER , THE ASSESSEE AFTER DETAILED WORKING COMPUTED THE DISALLOWANCE OF RS.28 ,000/- TOWARDS ADMINISTRATIVE EXPENSES AND THE LD. AO, WITHOUT APP RECIATING / REJECTING THE SAME, STRAIGHTWAY COMPUTED DISALLOWANCE U/R 8D( 2)(III) WHICH WAS NOT JUSTIFIED AND CONTRARY TO SETTLED LEGAL POSITIO N. ITA NO.4167/MUM/2013 BRICS GILT FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2009-10 4 4.2 PER CONTRA, LD. DR CONTENDED THAT THE LD. AO AFTER APPRECIATING THE DETAILED WORKING OF ASSESSEE RE-COMPUTED THE SA ID DISALLOWANCE AS PER THE DIRECTIONS OF LD. CIT(A) AND AFTER DUE APPL ICATION OF MIND, APPLIED RULE 8D(2)(III) WHICH WAS MANDATORY IN NATU RE AND DO NOT PROVIDE ANY SCOPE OF COMPUTATION IN ANY OTHER MANNE R NOTWITHSTANDING AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. THE ONLY DISPUTE BEFORE US IS WITH REGAR D TO QUANTUM OF DISALLOWANCE U/R 8D(2)(III). WE FIND THAT THE ASSES SEE HAS MADE SUO- MOTO DISALLOWANCE OF RS.28,000/- U/S 14A IN COMPUTATION OF INCOME ON THE BASIS OF DETAILED WORKING PLACED BEFORE THE LOW ER AUTHORITY. THE LD. AO, UPON DIRECTION BY LD. CIT(A), APPRECIATED THE S AME AND DELETED INTEREST DISALLOWANCE U/R 8D(2)(II) BUT CONFIRMED T HE SAME U/R 8D(2)(III) TOWARDS EXPENSES @0.5% AS PER THE PRESCRIBED FORMUL AE. SO FAR AS THE ARGUMENT OF THE LD. AR IS CONCERNED THAT THE LD. AO WITHOUT NEGATING THE METHOD ADOPTED BY THE ASSESSEE, STRAIGHTWAY APP LIED RULE 8D, WE ARE NOT CONVINCED WITH THE SAME SINCE RULE 8D HAS T O BE APPLIED IN TOTO AND NOT IN PIECEMEAL MANNER. THE ASSESSEE HAS ALTHOUGH ACCEPTED THE WORKING OF LD. AO U/R 8D(2)(II) BUT HAS NOW CONTEST ED THE COMPUTATION U/R 8D(2)(III) ON THE PREMISES THAT THAT RULE 8D HA S WRONGLY BEEN INVOKED AND THEREFORE, WE FIND NO SUBSTANCE IN THE SAME. 6. AT THE SAME TIME, IT IS ALSO NOTED THAT THE ASSE SSEE HAS EARNED EXEMPT INCOME OF RS.18,919/- ONLY AND ALREADY MADE SUO-MOTO DISALLOWANCE OF RS.28,000/- I.E. MORE THAN THE EXEM PT INCOME CLAIMED BY HIM. THE ASSESSEE HAS ALSO CONTENDED THAT THE MA JORITY OF THE ITA NO.4167/MUM/2013 BRICS GILT FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2009-10 5 INVESTMENTS ARE STRATEGIC INVESTMENT IN THE GROUP C ONCERNS WHICH REVENUE HAS NOT CONTROVERTED. AT THIS JUNCTURE, WE ARE INCLINED TO NOTE THE FOLLOWING OBSERVATION OF HONBLE DELHI HIGH COU RT RENDERED IN JOINT INVESTMENTS P. LTD. VS. CIT [2015 372 ITR 694] :- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLO SED WHY THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS. 2,97 ,440 AS A DISALLOWANCE UNDER S. 14A HAD TO BE REJECTED. TAIKISHA ENGG. INDIA LTD. ( SUPRA) SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AF TER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEE'S CLAIM OR EXP LANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOU NTS BY THE AO-AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT(A) AND THE TRIBU NAL. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS. 48,90,000, THE DISA LLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110 PER CENT OF THAT SUM, I.E., RS. 52,56,197. BY NO STRETCH OF IMAGINATION CAN S. 14A OR R. 8D BE INTERPRETED SO A S TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR D ISALLOWANCE IS INDICATED IN S. 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPEN DITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME'. THIS PROPORT ION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS H AS HAPPENED IN THIS CASE. 10. FOR THE ABOVE REASONS, THE IMPUGNED ORDER OF THE T RIBUNAL IS SET ASIDE. THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESS EE. CONSEQUENTLY, ORDER OF THE AO IS SET ASIDE. THE INITIATION OF PENALTY PROCEEDI NGS ALSO IS SET ASIDE. THE MATTER IS REMITTED TO THE AO FOR FRESH CONSIDERATION IN ACCOR DANCE WITH THE ABOVE DIRECTIONS. THE APPEAL IS PARTLY ALLOWED. (EMPHASIS BEING SUPPLIED BY US) THIS TRIBUNAL IN NUMBER OF JUDGMENT HAS TAKEN THE S AME VIEW AND WE ALSO DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIE W AND THEREFORE, RESPECTFULLY FOLLOWING JUDICIAL PRECEDENCE, WE ARE INCLINED TO DELETE THE IMPUGNED DISALLOWANCE WHICH RESULTS INTO ASSESSEES APPEAL BEING PARTLY ALLOWED. ITA NO.4167/MUM/2013 BRICS GILT FINANCE PRIVATE LIMITED ASSESSMENT YEAR 2009-10 6 7. IN NUTSHELL, THE APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JULY, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14.07.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. $'. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI