PAN INDIA NETWORK INFRAVEST P.LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 4170/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3765 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 23-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NIRAJ SETHAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL C BENCH MUM BAI , , BEFORE S/SHJOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./I.T.A./3378/MUM/2013, /ASSESSMENT YEAR: 2009-10 DCIT, CIRCLE-7(1) ROOM NO.622, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE,MUMBAI-400 020. VS. M/S. PAN INDIA NETWORK INFRAVEST PVT. LTD. 135, CONTINENTAL BUILDING, DR. ANNIE BESANT RD.WORLI, MUMBAI-400 018. PAN:AACCP 2459 H ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./ 4170 /MUM/2013, /ASSESSMENT YEAR: 2009-10 M/S. PAN INDIA NETWORK INFRAVEST PVT. LTD.MUMBAI-400 018. VS. DCIT, CIRCLE-7(1) MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI LOVE KUMAR-DR ASSESSEE BY: SHRI NIRAJ SETH-AR / DATE OF HEARING: 11.05.2016 / DATE OF PRONOUNCEMENT: 11.05.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 12.02.2013 THE ASSESSIN G OFFICER (A.O.) AND THE ASSESSEE HAVE FILED CROSS APPEALS.ASSESSEE-COMPANY, ENGAGED IN TH E BUSINESS OF DEVELOPING AND BUILDING HOUSING PROJECTS,FILED ITS RETURN OF INCOME ON 26.0 9.2009,DECLARING TOTAL INCOME AT RS.5,67, 39,335/ - .THE ASSESSMENT ORDER WAS COMPLETED, U/S.143(3) OF THE ACT,ON 30.12.2011, DETERMIN -ING THE TOTAL INCOME OF THE ASSESSEE AT (-)RS.4,0 0,57,592/-. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANC E MADE U/S.14A R.W. RULE 8D OF THE INCOME TAX RULES,1962,(RULES).DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD MADE AN INVESTMENT OF RS.52 CRORES IN EQUITY SHARES OF WESTERN MP INFRASTRUCTURES, THAT IT HAD PAID INTEREST OF RS.2 .22CRORES, THAT IT HAD NOT MADE ANY DISALLOWANCE U/S.14A OF THE ACT.HE DIRECTED THE ASS ESSEE TO EXPLAIN AS TO WHY DISALLOWANCE SHOULD NOT BE MADE INVOKING THE PROVISIONS OF THE S AID SECTION.VIDE ITS LETTER,DT.4.11.2011, THE ASSESSEE STATED THAT IT HAD NOT EARNED ANY EXEM PT INCOME DURING THE YEAR UNDER APPEAL, THAT INVESTMENT WAS MADE OUT OF ITS OWN SURPLUS FUN DS, THAT NO DISALLOWANCE WAS CALLED FOR. HOWEVER,THE AO HELD THAT THERE WAS NO DIRECT NEXUS BETWEEN THE SURPLUS FUNDS AND THE INVESTMENT MADE BY THE ASSESSEE.THE AO RELIED UPON THE CASE OF CHEMINVEST LTD. (124 TTJ 577)AND MADE A DISALLOWANCE OF RS.1.66CRORE. 3378/13 & 4170/13-PAN INDIA 2 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS ARGUED THAT THE ASSESSEE HAD MADE STRATEGIC INVESTMENT IN UNQUOTED EQUITY SHARES OUT OF THE NON INTEREST BEARING FUNDS, THAT NEXUS WAS PROVED WITH BANK STATEMENT SUBMITTED DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THAT THE INCOME FROM SUCH INVESTMENT WAS TAXABLE UNDER THE H EAD CAPITAL GAINS,THAT IT HAD NOT EARNED/RECEIVED ANY EXEMPT INCOME DURING THE YEAR U NDER APPEAL, THAT IT HAD NOT INCURRED ANY EXPENSE TOWARDS MAINTAINING THE INVESTMENTS, THAT I T HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THERE WAS INCREASE INVESTMENT DUR ING THE YEAR OF RS.51.91CRORE, THAT IT WAS HAVING INVESTMENT IN SHARES, THAT THE INCOME ARISIN G FROM THE INVESTMENT WAS OR WOULD BE EXEMPT, THAT THE PROVISIONS OF SECTION 14A WERE APP LICABLE, THAT THE PROVISIONS WERE APPLICABLE IRRESPECTIVE OF THE FACT WHETHER OR NOT THE EXEMPT INCOME WAS RECEIVED, THAT THE INVESTMENT WAS MADE OUT OF ITS OWN FUNDS AND THE SA ME WERE NOT INTEREST BEARING FUNDS ,THAT THE POSSIBILITY OF UTILISATION OF BORROWED FUNDS FO R THE PURPOSE OF MAKING INVESTMENT COULD NOT BE RULED OUT.HE DIRECTED THE AO TO WORK OUT THE DISALLOWANCE AS PER THE FORMULA PROVIDED IN SUB CLAUSE(II) OF RULE 8D(2).FURTHER HE DIRECTED THE AO TO ADOPT THE AVERAGE VALUE OF ASSETS TO RS.153.54 CRORES.HE FURTHER DIRECTED THE AO TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III) TO RS.5.00 LAKHS ONLY. 4. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE (DR) STA TED THAT MATTER COULD BE DECIDED ON MERITS.AUTHORISED REPRESENTATIVE (AR)CONTENDED THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME AND HENCE, NO DISALLOWANCE CAN BE MADE FOR T HE YEAR UNDER APPEAL.HE REFERRED TO THE CASE OF GATEWAY DISTRIPARKS LTD.( ITA NO.5746/MUM/2 013-DT.07/04/2016). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.THERE IS NO DOUBT THAT THE ASSESSEE HAD NOT EARNED EXEMPT INCOME DURI NG THE YEAR UNDER CONSIDERATION,SO,IN OUR CONSIDERED OPINION, NO DISALLOWANCE CAN BE MADE U/S .14A OF THE ACT.WE FIND THAT IN THE CASE OF M/S GATEWAY DISTRIPARKS LTD.(SUPRA),IDENTICAL IS SUE WAS ADJUDICATED BY US,AS UNDER: 3.THE NEXT GROUND PERTAINS TO DELETING THE DISALLO WANCE MADE U/S 14A OF THE ACT IGNORING THE RATIO OF THE TRIBUNAL IN CHEMINVEST LTD. (121 I TD 318)(DEL.). THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT NO INCOME WAS EARNED BY THE ASSESSEE AND MERELY HYPOTHETICAL DISALLOWANCE HAS BEEN MADE. RELIANCE WAS PLACED 378 ITR 33 (DEL.) ORDER DATED 02/09/2015. CONSIDERING THE TOTALITY OF FACTS AND THE ARGUMENTS FROM BOTH SIDES, WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE AFORESAID ORDER DATED 02/09 /2015 HELD THAT WHERE NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSME NT YEARS AND SINCE THE GENUINENESS OF 3378/13 & 4170/13-PAN INDIA 3 EXPENDITURE IS NOT IN DOUBT, THERE IS NO QUESTION O F DISALLOWANCE U/S 14A OF THE ACT. WHILE COMING TO THIS CONCLUSION, THE HONBLE HIGH COURT R ELIED UPON FOLLOWING DECISIONS:- I. CHEMINVEST LTD. V. CIT [2009] 317 ITR (AT) 86 ( DELHI) [SB] (PARA 15) II. CIT V. CHUGANDAS AND CO. [1964] 55 ITR 17 (SC) (PARA 14) III. CIT V. COCANADA RADHASWAMI BANK LTD. [1965] 57 ITR 306 (SC) (PARA 14) IV. CIT V. CORRTECH ENERGY (P.) LTD. [2015] 372 IT R 97 (GUJ) (PARA 15) V. CIT V.HOLCIM INDIA (P.) LTD.(I.T.A.NO.486 OF 20 14 DECIDED ON 5- 9-2014) (PARA 15) VI. CIT V. HERO CYCLES LTD. [2010] 323 ITR 518 (P&H ) (PARA 15) VII. CIT V. LAKHANI MARKETING INCL. [2015] 4 ITR-O L 246 (P&H) (PARA 15) VIII. CIT V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC) (PARA 10) IX.CIT V.SHIVAM MOTORS (P.) LTD. (ITA NO. 88 OF 20 14 DECIDED ON 5-5-2014) (PARA 15) X. IT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (P&H) (PARA 15) , XI. EICHER GOODEARTH LTD. VS. CIT [2015] 378 ITR 28 (DELHI) (PARA 14) XII. HARISH KRISHNAKANT BHATT V. ITA [2005] 278 ITR (AT) 1 (AHD) (PARA 10) ' XIII. MAXOPP INVESTMENT LTD. V. CIT [2012] 347 ITR 272 (DELHI) (PARA 12) 3.1. IN VIEW OF THE FACTUAL MATRIX AND FOLLOWING TH E AFORESAID DECISION FROM HONBLE DELHI HIGH COURT AND IN THE ABSENCE OF ANY CONTRARY DECIS ION BROUGHT TO OUR NOTICE BY EITHER SIDE, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE COMMI SSIONER OF INCOME TAX (APPEAL) AND AFFIRMED THE SAME, THUS, THIS GROUND OF THE REVENUE IS ALSO HAVING NO MERIT, CONSEQUENTLY, DISMISSED. RESPECTFULLY,FOLLOWING THE SAME WE DECIDE THE EFFEC TIVE GROUND OF APPEAL AGAINST THE AO. I.T.A./3378/MUM/2013,AY. 2009-10 IN THE APPEAL,FILED BY THE ASSESSEE,THE ONLY EFFECT IVE GROUND OF APPEAL IS ABOUT 14A DISALLOWANCE. WHILE DECIDING THE APPEAL OF THE AO,W E HAVE HELD THAT IF THE ASSESSEE HAS NOT EARNED EXEMPT INCOME IN A PARTICULAR YEAR NO DISALL OWANCE U/S.14A OF THE ACT CAN BE MADE.THEREFORE,REVERSING THE ORDER OF THE FAA,WE DE CIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED AND THE APPEAL OF THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY,2016. ! 11 , 2016 SD/- SD/- /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11.05.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.