BIRLA TMT HOLDINGS P. LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 423/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6383 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 20-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S RAWAL
• Assessee Lawyers: RONAK G DOSHI
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 423/MUM/2009 (ASSESSMENT YEARS: 2004-05) BIRLA TMT HOLDINGS P LTD., 212, TV INDUSTRIAL ESTATE 2 ND FL. 52 S K AHIRE MARG, WORLI, MUMBAI-400030 PAN: AABCB5169K . APPELLANT VS DCIT CIR 3(1), MUMBAI.. RESPONDENT ASSESSEE BY : SHRI RONAK G DOSHI RESPONDENT BY : SHRI R S RAWAL O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18.08.2008 OF CIT(A)-XXVII, MUMBAI FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING THE INTEREST EXPENDITURE U/S 36(1)(III) RSW 14A OF THE ACT; 2. THE CIT(A) ERRED IN HOLDING THAT WHERE NO DIVIDEND INCOME (WHICH IS EXEMPT ) IS RECEIVED, THE ITA NO. 423/MUM/2009 (ASSESSMENT YEARS: 2004-05) 2 QUESTION OF DISALLOWANCE U/S 36(1)(III) RWS 14A OF THE ACT DOES NOT ARISE 3. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO TREAT THE INTEREST EXPENDITURE INCURRED FOR THE BUSINESS PURPOSE AND THEREFORE DELETE THE AFORESAID DISALLOWANCE 4. WITHOUT PREJUDICE TO THE ABOVE, IF THE AFORESAID DISALLOWANCE IS UPHELD THEN THE AO BE DIRECTED TO A DD THE SAME TO THE COT OF INVESTMENTS 3. AT THE TIME OF HEARING, THE LEARNED AR HAS STAT ED THAT THE ASSESSEE DOES NOT PRESS GROUNDS OF APPEAL NO. 4 AND THE SAME MAY BE DISMISSED AS NOT PRESSED. 4. THE LEARNED DR HAS NO OBJECTION IF THE GROUNDS OF APPEAL NO.4 IS DISMISSED AS NOT PRESSED. ACCORDING LY, WE DISMISS THE GROUNDS OF APPEAL NO.4 BEING NOT PRESSE D. 5. GROUNDS OF APPEAL NO.1 TO 3 ARE PERTAINING TO DISALLOWANCE OF INTEREST U/S 36(1)(III) RWS.14A OF THE ACT. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF MONEY LENDING AND MAKING INVESTMENTS. THE ASSESSEE IS REGISTERED AS A NBFC WITH THE RESERVE BANK OF INDIA. DURING THE ASSESSMENT PRO CEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS EARNED INTER EST ON CERTAIN ICDS AMOUNTING TO RS.1,70,33,312/-. AGAINS T THIS INCOME THE ASSESSEE HAS SHOWN TO HAVE PAID INTERES T AMOUNTING TO RS.22,50,90,698/-. THE AO ALSO OBSE RVED THAT ITA NO. 423/MUM/2009 (ASSESSMENT YEARS: 2004-05) 3 THE ASSESSEE HAD BORROWED FUNDS AND UTILIZED THEM FOR THE PURPOSE OF MAKING INVESTMENTS IN SHARES. MAJORITY OF THE FUNDS ON WHICH THE AFORESAID INTEREST WAS PAID HAD BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS IN T HE SHARES WHICH ARE HELD BY THE ASSESSEE AS ITS INVESTMENTS, AND NOT AS STOCK IN TRADE. THE ASSESSEE WAS THEREFORE ASKED TO SHOW CAUSE AS TO WHY THIS INTEREST ON THE FUNDS USED FOR MAKING INVESTMENTS SHOULD NOT BE DISALLOWED AS THESE FUND S HAVE NOT BEEN USED FOR THE PURPOSES OF EARNING THE SAID INTEREST ON THE ICD OR ANY OTHER BUSINESS OF THE COMPANY. 7. THE ASSESSEE CLAIMED THAT IT AS NBFC AND MAKING OF INVESTMENT SHOULD BE TREATED AS PART OF THE BUSINE SS OF THE ASSESSEE COMPANY. ACCORDINGLY, THE ASSESSEES CONT ENTION WAS THAT THE INTEREST PAID FOR MAKING INVESTMENT SH OULD ALSO BE TREATED AS THE EXPENSES FOR THE PURPOSES OF BUSI NESS. 8. THE AO WAS OF THE VIEW THAT THE ASSESSEE COMPANY CANNOT BE SAID TO HAVE INCURRED EXPENSE ON INTEREST FOR THE PURPOSES OF BUSINESS AND THE SAID EXPENSES ARE NOT ALLOWABLE U/S 36(1)(III) OF THE ACT. EVEN THE SAID EXPENSES ON INTEREST ARE NOT ALLOWABLE UNDER ANY OTHER PROVISIONS OF TH E ACT. THE ASSESSEE HAS ALSO NOT CLAIMED THAT THE AFORESAID EX PENSES ARE ALLOWABLE U/S 57(III) OF THE ACT AGAINST THE DIVID END INCOME, BECAUSE, IN THAT CASE THESE EXPENSE WOULD BE DISAL LOWABLE U/S 14A. ITA NO. 423/MUM/2009 (ASSESSMENT YEARS: 2004-05) 4 9. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEAR NED DR AND CONSIDERED THE RELEVANT RECORD. AT THE OUTSET, WE NOTICED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF CHEMINVEST LTD V/S ITO REPORTED IN 121 ITD318(DEL) IN WHICH VIDE PARAGRAPHS 21 AND 43, THE TRIBUNAL HELD AS UND ER : 21. THE ALLOWANCE OF EXPENDITURE IN RELATION TO DIVIDEND INCOME WOULD THUS BE NOT ADMISSIBLE IN COMPUTING THE INCOME OF AN ASSESSEE UNDER THIS ACT. IT WOULD AGAIN BE SO IN BOTH THE SITUATIONS I.E., WHETHER THE SHARES ARE HELD AS INVESTMENT AS HELD I N HARISH KRISHNAKANT BHATT (SUPRA) OF AHMEDABAD BENCH OF THE TRIBUNAL, AS ALSO NOT DISPUTED BY THE ASSESSEE; OR THEY ARE HELD ON TRADING ACCOUNT AS STOCK IN TRADE, AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT (SUPRA) WHEREIN THE ASSESSEE WAS AN INTERVENER. THEREFORE THE CONTENTION OF THE ASSESSEE THAT INTEREST IS ALLOWABLE AS BUSINESS DEDUCTION UNDER SECTION 36(1)(III)/37 OF THE ACT HAS ALREADY SETTLED BY THE SAID SPECIAL BENCH AGAINST IT. 43. WHAT ONE HAS TO SEE IS WHETHER ANY EXPENDITURE WERE INCURRED BY AN ASSESSEE IN RELATION TO AN INCOME THAT DOES NOT FORM PART OF TOTAL INCOME OF T HE ASSESSEE UNDER THIS ACT, AND IF THE ANSWER IS IN AFFIRMATIVE THEN THAT EXPENDITURE CANNOT BE ALLOWED IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDE R DIFFERENT PROVISIONS OF THE ACT WHERE A DIFFERENT PHRASEOLOGY IS USED IN ALLOWING THAT EXPENDITURE AS THE FOCUS HAS TO ON DISALLOWANCE WITHIN PARAMETERS OF SECTION 14A, AN OVERRIDING PROVISION OVER ALLOWANCE PROVISIONS. IT WOULD RESULT IN DISALLOWAN CE EVEN OF NO INCOME HAS RESULTED OR MADE OR EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. WE ALSO MAKE IT CLEAR THAT THE DISALLOWANCE HAS TO BE OF ITA NO. 423/MUM/2009 (ASSESSMENT YEARS: 2004-05) 5 THE ENTIRE AMOUNT OF THE EXPENDITURE SO RELATED AND , AS CLAIMED IN REVENUE'S APPEAL, CANNOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO RELATION TO SUCH EXPENDITURE. 10. THE LEARNED AR HAS FAIRLY CONCEDED THAT THE ISS UE IS COVERED AGAINST THE ASSESSEE BY THE ABOVE MENTIONED DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL. A CCORDINGLY, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND THE O RDERS OF THE LOWER AUTHORITIES ARE UPHELD. 11 IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 26.11.2010 SD SD (J.SUDHAKAR REDDY) (VI JAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMB ER MUMBAI, DATED 26 TH NOV 2010 SRL:241110 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI