NEPTUNE DEVELOPERS LTD ( PREVIOUSLY KNOWN AS NEPTUNE DEVELOPERS P.LTD), MUMBAI V. DCIT CEN CIR 37, MUMBAI

ITA 4234/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93237 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.6914/MUM/2011 ASSESSMENT YEAR:2008-09 M/S NEPTUNE DEVELOPERS LTD. 3 RD FLOOR, NEPTUNE HOUSE, KARMA STAMBH, L.B.S. MARG VIKHROKI (WEST), MUMBAI-400083 / VS. DCIT, CENTRAL CIRCLE-37, AAYAKAR BHAVAN, MUMBAI-400020 ( !' # /ASSESSEE) ( $ / REVENUE) P.A. NO. AACCN0023C ITA NO.4234/MUM/2012 ASSESSMENT YEAR:2009-10 M/S NEPTUNE DEVELOPERS LTD. 3 RD FLOOR, NEPTUNE HOUSE, KARMA STAMBH, L.B.S. MARG VIKHROKI (WEST), MUMBAI-400083 / VS. DCIT, CENTRAL CIRCLE-37, AAYAKAR BHAVAN, MUMBAI-400020 ( !' # /ASSESSEE) ( $ / REVENUE) P.A. NO.AACCN0023C !' # / ASSESSEE BY SHRI PARESH SHAPARIA C.A. $ / REVENUE BY SHRI VINOD KUMAR & SHRI CHANDIP SINGH- DR, % $& ' # ( / DATE OF HEARING 28/07/2015 ' # ( / DATE OF ORDER: 28/08/2015 ITA NO.6914/MUM/2011 & 4234/MUM/12 , M/S NEPUTUNE DEVELOPERS LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) BOTH THESE APPEALS ARE BY THE ASSESSEE AGAINST THE IMPUGNED ORDERS DATED 26/08/2011(A.Y. 2008-09) AND 18/04/2012 (2009-10) OF THE LD. FIRST APPELLATE AUT HORITY, MUMBAI. IN BOTH THE APPEALS IDENTICAL GROUND WITH R ESPECT TO DISALLOWANCE U/S 14A READ WITH RULE-8D OF THE RU LES HAS BEEN RAISED. 2. DURING HEARING OF THIS APPEAL, THE LD. COUNSEL FOR THE ASSESSEE, SHRI PARESH SHAPARIA, ADVANCED HIS ARGUMENTS, WHICH IS IDENTICAL TO THE GROUND RAISED BY CONTENDING THAT THE ASSESSEE CONTRIBUTED CAPITAL TO THE FIRM IN WHICH THE ASSESSEE IS A PARTNER AND RECEIVED INT EREST ON SUCH CAPITAL CONTRIBUTION TO THE FIRM. IT WAS ALSO CONTENDED THE INVESTMENT IN SHARES WAS OUT OF OWN FUNDS I.E. NOT FROM THE BORROWED FUNDS AND THE FUNDS WHICH WERE BORROWE D WERE UTILIZED FOR THE MAKING CONTRIBUTION IN THE PA RTNERSHIP FIRM IN DEBENTURES ETC. PLEA WAS ALSO RAISED THAT THE INTEREST EARNED ON CAPITAL IN DEBENTURES WAS REDUCE D FROM THE INTEREST EXPENDITURE, BEING DIRECT NEXUS, AND O NLY NET EXPENDITURE ATTRIBUTABLE TO THE BUSINESS OF THE ASS ESSEE WAS DEBITED TO THE PROFIT & LOSS ACCOUNT. A STRONG PLEA WAS RAISED THAT SINCE THE INTEREST DEBITED IN PROFIT & LOSS ACCOUNT IS ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE, IN VESTMENT SO MADE IN THE PARTNERSHIP FIRM IS NOT REQUIRED TO BE CONSIDERED IN AVERAGE INVESTMENT, WHILE APPLYING RU LE 8D OF ITA NO.6914/MUM/2011 & 4234/MUM/12 , M/S NEPUTUNE DEVELOPERS LTD. 3 THE RULES READ WITH SECTION 14A OF THE ACT. ON THE OTHER HAND, THE LD. DR, SHRI VINOD KUMAR ALONG WITH SHRI CHANDIP SINGH, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT A WELL REASONED O RDER HAS BEEN PASSED BY THE LD. FIRST APPELLATE AUTHORIT Y WHICH NEEDS AFFIRMATION. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE MADE INVESTMENT IN PURCHASE O F SHARE OF GROUP COMPANIES AND ALSO IN PARTNERSHIP FIRM. T HE ASSESSEE RECEIVED DIVIDEND INCOME FROM INVESTMENT I N SHARES, WHICH IS EXEMPT U/S 10(34). THE STAND OF T HE LD. DR, IS THAT THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE I.T. RULES WAS RIGHTLY MADE. THE STAND OF THE A SSESSEE IS THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOM E IN THE YEAR UNDER CONSIDERATION AND SHARES OF PROFIT FROM THE PARTNERSHIP FIRM WAS RECEIVED AT RS.4,27,84,336/- B Y FURTHER CONTENDING THAT 14A IS NOT APPLICABLE ON TH E SHARES OF PROFIT FROM THE PARTNERSHIP FIRM. HOWEVER, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.1,29,32,967/-. IT IS ALSO THE CLAIM OF THE ASSESSEE THAT THE SHARE PROFIT OF RS.4,27,84,336/-, RECEIVED FROM THE PARTNERSHIP FIR MS, SHOULD NOT BE INCLUDED IN THE VALUE OF THE CAPITAL INVESTMENT IN THE PARTNERSHIP FIRM. IT WAS EXPLAINED BY THE L D. COUNSEL FOR THE ASSESSEE THAT THERE WERE SUFFICIENT INTERES T FREE FUNDS IN COMPARISON TO THE TOTAL INVESTMENT AND THUS NO DISALLOWANCE WAS WARRANTED U/S 14A READ WITH RULE 8 D OF THE RULES. THE ASSESSEE HAS FURTHER FORTIFIED HIS STAND BY ITA NO.6914/MUM/2011 & 4234/MUM/12 , M/S NEPUTUNE DEVELOPERS LTD. 4 THE DECISIONS BY HONBLE JURISDICTIONAL HIGH COURT IN CIT VS HDFC BANK LTD. 366 ITR 505 (BOM.), CIT VS RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM.), CIT VS K. RAHEJA CORPORATION PVT. LTD. ORDER DATED 08/08/2011 (BOM.), CIT VS TORRENT POWER LTD. 44 TAXMAN.COM 44 1 (GUJ.), CIT VS U.T.I. BANK LTD. (2013) 215 TAXMAN 8 (GUJ.). THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F HDFC BANK LTD. (SUPRA) HELD THAT EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (DIVIDENDS ) SHALL NOT BE DISALLOWED WHERE OWN FUNDS AND OTHER NON-INTERES T BEARING FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE INVESTMENT IN TAX FREE SECURITIES. THE LD. COUNSEL ALSO EXPLAINED THAT THE INTEREST RECEIVED WAS @ 12% AND PAID @ 16% I.E. INTEREST WAS PAID MORE. 2.2. IN OUR VIEW, AS REGARDS THE INVESTMENT IN PARTNERSHIP FIRM/S IS CONCERNED, ON WHICH INTEREST (TAXABLE) HAS BEEN EARNED, THE INTEREST EXPENDITURE SHALL REQ UIRE BEING ALLOCATED IN VIEW OF THE INVESTMENT YIELDING BOTH TAX- FREE INCOME BY WAY OF SHARE PROFIT AS WELL AS TAXAB LE INCOME IN THE FORM OF INTEREST ON CAPITAL. THIS SHALL BE S O EVEN WHERE THE INTEREST PAID ON BORROWED CAPITAL INVESTE D IN PARTNERSHIP FIRMS IS LOWER THAN THAT EARNED ON THE SAID INVESTMENT, WHILE IN THE PRESENT CASE THE INTEREST PAID IS HIGHER, CLEARLY INDICATING TO THE INTEREST EXPENDIT URE BEING INCURRED TOWARD BOTH TAXABLE AND NON-TAXABLE INCOME S. WE MAY, IN THIS REGARD, ADVERT TO THE DECISION IN THE CASE OF VISHNU ANAND MAHAJAN VS CIT (2012) 137 ITD 189 (AHD.) (SB), NO INTEREST, WE FURTHER OBSERVE, HAS IN FACT BEEN EARNED ON ONE OF THE TWO PARTNERSHIP FIRM/S, I.E. N EPTUNE ITA NO.6914/MUM/2011 & 4234/MUM/12 , M/S NEPUTUNE DEVELOPERS LTD. 5 DEVELOPERS. AS REGARDS INVESTMENT IN SHARES & DEBE NTURES, WE OBSERVE THAT THE OPENING INVESTMENT PORTFOLIO, C ONSISTING OF INVESTMENT IN THE SHARES (RS.1.98 LACS), STANDS FUNDED BY OWN SHARE CAPITAL (RS.43.49 LACS). FURTHER, THE BOR ROWED CAPITAL RAISED DURING THE YEAR (AT A NET OF RS.137. 23 LACS), EVEN IF CONSIDERED AS WHOLLY FINANCING THE WORKING CAPITAL, WOULD CONSUME ONLY RS.61.51 LACS, SO THAT THE BALAN CE HAS NECESSARILY TO BE CONSIDERED AS TOWARD INVESTMENTS (REFER BALANCE SHEET AS ON 31.03.2007 & 31.03.2008 AND MOVEMENT OF FUNDS (PB. PG.-12). THESE FACTS, BORNE OUT BY THE ACCOUNTS, WERE MANDATORY FOR BEING EXAMINED IN VIEW OF SECTION 14A(2) OF THE ACT, BEFORE APPLYING RULE 8D, MANDATORY FOR THE CURRENT YEAR (REFER: GODREJ & BOYCE MFG. COMPANY LTD .: 328 ITR 81 (BOM). WE, ACCORDINGLY, REMAND BOTH THESE APPEALS TO THE FILE OF THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) TO EXAMINE THE CLAIM OF THE AS SESSEE AND DECIDE IN ACCORDANCE WITH LAW ISSUING DEFINITE FINDING OF FACTS. THE ASSESSEE BE GIVEN OPPORTUNITY OF BEING H EARD WITH FURTHER LIBERTY TO FURNISH EVIDENCE IN SUPPORT OF I TS CLAIM. THUS, THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR S TATISTICAL PURPOSES. 3. FINALLY, THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN TH E PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES, AT TH E CONCLUSION OF HEARING ON 28/07/2015 . SD/- SD/- ( SANJAY ARORA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER ITA NO.6914/MUM/2011 & 4234/MUM/12 , M/S NEPUTUNE DEVELOPERS LTD. 6 % & MUMBAI; ) DATED : 28/08/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1# ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1# / CIT(A)- , MUMBAI 5. 3$4 .# , 0 +( 5 , % & / DR, ITAT, MUMBAI 6. ! 7& / GUARD FILE. / BY ORDER, /3+# .# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI